By Property Secrets' Investment Broker

I spend a great deal of time explaining to investors why this or that deal is right for a certain kind of investor - or why it's just a plain-as-your-nose unmissable opportunity.

I'm the first to admit that not all deals are equal - some are very definitely more suitable for a specific kind of investor. Others just suit anyone who wants a simple, clear-cut property investment deal that will bring them excellent returns.

But it's been suggested to me that it might be useful to investors not only to see the reasons why we have picked a deal, but also to understand why we reject the vast majority of the deals we are offered.

The fact that we do reject so many deals is something of a surprise to a lot of people, and really it's the reason why Property Secrets is different.

So, why do I turn down a deal and what can be learnt from these reasons?

Let's take a deal in Bucharest - the Panorama.

A lot of people asked me about this deal at the time and many of them thought it sounded great.

Why?

• It seemed very cheap.
• The payment terms were good.
• It was in a hot market and it was creating quite a stir.

But Property Secrets turned down this deal and I advised anyone and everyone against it.

There were two overriding reasons in this case - location and design.

I simply didn't like where it was, tucked away from a main boulevard - a lower middle class development tucked away down a side street. The area will probably come up, but I didn't believe the development itself was ever going to be popular.

It looked like a holiday resort - circular blocks with central lifts. It was basically a hotel for living in at €800 psm.

Now, I like to try and project my thinking and consider matters 12 months or so down the road - think like a Bucharest in other words.

This place was essentially built without regard to privacy and I cannot see that ever being a seller. I mean, would you choose to LIVE in a hotel? Maybe you would, but not me, and I'd say the same is true of the average wannabe homeowner in Bucharest.

But it's so cheap, so many people told me. That was, I have to say, their mistake - to focus only on one factor.

Panorama sold well to start with and I think this was simply a measure of how hot the market is. In a hot market it's almost always easier to get it wrong because you get caught up in the urgency of it all - especially if the price seems to be a bargain. But prices will move on - the design and location of a development are going to stay the same.

So, after an initial selling phase, people gradually stopped buying. They looked at the comparisons and simply realised this development didn't have what it takes.

The buyers dried up. The Panorama contractor has just filed for bankruptcy. Says it all.

Ok, here are the five Deal Killers I consider, any one of which can kill a deal -

• Bad location
• Bad price relative to the market
• Uncertain developer
• Unfavourable terms
• Bad design

It's over-simplistic, of course, to imagine that these factors can be ranked. The point is that each and every one can be a deal killer - bad location, bad price, dodgy developer, bad terms, bad design.

Also, this is not some kind of step-by-step checklist. Because each can be equally fatal, I consider them simultaneously.

Location

Location is not truly the overriding consideration in property investment - contrary to the received wisdom. If you're considering a luxury development, then this is true, but generally I'm not considering a luxury one.

Of course, even for non-luxury developments, location still matters hugely. But, let's keep in mind that 99.9% of buyers don't expect (and cannot afford), perfect location. What they can afford usually equates to some kind of compromise - unless you're dealing with top end luxury.

Instead, they look for several key factors that create good location. For pretty much all the locations we at Property Secrets consider in the CEE, we're looking for those that offer great access to places of work. Other factors matter too, naturally - good view, some surrounding green area and so on. But primarily it has to be transport connections. And that, invariably, means connections to the centre of town, or at least to a business district.

No connections, bad positioning for transport - deal killer.

Price

When it comes to price, we have to be extremely careful - price is probably one of the most common reasons we turn down a deal. Price can be very beguiling - if you look at it in isolation.

Generally, down to around €1,000 psm is the kind of level we expect to look at in Bucharest, perhaps going up to around €1600 psm - the middle to luxury end of the market.

So, when I looked at an opportunity in Bucharest recently at €900 psm with good payment terms, I was thinking 'Happy Days!'

Except that the price should actually have been €800 or even €750 psm!

Why? Because this development is a long way out, near the airport - the price was higher than comparables because the developer had gone for the wrong finish for the location and overall design - it was upper-middle class finish for a lower middle class development. Bad move. No deal, thanks.

Terms

I was offered a deal in Poland, which quite frankly looked like a bargain price. But the terms were hideous. Seven stage payments!

Now, there's nothing wrong with stage payments if the price and the opportunity are right. Sure, you have to cashflow the investment, but if you do the numbers, and you are able to take on the cashflow burden and the cap growth potential is worth it, then, great!

In this case, and in almost all others, finance is your friend. You draw down on the mortgage and finance the construction phase paying interest only on the mortgage, and then redeem your outlay when you eventually come to sell.

The trouble was with this deal, with its seven stages, you simply couldn't finance it fast enough. By which I mean, the first payment following the initial outlay was within six months, so forget it. The timescale was too tight to organise a mortgage and investors could have ended up being seriously out of pocket for an unacceptably long time. No deal.

Then there are parts of the contract that you suddenly find inserted when you're deeply into negotiations. So many deals stack up all along the way until you take a careful look at the final contract wording and bang! The deal's a dead duck.

