Beware of Irresponsible Property Sourcing Companies

Wise Tip: Always conduct thorough research before making any investment.

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by David Tarn

Over the last five to ten years the property investment world has been filled with dream-selling hype, delusions of grandeur, get rich quick schemes and irresponsible ‘fake it until you make it’ guru’s all trying to lure you in to a false sense of security to extract your hard-earned cash, no matter how little of it you have to invest. One of the biggest problems with this hype is that it has paved the way for the rise of the property sourcing industry. This may not have been a bad thing but when you couple the above with the low barrier to entry to this industry, we have a potential recipe for disaster. I have seen the effects of this first-hand hundreds of times in recent years and have spent hundreds of hours frantically trying to help investors limit the damage of this. I am at a point now where I feel it is time to expose these sharks. You could say what I am about to discuss is the straw that broke the camels back. For over 5 years now, I have been educating my clients on the ethics of sourcing companies. However I want to get something clear right from the start. There are some fantastic sourcing companies around who really know what they are doing, they are very professional and often offer some form of accountability to their clients with controlled refurbs and even management thereafter. It’s not these companies I have an issue with, I want to talk about the other lot.

Wise Tip: Always conduct thorough research before making any investment.

Firstly, What is Property Sourcing?

In a nutshell, this is buying a lead to a property deal that otherwise you would not have known about. Generally or rather historically, these are direct to vendor properties that have a price agreed between the vendor and the ‘trusted’ property sourcing company. However, more often than not, these days, they are simply properties that are on the open market for sale with an agent, live on Rightmove for anyone to view. The caveat being “there is a good argument to say that you were most likely never going to come across this property, so there is value in that, I suppose”.

So how does property sourcing work?

Simply put, you register with a sourcing company that sends you a deal or property, usually by email as and when they find come ‘source’ it. They will charge you a ‘finders’ or ‘sourcing’ fee and then pass the property lead over to you for completion. Generally, this fee (for standard single let properties) is C.£3000 but can rise significantly for larger refurbs, flips or commercial to residential properties. It’s not unheard of to pay upwards of 20-30k for a large development. As you will see below, the deal is presented with some basic information regarding purchase, refurbishment and sourcing costs. It will highlight any potential increase in value and the achievable rent.