- Blog
- Guides
- Real Estate Due Diligence: What You Should Check Before Buying Property Abroad
- Blog
- Guides
- Real Estate Due Diligence: What You Should Check Before Buying Property Abroad
Real Estate Due Diligence: What You Should Check Before Buying Property Abroad
Let’s talk about Due Diligence in real estate, what to verify, the key facts to know, and when you should reach out for professional guidance.
- Reading Time: 7 Min
What is Due Diligence in Real Estate Investment?
Due diligence in real estate refers to thoroughly inspecting a property before the purchase to ensure that it meets particular financial, legal and practical requirements. This includes looking into the property’s condition, ownership history, zoning laws, market value, and any potential legal issues. By doing this research and inspections, investors can spot hidden problems, like repairs, unpaid taxes, or property disputes, that could affect the investment.
Typically, the research is done before making the offer, while the primary Due Diligence is conducted after the offer is made and before finalising the deal. The buyer usually has 1—5 weeks to complete all necessary investigations based on the terms agreed upon with the seller.
What Should a Buyer Check During the Physical Inspection of a Property?
When physically inspecting a property, it’s essential to carefully assess the property’s condition and the surrounding environment. This allows the investor to be certain that his money is well invested and the living space will be comfortable for the buyer.
Start by inspecting the property’s overall condition. Look at the interior and exterior finishes, the structure, utilities, and any mechanical systems. The inspection should also cover external features like sidewalks, drains, and driveways, along with potential issues such as pests, unsafe materials, leaks, cracks, or mould. If major problems are discovered, the buyer can either request repairs or use repair estimates as leverage to negotiate a lower price.
Evaluate the area’s proximity to shops, schools, medical facilities and environmental factors such as floods or extreme weather, which may affect the cost of insurance or maintenance.
Additionally, buyers should be aware of any nearby vacant plots and ask about possible construction plans with the local department of the land. Talking to neighbours, reviewing the crime rate and visiting the area at different times of the week can provide valuable insight into the area’s security and quality of life.
What Financial Due Diligence Should a Buyer Consider in Real Estate Investment?
When an investor buys real estate for rental, understanding the potential profitability is crucial. It’s important to account for additional costs like maintenance and taxes before making a final decision.
A key component of financial due diligence is obtaining a real estate valuation from a certified appraiser. This valuation helps determine whether the property’s asking price is fair or overpriced. For investors purchasing property as part of a residency or citizenship-by-investment program, such as in Turkey, it’s particularly important that the appraised value matches the contract price, as this is a requirement for the investment to qualify under such programs.
Buyers should also calculate the associated fees and taxes, assess maintenance expenses such as electricity bills and internet, and consider repair and decoration costs.
Additionally, it’s important to request proof from the seller that there are no outstanding debts, including taxes, mortgages, or utility bills. Comparing the rental costs of similar properties within the area helps determine the profit. This information lets the buyer decide whether the costs and potential income align with expectations.
What Legal Due Diligence Should a Buyer Consider in Real Estate Investment?
When buying real estate, buyers must verify the legality of the transaction to avoid penalties, deal cancellations or any other complications.
The first step in due diligence is to review the title documents to confirm ownership and ensure all parties consent to the sale. It’s also important to check for any encumbrances, such as mortgages or inheritance claims, that could affect the ownership transfer.
If the property has been renovated, ensure changes, such as wall demolition or balcony glazing, have local authority approval. For properties under construction, verify that all necessary permits are in place.
Buyers who plan to rent the property should be familiar with local rental regulations, including restrictions, additional permits, and insurance obligations. Some countries limit foreigners’ opportunities to buy or rent real estate, leading to additional expenses and the requirement to choose property in specific areas. For instance, in Malta, non-EU nationals can rent out properties freely only in Special Designated Areas, while a special permit is required elsewhere.
If purchasing for residency or citizenship, the property must meet program requirements. Otherwise, the investment may not qualify. Conducting thorough due diligence helps prevent legal setbacks and ensures a successful transaction.
Get Expert Guidance
Steps to Take if You Find Issues: Your Legal Rights as a Property Buyer
If a buyer finds issues with a property, they have three options:
- Back out of the deal
- Fix the problems themselves, or
- Ask the seller to address them
If the seller agrees to fix the issues, an amendment outlining the agreement should be added to the contract.
However, some problems, like major construction defects or nearby noise (e.g., from a bar), may be impossible for the seller to resolve. In such cases, the buyer must decide whether to proceed with the purchase despite the flaws or look for a different property.
