This really depends on the strategy of the individual. Sourcing companies can free up your time immensely so that you can get on with the day job, they are for some investors a necessity, especially for those who are just starting out and rely on these companies for advice and guidance.
Sourcing companies are also needed for investors who live out of the area and have no intention of carrying out high levels of due diligence. If you want high yielding, low priced properties then the North tends to be the place to look and for some southern investors they would rather rely on the experience and knowledge of experts in that area.
There has been a lot of bad press recently about sourcing companies and the services (or lack of them) that they offer, however as with all unregulated business’s you will find that there will be a small minority that have the cowboy attitude and don’t care who they rip off, but I must say that most do have integrity and work with the investor to find their preferred outcome. I would strongly recommend that you carry out due diligence on the sourcing company as you would with any property deal. Ask other investors, have they used them before, did they deliver on what they promised, have they got a refund policy and ALWAYS read their terms and conditions and then read them again. Too many times when something goes wrong with the deal for whatever reason, the investor demands his money back and the sourcing companies refuses. You need to be clear on the options you have should a deal not go the way you planned – Do I get a refund or is the fee re-credited to another deal? This promotes bad feeling amongst investors and sourcing companies and let’s faces it, this industry needs all the help we can get right now.
Why not use an estate agent instead?
Most Estate Agents are not aware of the creative finance that investors use these days and I have had many debates myself with agents as to the legal status of these deals. A little bit of knowledge is a dangerous thing and this is true with Estate agents. They are not investors and mostly deal with residential properties so therefore have no need for creative financing.
By going direct to estate agents you also have the problem of trying to get the property valued as high as possible. We all know that private sales are easier to get valued higher which is the point of the creative financing system.
Have they sourced the deal themselves?
There have been too many investors who have had their fingers burnt by companies who have not sourced the deals themselves and given what they thought was true information as to the letting potential, valuation, area etc but in actual fact the figures were highly exaggerated and they were left with poor properties in areas they knew nothing about.
How the deal was sourced? Was it from you directly? Do you have approved sourcers? How long has the deal been available? All these questions should be asked and can build up a clearer picture as to the people you’re dealing with and to the quality of properties they offer.
Does the sourcing company provide a letting service?
If the sourcing company provides a letting service or works in conjunction with a local letting agent then they are obviously backing up what they promote. It also takes away the potential problem of the sourcing company being able to wash their hands of the deal after it has gone through. There are sourcers who are motivated by the size of the fee they will receive and do not have the best interest of the investor. By offering a letting service this reduces that risk; it also offers the complete service for the investor, one less thing to worry about.
Be aware of the sourcing companies who think of quantity over quality and continually bombard you with properties. As every one knows sourcing is not a quick or easy process. In order to find the property, carry out due diligence, negotiate the price, package the property it can take quite a considerable time. So don’t be sucked in by sourcing companies who have different deals from all corners of the UK on a weekly basis, it would be impossible to carry out all the due diligence required even if there were more than one approved party involved.
10 Questions to ask
- How long have you been in trading as a sourcing company? (Search on Companies house)
- Do you source the properties yourselves, if not who do you use?
- How long have you used them and what is your relationship with them?
- What sort of due diligence have you carried out?
- Is there a RICS valuation?
- Do you have any local knowledge of the area?
- What are your terms and conditions?
- What is your refund policy?
- Do you provide a lettings service?
- How long has the deal been on the market for?
By choosing the right sourcing company it can make property investing so much easier and dare I say it, enjoyable even in these uncertain times. By following the above advice, you are more likely to achieve your property investing goals; sourcing companies will work for you if you are willing to work with them.
If you would like to ask John a question click here