We looked at a deal near Gliwice that, quite frankly, looked great. We had good terms, a great price, the units were good sizes, the design excellent, the developer had a great track record and...what could go wrong?

At the eleventh hour, as we double-checked the terms and conditions, we discovered that the developer only actually owned half the land to be developed. The other half was owned by the government and title was to be transferred when the development was complete. Sounds Ok, you might think.

But, actually, very definitely not. Because such an arrangement means it would be near impossible to arrange a mortgage prior to completion. So, it was a good deal, but the land issue made it too risky. End of story.

Developers

With developers, again, this is a crucial area. A good, well-funded and professional developer makes all the difference between a great deal with minimum headaches and a deal, that may well look great on paper, but that will turn into a nightmare.

Of course, there are extremes - if we go along to meet a developer and their HQ is a shack on a building site, even the greenest investor should hear the old alarm bells ringing. But other uncertainties are far more subtle.

It's about doing due diligence, checking financial health and being as sure as possible that the developer is a professionally run outfit. Of course, if you've dealt with them before, so much the better

There are developers coming through now that are very new to the business. Many of these will be excellent operators, but they have no track record. Others, whose background is not property, are actually backed by serious companies and serious money. When this is combined with genuinely powerful designs and architecture, you have to sit up and take notice. But you also have to be wary.

Design and exit strategy

Design is very important and I think this is where some real experience comes in.

For me, bad design - as with the Panorma development I mentioned earlier - can easily kill an otherwise promising deal.

You have to look at markets not as they are now, but how they will be in a year, two or three years down the line.

Size is a factor - tastes change and we need to anticipate the changes that will inevitable change place in the market. Will the demand still be for one-beds, or two; more but smaller rooms, or fewer and bigger? I think in many ways we can learn from the UK in terms of design.

Other design features are unique to CEE markets and some may even seem slightly comical - but they are real nevertheless. Poland provides great clues to the way these more quirky tastes will change.

Here's one we are currently witnessing in Romania. We looked at a deal in Bucharest and found that units were actually cheaper the higher you went. Better views but less money. Bargain?

Well, as usual, there was a rational explanation.

We discovered that people didn't want to live above the third floor because in their experience that was too far to walk up the stairs when the lifts broke down, perhaps twice or three times a week! It also meant they'd have constantly low water pressure.

Like I say, this may seem amusingly quaint to us, but they were real concerns for buyers in Bucharest.

The same was true in Poland, although now people have seen for themselves that these throwbacks to the communist era no longer apply - the lifts work, the water gushes out - the price pattern has changed.

But, equally, people in Poland don't want to live in giant tower blocks unless they are part of a very special development - they certainly don't want to live in a giant block that stands alone.

So, people's tastes and attitudes change - basically, they become more discriminating - and it's important to judge a development bearing that in mind and how things might change a couple of years down the line.

Average and boring can be good - sometimes

Now, that doesn't mean we should always look for that wonderfully innovative development, that has something extraordinary about it.

Average and boring can be good - but only if we can secure an excellent price, say 20 to 30% under market value.

On the other hand, if it's a development that looks great, and will retain that special wow resale factor, then 10% below market is quite acceptable.

The same kind of judgment needs to apply to location - you need to have some vision.

An area can be transformed in perhaps as little as six to nine months by the building of a road, a metro station - and the reverse can be true. If a new link road opens up in an area next to another that previously had a logistical advantage, the strongest capital growth is going to migrate to the lower priced area that's opened up - and that is where the best returns are going to be.

Exit strategy

This is really all about exit strategy - who will you sell to - and that's something I always consider.

Those deals and developments that offer the strongest exit strategies are always the most appealing. Basically, no strong exit strategy - no deal.

But spotting that exit strategy (or the lack of it), as I hope you can now appreciate, requires considerable thought, market research AND experience.

So, why do I care so much and why do I focus so much on deal breakers? It all seems a bit negative.

The answer is simple: If I get it wrong, it's my reputation and the reputation of Property Secrets that suffers. And it's me that our investors will call and give an earful to.

And let's be honest, to many people in my business that doesn't matter too much. They'll sell anything -stack 'em high and sell 'em fast. It doesn't matter because they can quickly move on to the next sale in the next hyped market where commissions are high.

Sure, I could go and sell ski chalets in Bulgaria, maybe even coastal places in the same country - but I really, really don't want that and I'd be no good at selling either anyway.

Why? Because I don't believe in those markets and I genuinely cannot enthuse about something I don't believe in.

That's why I look so hard for deal killers - I want repeat business. I want our clients to come back to me and buy again and again because they believe, as I do, in the deal they buy into.

So, I make myself available and actually want people to contact me to discuss deals - any deals, any developments - not just the ones PS is offering. I can't pretend to be familiar with every development in every market, but I can look at fundamentals and I am confident I know pretty much all the developments coming up in Romania right now.

So, feel free to get in touch. I'm more than happy to describe why I think a factor is a deal killer (or not!)