Sourcing Property Deals
When investing in property outside their local area, investors often describe needing more time or the opportunity to travel and research those new areas. Frequently, they want to pay somebody else to do the work for them. The work is to find them an excellent investment property.
That’s where Property Sourcers come in.
A Property Sourcer finds the deals, negotiates a price, and gets a good discount that fits your strategy.
Perhaps your strategy focus is the return-on-investment figure or the amount you want to earn from turning it over, by flipping it.
They’re going to go out there and do all the legwork, all the donkey work, all the hard work to find those deals that you don’t have the time, the inclination, or even the facilities to allow you to go and do that.
The sourcer will charge you a fee, and rightly so.
But some sourcers may charge you a fee even though they only get you a little deal. I’ve encountered some poor sourcers over my time who maybe get you a few thousand pounds off the asking price, which you could probably negotiate yourself without any real difficulty, and then want to charge you a fee. They should be getting you a serious discount.
Let’s say, for example, a property is on the market for 100,000 pounds and they get you an offer accepted around the 75K to 80K mark. That’s a 20% to 25% discount on the asking price. That’s a significant discount and worth paying for as long as the property meets your requirements after that.
Don’t just buy it because it’s cheap.
You’ve also got to make sure that that property will hit one of your strategies, whether it’s buy-to-let, HMO, you’re going to flip it, social housing, serviced accommodation, whatever your strategy, that’s still got to fit and make you money. If that sourcer has managed to get you, let’s say, 20,000 pounds off the asking price of a £100,000 property, then it’s fair, fit, and proper that they should charge you a fee.
How much of a fee should they charge you?
That’s a good question.
Fees can range from £2,000 to £ 5,000 or £6,000, depending on the deal.
For example, if it was just a straightforward buy-to-let, I would expect to pay somewhere in the region of £2,000 to £3,000 for that deal to that sourcer for their work.
If it’s going to be something like an HMO, which will generate much, much higher returns, I might be paying more, around £4,000 to £6,000 for that property deal.
Just be aware that if you use a sourcer, they must be hitting those targets.
Also, if sourcing as a business, specific legal requirements must be met, including insurance. Professional Indemnity insurance protects you if they give you bad advice. For example, they may say that this property you are purchasing is on the market for £100,000, they’ve got it for £80,000 and believe that when you’ve done the work, it will be worth £125,000.
However, when it comes down to it, their information is very wrong. You’ve bought it, and that property will fail to earn that money. You might decide that the sourced property did not meet your needs, so you are going to court and suing them for that loss of income. They need insurance to cover that.
They need to have money laundering registration; when handling other people’s money, checks are required for both you and them. Laundering checks ensure that you are not doing something illegal or untoward or using money from ill-gotten gains.
Also, they should be registered with the property ombudsman and HM Revenue and Customs.
Some sourcing agents will ask you for money upfront, and that’s understandable as long as it’s not too much. They’ve done the research and the legwork, gone to find the property, done all the negotiation, etc.
If you are offered a deal and you accept it, they might ask you for some money to hold it, which is acceptable. Let’s say you will be paying £3,000 for a buy-to-let deal for which they’ve negotiated a 20% discount on the asking price for you. You might be asked for 500 pounds or £1,000 to hold that deal until completion, and then at completion, you’ll pay the rest of the fee. That’s fair enough.
If they, for example, don’t do that, what happens if you pull out of the deal? If you pull out of the deal, any money you’ve paid them will be kept because they’ve had to put in another effort and find another buyer. That’s acceptable.
If they pull out of the deal or the seller takes the deal off the market, then I would suggest that it isn’t down to your circumstances or anything you have control over. They would refund you that money or offer to roll it over to the next deal. Both of those are fine.
However, when a sourcing agent asks you to pay a lot upfront… I’ve encountered various sourcing agents myself and through my coaching and mentoring clients, who have been asked to pay, for example, £10,000 upfront to be given three sourcing deals over the course of a year.
That’s just out of order.
Because you’re paying £10,000 for something that hasn’t happened, isn’t there, and may never come to fruition. The agent may not be able to get you the three deals promised, where they’ve negotiated 20% below the asking price. I’m afraid I have to disagree with that approach. And all of the people I’ve had to help or deal with who have gone down that route and done that before they came to me have found it difficult to recover that money from them when they don’t provide quality sourcing deals. So, pay only the minimum money upfront.
There are also clubs out there. They call themselves clubs or sourcing agents, and they take a certain amount of money from you to provide you with a list of deals. You might be in the sourcing club, where you pay £1,000 or £2,000 to be in that club. Then, you are on the “exclusive” list, where they will send you their deals when they come in. You’re on a list of others who have also paid that money.
Let’s say they get five deals in; everybody gets to see those deals, and the first-come-first-serve jumps on the deals. I wouldn’t pay for that either because, again, you’re not being guaranteed anything. If you are in a situation where there are many people in that club, then you may be fighting for the deals, you may not get them, and you still may not get your money for being part of that.
So that’s sourcing in a brief overview. I hope that’s been helpful to you.
If you have any questions, want to become a sourcer yourself, or need some help, please let me know.
Book a 15-minute call with me, and we’ll have a chat.
Take care.