Updated: Mar 12, 2021
Many property sourcers fall into the trap of making these common mistakes when analysing potential deals and ultimately it can kill their credibility with investors...
Best Case Scenario:
Many sourcers only concentrate on the best case scenario possible. I would say this is highly unadvisable when analysing and presenting your deals to investors. If your deal only stacks up in a 'best case scenario' then is it even a deal? The chances are it's probably not.
Investors like to stress test their potential investments and so having a best case scenario and worst case scenario and somewhere in between is advisable. When analysing deals you will have researched how much a property will rent for and this data will be close to bang on what the property will rent for. However, if your deal is estimating a post refurb valuation then the reality is that the end valuation could be varied.
The best thing to do is to use the data you have, comparables, agents opinions and give a few differing scenarios. That way you have some level of stress testing and if your packaging a deal to sell then the investor see's the potential outcomes based on your findings and not just that 'best case scenario'.
This is a difficult one to gage at the best of times. It's 2020 and we are in the midst of a global pandemic and we are officially in a recession, oh and let's not forget Brexit. So what's your best guess on the property markets performance in the next year or so?
It's very much a crystal ball exercise and again nobody knows! You can look at historic data but this wont hold much weight in the current circumstances. So what do you do? Well the best thing is again to offer up varied outcomes and stress test the investment based on different outcomes.
Making Deals Work on Paper:
Some sourcers will have what they think is a killer deal that investors will be jumping at... but they have failed to take all costs into consideration. Stamp duty, legal costs, costs of acquisition, ongoing costs. These are sometimes forgotten about.
If your a sourcer do you include the sourcing fee as a cost of acquisition? Yes you do, because your investor client will have to pay that out as a cost.
Make sure you check and double check again all your numbers before sending on to an investor or your entire investor database. You don't want that sinking feeling of pinging out an email with your deal on there and you forgot that vital cost! It will make you look like an amateur and you lose all credibility.
It is all too easy to fudge numbers and assume the best just to make the deal stack up. But in the real world it has to work. It has to stand up and your figures better be well researched and evidenced. Assuming it will rent for X amount is not the done thing and neither is assuming a properties value based on one comparable down the road.
Analyse your deals, do your research and double check all the numbers before you do anything else!
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