Properties Example in Residence & Citizenship by Investment Destinations
- Turkey, Izmir & Istanbul
Starting from: $1,000,000
- 1 - 3
- 1- 3
- Two-floor villa with a swimming pool near
- Apartments and commercial premises in a premium residential complex
- St. Kitts & Nevis, Basseterre or Frigate Bay
Starting from: $350,000+
- 1 - 4
- 1- 4
- Villa with pool in a landscaped park
- Share in a villa and apartments in a luxury hotel complex
- Dominica, Portsmouth or Roseau
Starting from: $220,000+
- 1 - 2
- 1- 2
- Share in a five-star hotel managed by Intercontinental or Autograph
- Share and villas in a six-star resort
- Cyprus, Limassol or Paphos
Starting from: €1,060,000+
- 1 - 3
- 1- 3
- Turnkey premium villa with smart home system
- Apartments in a unique closed residential
The Importance of Hiring an Agent When Buying Property Abroad?
Citizenship and residency by investment programs often permit real estate purchases for participation. Some programs mandate the obligatory assistance of an agent, and some don’t. However, buying property in a foreign country can be challenging without professional assistance.
Here is why consulting an experienced agent may be a good decision when purchasing real estate.
- Streamlined Process:Purchasing real estate in a foreign country independently requires investors to spend time and money on tasks such as finding the best property, contacting legal agents, obtaining due diligence, acquiring a tax number, and opening an account with a bank. A good agent takes care of all this for you, making the process smooth and stress-free.
- Faster Purchases: Agents simplify buying by reviewing properties and offering pre-checked options to meet your budget and goals. They verify properties before purchase so buyers do not have to wait for due diligence to complete the process and assist you in making better choices. This helps close deals more quickly.
- Expert Knowledge of Foreign Markets: Agents have local expertise, professional networks and a thorough understanding of market dynamics in various countries. They are familiar with the complexities of real estate transactions in countries where buyers seek citizenship or residency, ensuring smooth and profitable transactions.
- Program Compliance: In some countries, such as Antigua and Barbuda, St Lucia, St. Kitts and Nevis, Dominica, and Grenada, agents are required to ensure that the property meets government criteria for citizenship or residency programs. Even where agent assistance is not mandatory, agents can guide you through rules specific to each country, ensuring a smooth transaction.
- Informed Investment Decisions: Agents offer comprehensive property analysis, including location information, infrastructure, and profit estimates. This information helps investors make informed decisions. A knowledgeable agent will simplify the task of purchasing property abroad while ensuring compliance, efficiency and well-informed choices. Emirates Advisory’s experienced agents are here to help you navigate the complexities of purchasing property abroad.
Real Estate Due Diligence Checklist
- Real estate due diligence is a check to verify and assess a property before purchasing. It serves as a buyer’s research to ensure the investment is sound.
- A detailed inspection allows the buyer to confirm that the property is in good condition and that the deal is legally valid. Additionally, identifying flaws may provide an opportunity to negotiate a lower price.
- The investor must inspect the property’s physical state, ensuring it is free from significant construction defects, hazardous materials, or pest problems. The surrounding area should also be evaluated.
- Financial due diligence check of real estate includes appraising the property, accounting for additional costs such as taxes, fees, and maintenance, and calculating the potential profitability. It’s also important to verify that there are no outstanding debts from the previous owner, such as unpaid taxes or utility bills.
- When conducting Legal Due Diligence on real estate, check title documents, encumbrances, renovations, permissions and local legislation concerning property purchases and rentals.
- A buyer can request the seller to address any flaws. If the seller agrees, they will add an amendment to the sale and purchase contract.
- Evaluate the current economic climate and real estate market trends in the area. Understand factors like demand, property value fluctuations, and future developments that could affect the property’s value.
- Check whether any planned or ongoing infrastructure upgrades in the area (like roads or public transportation) may affect the property’s value or accessibility.
- Conduct an environmental review to check for any potential environmental concerns (contaminated land, toxic waste, etc.) that might impact property use.
- When buying property abroad, it’s often safer and more practical to work with an experienced agent who knows the local market. This assistance is even more crucial when seeking citizenship or residency by investment, as mistakes can affect an investor’s status.
About Emirates Advisory
Emirates Advisory is a boutique legal advisory firm that assists high-net-worth individuals with citizenship and residence-by-investment programs across the EU, Asia, the Caribbean, and the Middle East. We ensure a seamless and successful property investment experience abroad. With our in-depth market knowledge and expertise, we are here to support you every step of the way. Contact Emirates Advisory now and take the next step toward your international investment journey.