Video: How to Make Serious Money as a Property Sourcer
This is probably my favourite of all of the property strategies to get started generating cash flow. Holding property over the long-term is great for building assets, security, a pension and steady income but when it comes to short-term cash flow and low start-up costs, it’s hard to beat trading property deals.
In this video, we'll look at how you can get started being a property sourcing (and where the money is).
We'll also look at if this strategy is right for you, your personality and your situation as well as some real-life case studies on how property sourcing works in the real world.
What Is Property Sourcing?
Property sourcing is the activity by which property deals are negotiated and packaged by a property sourcer, to then be sold on to a property investor.
[00:56] What is a property deal?
[01:44] Things to consider...
[03:39] 4 key areas to look at when being a property sourcer
[05:46] Where the money is in property sourcing & trading
[07:46] Is this the right strategy for you?
[09:52] Assets that will help you succeed in becoming a property sourcer
[11:52] The timeline and how long it takes to get up and running
[12:54] An example of how the strategy breaks down & the figures revealed
[16:48] A real-life case Study - how NOT to do it!
[20:42] Things I now do differently & lessons learned
[22:52] A real-life case study - when it goes right!
It’s a progression from trading leads, but depending on your personality, skills and time available, it could be a better option.
So What 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 on as it is and the buyer would do their own sales chasing, liaising back and forth with the seller, instruct their own power team of solicitors, mortgage brokers and lettings agents.
Or you could charge a premium and sell it as a ‘packaged deal’ with the sales chasing as part of the service, to get the buyer all the way through to completion.
Things to Consider
Recently there has been a spotlight on this strategy with a lot of large-scale companies being in the media for forcing sales through with sellers on unfair terms.
This has meant that the process and legislation around this practice have come under more scrutiny recently and the Office of Fair Trading and Property Ombudsman have issued guidelines on what Property sourcing businesses should adhere to depending on how your business operates.
Where in the past it may have been considered ok to just be a middleman when sourcing these deals, now depending on the level of role you take (for example: selling it on as a deal without you being either the buyer or seller) you may come under the guidelines and requirements of the Estate Agency act.
You can check here to see if the requirements of the Estate Agency Act apply to you, and the way you intend to operate your Property Sourcing Business.
If this is the case, and you fall under the veil of an Estate Agent, you will need to fulfill the requirements of the Estate Agents Act.
On this basis you will have 4 key areas you need to look at:
1) Be a Member of A Property Ombudsman Scheme
This is so you have a professional ombudsman scheme to offer a redress to clients. For more information on this scheme visit the Property Ombudsman.
2) Register with the Financial Conduct Authority for Anti-Money Laundering
As part of the Scheme, you should be registered with the Office of Fair Trading (now the Financial Conduct Authority) for Anti-Money Laundering.
3) Register with the Information Commissioners Office
You may need a data protection licence if your collecting and holding personal information about individuals.
4) Professional Indemnity Insurance
In order to fulfil the requirements of the property ombudsman scheme you need to have Professional Indemnity Insurance.
Where the Money Is
You don’t get paid until (and unless) the property completes, but many deals are sold for between £2,000 to £5,000 per deal, so one deal a month could comfortably replace the earned income of most 9 to 5 J.O.B’s
As a one-man-band and 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 should comfortably be able to manage a sales pipeline of one per week.
Situation it’s Best For
Cash Poor & Time Rich
This is a great strategy, but until you have done a few deals and are able to streamline things and put systems in place, it can take a little time to get up and running.
The first two are the hardest, whilst you learn the pitfalls, understand where a deal can fall down and what you can do to prevent it.
You could read to your blue in the face, but like most things with property, the best experience can only be achieved in the ‘doing’
But research and training are still valuable because it helps you to prepare and reduce your mistakes.
A combination of a step by step process of you ‘doing’ the work and learning the training is a great combination and I’ll cover all of this throughout your training for you.
From how to find deals to valuing properties and then sales chasing. This is all part of the mix that comes together to get the deal through to completion.
I’ll leave nothing out, so at the end of this training you will be confident and know exactly how to get started straight away if trading property deals is your chosen strategy.
Assets That Will Help
- Marketing skills and experience (to generate leads).
- Telephone skills and the right personality to deal with vendors directly over the phone and face to face.
- Negotiation skills to convert the leads to deals.
- Good at admin to chase sales to successful completion.
- Available Time - to be able to consistently find deals and meet with other investors to sell the deals to.
Timeframe to Success (2-5 Months)
It may not be as quick as selling leads, but the rewards are worth the wait.
The first month is usually to set up your systems and start the process of sourcing the deals.
The first and second month is usually negotiating with vendors and finding a suitable investor buyer.
The next couple of months is for the deal to go through the normal sales cycle, as the buyer might be using a mortgage or buying with cash.
Let’s say you spend your own time to do the majority of your marketing, so your spend is reduced to buying leaflets, marketing a website or putting in a newspaper advert.
