How to Become a Property Sourcer: A Comprehensive Guide
Introduction to Property Sourcing
Property sourcing, also known as deal sourcing or deal packaging, is a growing business in the UK property market. But what exactly is property sourcing? and how does it compare to other more traditional property strategies.
Simply put, it's the art of finding profitable property deals for investors and buy-to-let landlords. A property sourcer, or deal sourcer, acts as a middleman between property sellers and buyers, often focusing on finding below market value (BMV) properties or those with good investment potential and a good rental yield or return on investment.
If you've ever wondered "what is a property sourcer?" or "what does a sourcer do?", imagine them as property detectives. They're constantly on the lookout for great deals, whether it's a rundown house perfect for renovation, a bargain buy-to-let opportunity, or land with development potential.
Unlike estate agents who typically work on the seller's behalf, property sourcers often work on the buyer's behalf. This unique position allows them to focus on finding deals that meet specific investor criteria.
Contents
- Getting Started as a Property Sourcer
- The Basics of Property Sourcing
- Regulations and Things To Consider
- Property Sourcing Fees
- Developing Your Property Sourcing Skills
- Starting A Property Sourcing Business
- Property Sourcing Agreement
- Challenges and Risks For Property Sourcers
- Advanced Strategies For Sourcers
- Real Life Case Studies
- FAQ For Aspiring Property Sourcers
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by Robert Jones, Founder of Property Investments UK
With two decades in UK property, Rob has been investing in buy-to-let since 2005, and uses property data to develop tools for property market analysis.
Getting Started As A Property Sourcer
Becoming a property sourcer in the UK doesn't require specific qualifications, but it is regulated. There are several steps you should take to set yourself up for success:
- Educate yourself: Learn about the property market, investment strategies, and local areas. Many aspiring sourcers start with property courses or seminars. Alternatively, working at an estate agents or a property sourcing company can provide valuable insight into the inner workings of the local real estate market. This is exactly how I got started - initially as a junior sales negotiator, then a valuer, and finally progressing to become a landlord and investor.
- Understand the legal bits: Property sourcing in the UK is regulated. You'll need to comply with estate agency laws, so brush up on property sourcing compliance. This includes registering with a property redress scheme and getting proper insurance.
- Build your network: Connect with estate agents, investors, and other property professionals. Networking is crucial in this business. There are lots of local and national networking events specifically with a focus on real estate. These are great places to build your contacts which can include more than just investors, but can also be local tradespeople, other sourcers and conveyancers to help build out your team.
- Choose your niche: You might focus on residential properties, commercial real estate, or even land sourcing. You can even focus on a subcategory of that niche. Often the most successful sourcers are specialists. For example, if you are focused on residential properties, how about focusing deeper on buy-to-lets or holiday lets?
- Set up your business: Make sure to setup correctly as a limited company. You will also need property sourcing insurance and get your accounting and company paperwork ready.
The Basics Of Property Sourcing
Property sourcing is a progression from simply trading leads. Depending on your personality, skills, and time available, it could be a better option for you.
So what exactly is a property deal? A property deal would consist of a pre-negotiated offer with a vendor (property seller), who has signed an agreement or option to sell the property at the negotiated price.
You could sell the deal as it is, leaving the buyer to do their own sales chasing and liaising with the seller, instructing their own team of solicitors, mortgage brokers, and letting agents.
Alternatively, you could charge a premium and sell it as a 'packaged deal', where you provide a full service to get the buyer all the way through to completion.
This is typically the best approach we see most sourcers and agents taking to achieve the most successful outcomes for them and their clients.
Regulations and Things to Consider
Recently, there has been increased scrutiny on this strategy, with some large-scale companies being in the media for forcing sales through with sellers on unfair terms. As a result, the process and legislation around this practice have come under more attention.
The Office of Fair Trading and Property Ombudsman have issued guidelines that property-sourcing businesses should adhere to, depending on how your business operates. Where in the past it may have been considered acceptable to just be a middleman when sourcing these deals, now, depending on your role, you may come under the guidelines and requirements of the Estate Agency Act.
