‘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, DIVORCEE or DEBT. There are actually 7 ‘D’s but that’s for another blog! By speaking to the vendor, we understand their concerns and offer suitable solutions to help easy their pain.
2. Property Due Diligence:
Essentially, there are two main sourcing strategies for making money from property:
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? Would it convert to an House of Multiple Occupation (HMO) or what about Serviced Accommodation (SA)? Ultimately, the more creative your strategy the greater value!
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:
Understanding the numbers is key to knowing whether it’s a deal or no deal. The better your numbers the better your reputation 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 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 its all nicely presented now to sell 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 could look to use a portal similar to 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 a professional Sourcers we should be abiding by the Estate Agents Act and be a member of the:
Ever heard the expression “if you think training is expensive…. you should try Ignorance” (Derek Bok)? then you fully understand the leverage education brings in time and knowledge that can give you that competitive edge. To master Sourcing is key to opening up the doors to building your wealth.
Director, Property Deal Store