And when you're starting off you convert 1 in every 25 leads (the industry standard is typically 1 in 10 leads for most investors I know) but let’s be super cautious
At £10 per lead (same costs given in the sourcing leads strategy example) this has cost you £250 and your own time to generate your target 25 leads.
Now before you look at the figures in detail, it’s important to consider that not all agreed offers complete.
The industry average with estate agents is that around 1 in 3 deals fall through
For investor deals, you are less reliant on long chains, and first-time buyer mortgages and these are the causes for most deals to fall over.
But even if you said it was the worst-case scenario and you had a higher fall through rate than the estate agents, at say 1 in 2.
(we are looking at real worst-case figures here which is a good thing to be conservative in your plans)
So let’s say you need 2 deals for one to complete, and we need to double the leads to 50 to get your completed deal through.
That’s £500 in marketing costs and your own time.
But the pay off remember is £2k to £5k per deal.
Even if you only charged the lower amount, this would still be a profit of £1,500 per deal.
For what has probably taken you a few days worth of work, spread out over a month.
Not a bad start...
Once you have done your first few, you can streamline the sourcing, outsource the most time-consuming parts that aren’t a good use of your time (like delivering leaflets or creating websites and PPC campaigns) and focus on the more important aspects of negotiating and dealing with the vendors (the property sellers).
Scale this up, cover wider areas and you can make thousands per month just on trading deals alone, without ever needing to fix a leaking tap or dealing with tenants.
A Real-Life Case Study (how NOT to do it)
There are two key parts to trading deals...
Finding Motivated Sellers and Finding Investor Buyers.
When I first started out, I only focused on the first part. I had become great at finding motivated sellers and could get the phone ringing off the hook... but I didn’t have a steady stream of investors ready to buy.
Very early on I looked to rectify this and I found a company that would act as a broker and would sell the deals on their database. It meant they took 50% of the sale price, but they were charging £4k-6k per deal to their investor clients so I was still walking away with £2-3k even after their commission.
This worked great for a while. I could concentrate on just finding the deals, safe in the thought that if it fitted a certain criterion, then I would be able to sell the deal using the broker's investor database.
My mistake was that I was relying too heavily on this broker, and I didn’t have a backup plan.
When mortgages changed in 2008, the broker started to struggle because a lot of their investors were not cashing rich and they were relying on easy mortgages.
Lots of deals fell out of bed and their investors started to dry up because the mortgages with low deposits were no longer available.
This had a direct knock-on effect on me.
I had a couple of deals in my pipeline close to completion, but buyers were pulling out left right and centre.
I was left unable to complete on a number of properties, vendors were let down, and I had to stomach the marketing costs myself.
It was a tough time because I didn’t like letting people down.
Some of the deals we managed to rescue by finding new buyers, but others just couldn’t complete and the vendors went back on the market with estate agents.
This was a steep learning curve, for me. I learned it’s no good just having one part of the equation looked after. You need to have both sides covered, and a Plan B for both too, in-case your main plan doesn’t work.
Top 3 things I Would Do Differently
- Don’t rely just on brokers – They provide a good option if you’re looking to do lots of deals, but by having your own list of investors or being involved with a network of investors, you will have better options and have fewer deals falling down. This gives you the best of both worlds.
- Work with investors who can move quickly – cash investors are great as they are in a position to complete and are not reliant on mortgages. Remember for the vendor they just want to know the property will be sold and quickly... You must deliver on this.
- Get to meet your local investors – Local investors understand the area, know what makes a good deal and are the easiest to find (networking events, social media). Source quality deals and network with local investors and you should have a steady stream of deals going through.
A Real-Life Case Study (when it goes right)
It’s important to not only find the right property, but negotiate a good price, don’t oversell the estimations and market value, and be straight with the vendors from the start.
Having a good relationship with your vendor and investor buyer will help more deals complete
Recently I have turned the traditional way of property sourcing around a little.
Most deals are sourced first... then an investor is found who may be interested in the deal.
The downside to this is...you may not find a suitable investor, you may not find an investor able to complete quickly Or you may not find an investor where the deal ticks all their boxes...
In 2012 I decided to change the way in which I sourced property and now provide what I call ‘Tailored property sourcing’ as my main method of providing property deals for investors.
This is a more hands-on and time-intensive process but for me, it works much better.
It involves meeting the investor first... Understanding exactly what it is they're looking for and then putting a proposal together based on what properties they want or fit their criteria.
I then start sourcing based on their individual requirements.
I now tend to work with a smaller group of investors, but I build stronger more long-term relationships this way.
Instead of just sourcing one property for one investor, it’s a more tailored service and portfolio building.
If I ever need to, I can go back to sourcing individual deals with the more traditional method if needed.
But the best deals and relationships I have found, have been built with tailored property sourcing.
The other noticeable benefit to this is there is less fall through’s for the vendors too, as the properties are a perfect match for the buyer... win-win.