‘Sourcing’ and ‘Selling’ property seems simple at first glance. However, dig a little deeper and act in a professional and ethical manner and all of a sudden it becomes complex. But complex doesn’t have to mean can’t do…and by following a few simple rules… things become clearer.
1. Sourcing the Property:
Ok, where does a Sourcer start? And how do we spot good investment opportunities? Well a good place to start looking for discounted properties would be the 3 ‘D’s. We simply look for distressed sellers. These are properties that the seller is motivated to sell quickly because of DEATH, DIVORCE or DEBT, unfortunately now we can add in COVID to the mix. By speaking to the vendor, we understand their concerns and offer suitable solutions to help ease their pain.
2. Property Due Diligence:
Essentially, there are two main sourcing strategies for making money from property:
1. SELL – ‘flip’ a property by refurbishing, and selling for a premium or by taking a planning gain
2. RENT – buy to hold for cash flow and capital growth
Each potential purchase needs to be assessed against this criteria with the vision of buying with equity already built in (BMV) or have the ability somewhere to add value to the asset. We normally measure this via Return on Investment (ROI).
3. Adding Value:
So how does a Sourcer look at adding value? There are numerous ways from simply purchasing a tired property in a great location to more complex builds on virgin/brownfield land that have latent potential. Is the property in a location that would make a good single let? Does it lend itself to a House of Multiple Occupation (HMO) or Serviced Accommodation (SA) strategy easily? Ultimately, the more creative your strategy the greater value and having more than 1 strategy is a MUST!
4. Crunching the Numbers:
Once the Sourcer has decided on their strategy to add value, it is important to look at the estimated costs of the works required to achieve the change in use. For example, if you wanted to convert a 3-bed house into a 4 bed HMO. What are the costs for?
• Refurbishment – windows, roof repairs, kitchen, bathroom, boiler replacement etc?
• Converting to a HMO- fire doors, fire alarm, minimum room sizes etc?
• Certification – Article 4, HMO licence, Building Regs., CP12, change of use?
• Professional costs – Stamp duty, legals, finance, planning etc?
• Rental – gross rental based on comparables?
• Monthly Operating Expenditure (MoE) – gas/elec/water, broadband, Council Tax banding, reactive & planned maintenance etc?
• Net rent after all costs?
Understanding the numbers is key to knowing whether it’s a deal or no deal. The better your numbers, the better your reputation is as a Sourcer.
A Sourcer must undertake due diligence on the recent sold prices for similar properties within the same street or close vicinity. Without this benchmark we struggle to understand the true value of our offer to the vendor.
Just like selling any other product or service, presentation is key to obtaining a quick sale and ultimately a good fee. Presenting your deal to investors in a clear concise way is essential so we can show our strategy for adding value. Show your numbers along with photos and floor plans etc.
Let’s get this straight from the start. It is always going to be more profitable if you can secure the finance and keep the deal yourself. This can easily deliver 10+ times what a Sourcing fee would bring. But hey that’s not always possible, so where not, a Sourcer should trade their deal to other investors. The minimum you should make from a deal is £2K. Typically fees are between £3 and £5K, with some much more. Deals where investors can recycle their cash within 6 months usually will sell for 2 to 3% of the property sale price. Development deals may attract a 1 to 2% of Gross Development Value (GDV) and Purchase Lease Options (PLO’s) as much as 12 months net cash flow. Whilst these figures seek objectivity to the fees you may receive, this is still a subjective science. Your fee will always be dependent on market trends/cycles, the quality of the deal and ultimately are worth what an investor is willing to pay!
So, you’ve done all your due diligence, crunched your numbers, sorted your fee and it’s all nicely presented, it’s time to sell it to an investor. But how do we do that? Well you can visit various property network meetings to meet potential investors and eventually build a database of suitable buyers. Or, you can look to use a portal such as www.propertydealstore.co.uk that acts as a conduit between Sourcer and Investor.
9. The Legals:
Sourcing has traditionally flown under the radar regarding compliance. But as the industry matures, we at Property Deal Store believe that as professional Sourcers we should be abiding by the Estate Agents Act and be a member of the:
1. Property Ombudsman
2. Register for Anti Money Laundering (AML)
3. Professional Indemnity Insurance
4. Data Protection through ICO
5. Be a member of the NRLA
Ever heard the expression, “If you think training is expensive…. you should try ignorance,” (Peter Drucker) then you fully understand the leverage education brings in time and knowledge that can give you that competitive edge. To master Sourcing, (or any strategy for that matter) the key to opening the doors to building your wealth is to have the knowledge to do so in a proficient way.
Want to know more? Book on for a Discovery Call here to discuss training or how you can use our platform.
Managing Director, Property Deal Store