Legendary investor, Warren Buffet, is famous for his two rules for investment:
Rule No.1: Never lose money.
Rule No.2: Never forget rule No.1
That's why getting the facts about every aspect of your investment property is vital if you want to be assured of its future success. Unfortunately, too many investors get caught up in the excitement of building a property portfolio and become swayed by the charms and persuasion of a good sales person.
Beware: if you don't ask the right questions at the right time - that is, before you sign anything - you can put your family's financial future at risk.
Having worked as a lawyer for many years, one of the biggest mistakes I saw was that people did not read the contract clearly. So, here are the top 3 questions I recommend you ask any builder, property developer or house and land provider BEFORE signing any contract:
(PS: If they can't answer 'yes' to them, then proceed with great caution. It could cost you dearly in the end.)
1. Is it a fixed price contract? If the wording and pricing structure is so complicated you can't identify the exact and full cost of the project before beginning, be worried. The price should be clear, upfront and fixed. If it's not, you open yourself up for some nasty shocks down the road.
2. Is there a set finished date? It's no secret that builders defer smaller jobs to finish the bigger, more lucrative jobs - but what if you're relying on your house being built by a certain date? Once the job has started, you have very little bargaining power. If your builder can't guarantee a finished date - irrespective of weather, union activity, scheduling - then think twice about proceeding.
3. How much will it cost you before it's built? Be cautious of paying out big bucks for construction whilst your investment property is being built - after all, that's dead money that you can't get a return on. Choose a builder who doesn't make you pay upfront for the construction costs, council rates, interest costs etc and you'll find the investment equation stacks up a whole lot better.
These are the just a few of the questions you need to ask any property investment company - including us - before signing any contracts. If you don't ask these questions before you begin, you could find yourself up for thousands, even tens of thousands of dollars in unforeseen and unbudgeted costs.
Your family's future is at stake and really, is there anything more important than that?
Kelvin Gough is founder and CEO of Legal & General Properties, a property company specialising in investment house and land packages in the south-east growth corridor of Melbourne, Australia. He is a Lawyer (non-practicing), an accredited mortgage broker, a member of the Tax Institute of Australia, has a Diploma in Financial Services and is a member of Self-Managed Superannuation Funds of Australia. If you have any questions you'd like answered, email him at Kelvin@legalandgeneral.com.au. Please visit the website: http://www.legalandgeneral.com.au.
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