If you fall under the veil of an Estate Agent, you will need to fulfil the requirements of the Estate Agents Act. This includes:
- Being a member of a Property Ombudsman Scheme
- Registering with the Financial Conduct Authority for Anti-Money Laundering
- Registering with the Information Commissioners Office
- Having Professional Indemnity Insurance
Property Sourcing Fees
In property sourcing, you typically don't get paid until (and unless) the property sale is completed. However, many deals and property sourcing fees are sold for between £2,000 to £5,000 per deal for a typical buy-to-let, with larger developments, land projects, portfolios or commercial buildings achieving anything from 1-5% commissions.
A breakdown of property sourcing fees for a property finding service are often
- Properties under £100,000: Could be up to 5% of purchase price
- Properties over £1 million: Typically around 1%
- Standard sourcing fees: £2,000 to £5,000 for typical fees in the best buy-to-let locations.
- Package deals: Higher fees for additional services like refurbishment project management, help with flipping houses or property management
This means that one deal a month could comfortably replace the earned income of most 9-to-5 jobs.
As a one-person operation selling quality deals only in your local area, it's hard to scale up and do volume, but that's not necessarily a problem. One deal a month would earn you £2-5k before costs, and if you have the skills to find the right deals, you could achieve a sales pipeline of up to even one per week once you have built your network and supply of buyers and sellers.
Developing Your Property Sourcing Skills
To become a successful property sourcer, you'll need to hone several key skills:
- Market research: Stay up-to-date with UK house price predictions and prices in your target areas. Make sure you have a good understanding on what Cities and Towns are performing best for buy-to-let and providing the best rental yields for your clients.
- Negotiation: You'll need to secure good deals with sellers and present them attractively to buyers.
- Due diligence: Learn to thoroughly assess properties and their potential.
- Marketing: Develop skills to attract both motivated sellers and interested investors.
- Financial analysis: Understand how to calculate potential returns on investment.
Remember, property sourcing isn't just about finding cheap properties. It's about finding the right deals that match investors' criteria.
Starting A Property Sourcing Business
Running a property sourcing business involves more than just finding deals. Here are some key aspects to consider:
- Pricing: Determine your property sourcing fees. As above, these are typically a percentage of the property's value or can be a flat fee. It can even vary depending on the 'value' (seen as a negotiated equity discount or the estimated return on investment) in the deal, the price of the asset and the amount of work completed by the investment sourcing agent.
- Agreements: Always use a proper property sourcing agreement to protect yourself and clarify terms with your clients.
- Marketing: Set up a website and consider using property sourcing tools to streamline your process.
- Compliance: Ensure you're following all relevant regulations. Consider joining a property sourcing network for support and resources. A local network will provide a lot of value if you plan on being the go to investment agent in your area.
Property Sourcing Agreements
When starting your property sourcing or deal packaging business, you'll need two key agreements to protect all parties involved and ensure a smooth and simple sale from start to finish. The agreements you use will depend on what part of the deal you are focusing on. Are you sourcing a below-market value deal directly with the seller? or are you working with an investment agent that provides the property and instead you source the buy-to-let investor?
Option Agreement (For Sellers)
If you have sourced the property directly with the seller, having an agreement in place will help you protect your fee and ensure all terms are clear for the sale.
Like an investment agent or estate agent, this agreement establishes your relationship with the property seller and should include:
- Terms for marketing the property
- Access arrangements for taking photos
- Provisions for bringing builders and investors to view
- Notice periods for property visits
- Duration of the sourcing period
- Price of the agreed option
Fee Agreement (For Investors)
If you are working as a 'buyers agent', having a fee agreement helps protect your sourcing fee, so you can ensure you get paid by your buyer client on completion and outlines:
- Payment terms and amounts
- Prevention of direct approaches to sellers
- Specific property details
- Service scope
Property Access Tip: While you can include formal access terms in contracts, most successful sourcers find that clear communication works better. Simply explain to sellers that you'll need occasional access for photos, builder quotes, and investor viewings, with appropriate notice periods. Most sellers understand these requirements as part of the sales process and see it will help them achieve a quicker sale and a smoother process.
Use Specialist Conveyancers: Consider working with a solicitor who already has experience with property sourcing contracts. Using existing templates that you can modify for your needs will save both time and money while ensuring proper protection for your business. An experienced solicitor will help you secure more deals and close more sales than trying to download a deal sourcing contract template online. These property deal packaging templates can often come with missing details and can cause problems later on in the sale process. Correct paperwork will make all the difference.
