How do I carry out due diligence?

There have been thousands of words written about due diligence but it can be summed up in one sentence:

Get off your back-side and check that what your are being told is true – by someone who has no vested interest in the answer”.

For a PROPERTY INVESTOR the key parameters that need checking are:

  1. What is this place really worth?
  2. What rent can I expect to get?
  3. What are similar properties in the same road/area worth?

We all know that markets change but it is not acceptable, whether you are buying a completed property or buying off-plan, to accept the figures given to you by the sales guy in the wide-boy suit. Why would you?It is your job to check the figures and that can be done very easily by phoning a few estate agents and letting agents in the area and by spending a short period of time on the internet.

For investors in BUSINESS IDEAS OR FOREX TRADING you need to know:

  1. What is the name of the company your money is going into exactly?
  2. Who are the Directors of that company and where do they live? (Use Companies House or similar).
  3. How much money is the company currently worth?
  4. What experience and track record does the company have? Don’t just believe what they say – get proof.
  5. When was the company registered and when was the last return made to Companies House?
  6. Is your money going into the same company as the name on your contract (Illegal if it is not).
  7. Is the company carrying out proper money-laundering procedures or just accepting your money without question? (Again illegal in the UK if not carried out).

In addition to all of the above remember the over-riding rule with high-risk investments – how much of what you have been told have you actually checked with an independent third party who does not stand to benefit either way?

That’s the acid test. Never take the word of someone in the company or who looks to be working on behalf of the company (salesman, introducer or agent).

Never give your money to poor people in the hope they will make you rich. It doesn’t work that way.

The reason foolish investors believe the very first answer they are given by the sales guy is that it fits with what they WANT to hear.

When it comes to opportunities like Forex, remember, all scams are very carefully set up to get you to hand over your money. If someone is offering something that sounds too good to be true the chances are it is. Don’t be a mug. Ask the important questions and do not get taken in by fancy offices (rentable by the hour) or flash suits. Do not be embarrassed to ask awkward questions or ask for proof of the answers. If you cannot find proof of any of the stuff you are told how do you know it is true?

Lies are easy to tell, particularly when people want to hear them.

That is why Ponzi schemes work – the gullible investors hear what they want to hear. All Ponzi schemes require more and more people to join in order to pay the interest or commissions of those already in – does the investment idea you are currently looking at fit the definition of a Ponzi scheme?

Remember, any company can issue a piece of paper every month telling you that your investment has gone up 4%. That costs nothing to send out to all the mug punters. If you have injected a small amount to test the opportunity, always try taking that money out and see what happens before you consider putting in large sums of money. Most scams work on the basis of sucking you in until you have every penny with them – then they disappear.

I would also recommend that you never get friends or family to follow your investment ideas – they won’t thank you if it does well and they will never forgive you if it all goes wrong.

Due diligence is all about checking you are not being lied to – so get off your butts and do it. It will take less than an hour or two at most to protect what has taken you thousands of hours to earn.

Otherwise I can only assume that you have so much money it really doesn’t matter if you lose it.

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