Property sourcing is the art of finding a property for a property investor. The sourcing agent or sourcer will find the property, analyse the market data and then present the opportunity to the investor with all the facts and figures.
This enables the investor to make a decision on if the property meets their needs or not.
Why do people use property sourcers?
First time investors who are unsure on what makes a good investment will often turn to an experienced sourcing agent and benefit from their knowledge and how they analyse the property. It makes finding their first investment an easier process.
People who don’t have the time on their hands to find, analyse and view potential properties may turn to a property sourcer to save time in finding their next buy to let or flip.
Quite often people who invest in property don’t invest close to home, so they utilise somebody who is a local expert where they want to invest. For example a London based investor will likely not have that ‘local knowledge’ of the various postcode areas of Liverpool. So they will outsource that search to somebody who lives where they are looking to invest.
Another way of looking at it is, property sourcing is a valuable service and there will always be people looking to use that service to save time and money and also leverage that on the ground knowledge.
How does it work?
A property sourcer will usually ask a series of questions to the investor to find out what they are looking for, how much their budget is and to find out what their investment goals are. For example do they want X amount of net profit or cashflow each month or do they want a specific return overall.
Once the sourcer has this information they are able to try and find potential properties that meet these requirements.
Once they find these potentials, they will analyse and crunch the local data and key numbers. This is then put into whats called an ‘Investment Pack’ which is effectively a brochure so the investor can look at the headline figures and see if its something worth enquiring about.
If everything’s positive, an offer may be put forward via the sourcing agent on behalf of the investor.
What contract should you use as a property sourcer?
You will need to use a proper contract to protect your fee as a sourcer. Many people make the mistake of sourcing and thinking they can use whats called an N.D.A. (non-disclosure agreement) to protect their fee.
However, these are often very light on details and not up to the job! So, if you become a property sourcer make sure you obtain a good contract to have your investor sign that protects you and sets out your terms of business with your prospective client.
How does a sourcer get paid and how much can they earn?
A sourcing agent can earn money in two ways. Sometimes they will require a reservation fee up-front, this forms part of the ‘sourcing fee’. The rest of this fee is paid when the property purchase completes. The sourcing fee is typically 2% of the purchase price of the property.
So the average fee could be between £2,000 and £10,000 per property.
Being a property sourcer can be very lucrative depending on how many investors you can source deals for. Some people scale this business up and then begin investing themselves in property with the money they generate.
It’s often a good way to build capital and then this opens the doors to other things such as investing, doing joint ventures etc.
How else can a property sourcer generate money?
Property sourcers are often open to doing Joint Ventures with investors. This is when an investor and the sourcer will do a project together. For example they might find a property that would make a great refurbishment project. Similar to those you see on programs like ‘homes under the hammer’.
So the investor buys the property and the sourcer manages the refurb process and provides updates and feedback. Once the property is sold for a profit, both parties would agree a profit share or a fixed return on their initial investment. This is a very common way of doing flips and the investor not getting their hands dirty.
They use the sourcer and their JV partner to do all the physical side of the project and as long as both parties are happy with the agreement it can be very fruitful and lead to an ongoing relationship.
What about overseas investors, how does that work?
Overseas investors need people who property source even more so. Think about it for a minute.
An overseas investor will likely not know much about local areas, where to invest and also where to avoid!
In-fact my first few property deals I sold were to overseas investors! It worked really well.
An overseas investor will use a sourcer as their eyes and ears as they are not here themselves so they need a lot more guidance and support.
They may need help opening up a UK bank account, they may need help setting up a ltd company or SPV to buy the property with. The sourcer will offer to help wherever they can with their clients, all in the name of getting the deal done and helping them through the other side.
Can anybody be a property sourcer?
Yes they can, however they will need to be compliant and have the right insurances in place. An investor should always make sure whoever they use that they are compliant and legal.
As a minimum sourcers should have the following:
Membership of The Property Ombudsman
ICO Registered (data protection)
Public Indemnity Insurance and Professional Liability Insurance
A.M.L. Supervision Registered (anti-money laundering)
Business bank account
Client money protection (only needed in certain circumstances)
I want to find out more about getting started as a sourcer, what should I do?
Luckily for you we put together a whole bunch of free training for you. Our free training will give you an idea of how you can get started, what to do next and we share with you some absolute must haves... such as, a complete step by step of the sourcing process and bonus PDF's and workshops online. ALL FOR FREE!
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