Challenges and Risks For Property Sourcers
Like any business, property sourcing comes with its challenges, including:
- Competition: The property sourcing market can be crowded, especially in popular cities like London, Manchester and Birmingham, where you are competing with high street estate agents through to specialist established investment agents.
- Market fluctuations: Property markets can be unpredictable, affecting the availability of good deals.
- Legal risks: Failing to comply with regulations can result in hefty fines or legal issues.
- Time management: Sourcing deals can be time-consuming, with no guarantee of success. Remember you only get paid on completion. With an average of 1 in 3 sales in the UK falling through before exchange this can be a significant delay before you get paid on your first deal.
- Managing expectations: Balancing the needs of sellers and investors can be tricky. With a seller wanting the highest price and the buyer wishing to buy at the lowest price or best terms, you need to balance expectations early and become a skilled negotiator.
Advanced Property Strategies For Sourcers
As you gain experience, you might explore more advanced strategies like:
- Off-market deals: Learn how to find off-market properties, direct to the sellers for exclusive opportunities that your competition can't offer.
- Deal packaging: Consider expanding your services from simply providing a property, to a full deal packaging service, with more comprehensive services, like help introduce mortgage brokers for financing, refurbishment teams for developments and letting agents for managing post purchase.
- Joint ventures: This is certainly a more advanced play. But once you have built your experience, consider partnering with investors on deals, potentially for a share of the profits and equity instead of simply a one time sourcing fee.
- Specialisation: Focus on niche strategies like HMOs, commercial properties, or land sourcing. These strategies often involve much larger projects and require a significant level of experience and expertise. This is reflected in the opportunities and sourcing income however, when you consider properties worth £500k+ with a 2.5% sourcing fee, you can see why experienced sourcers start to specialise, with one main area of focus.
Real Life Case Studies
How Not To Do It
When I first started out, I made the mistake of focusing only on finding motivated sellers without having a steady stream of investors ready to buy. I relied heavily on a single broker to sell the deals, which worked well until the mortgage market changed in 2008. This led to deals falling through quickly and the pipeline of buyers disappearing, with many disappointed vendors.
Top 3 things I would do differently:
- Don't rely just on brokers – have your own list of investors or be involved with a network of investors.
- Work with investors who can move quickly – cash investors are great as they're not reliant on mortgages.
- Get to meet your local investors – they understand the area and know what makes a good deal.
When It Goes Right
I've found success with what I call 'Tailored property sourcing'.
This involves meeting the investor first, understanding exactly what they're looking for, and then sourcing properties based on their individual requirements.
This approach has led to stronger, more long-term relationships with investors and fewer deal fall-throughs, creating a win:win outcome for everyone.
FAQ For Aspiring Property Sourcers
Q: How do I find investors for property sourcing?
A: If you have a network and connections already of high net worth Investors, that's great. But that's not common. So for many, they get started by joining local and national property events, use social media and even partner with other competing investment agents. Where the sourcer focuses on finding the property deals and they partner with an agent to provide the buyer.
Q: What's the difference between a property sourcer and a buyer's agent?
A: A property sourcer typically finds deals for multiple investors and charges a fee per deal. A buyer's agent works exclusively for one client to find and negotiate property purchases solely for them and their personalised criteria.
Q: Do I need qualifications to be a property sourcer in the UK?
A: While no specific qualifications are required, you should be knowledgeable about the property market and comply with relevant regulations, as listed above including being a member of an ombudsman scheme for redress.
Q: How do I generate motivated seller leads?
A: You can consider a mix of strategies like direct mail or leaflet drops to local homeowners, online advertising, networking with estate agents, and even driving around looking for specific run-down properties. There isn't one perfect way. It completely depends on your level of experience. An up-and-coming digital marketer for instance might prefer to run online advertising campaigns direct to sellers, whereas a skilled salesperson might prefer to knock on doors of local developers to create a longer term commercial partnership.
Q: Is property sourcing a good way to make money?
A: It can be, but like any business, it requires hard work, skill, and persistence. Success isn't guaranteed and it takes time to build up a pipeline of sales, with many sourcers waiting up to 6 months for their first sale to complete, but many find it a rewarding and profitable career, with many opportunities for building their own property portfolio as they grow.