CONTENTS: 1 - RESIDENTIAL OWNER (RENT-A-ROOM), 2 - RESIDENTIAL OWNER (BED & BREAKFAST), 3 - PROPERTY TRADER (FLIP), 4 - PROPERTY TRADER (ENHANCE), 5 - PROPERTY TRADER (OPTIONS), 6 - PROPERTY INVESTOR (SHORT TERM LET), 7 - PROPERTY INVESTOR (BUY TO LET), 8 - PROPERTY INVESTOR (STUDENT/HMO LET), 9 - PROPERTY INVESTOR (PENSION), 10 - PROPERTY INVESTOR (LEASE OPTIONS), 11 - PROPERTY SOURCER (CLIENT FACING), 12 - PROPERTY SOURCER (PROPERTY FACING)
I Vital Statistics
|Earning potential before tax||£5,000 to unlimited per property|
|Capital Required||£nil to £50,000|
|The Business Model in a nutshell||To find property deals and sell them on without ever owning the property.|
|Potential gaps in the market and suggested USPs|
This is the business of finding properties and selling them before you even own them. It is done by using 4 methods:
- Selling the Lead only
- Assignable Contracts
- Sub Sales
- Option Agreements
Each method offer increasing returns as listed but with added complexity. However if you can get this right you can make millions from it as there are some currently doing so as we speak.
This is perfect for those who love the chase, the hunt, the deal. You do not need much to get going and if you focus on territories you know big returns can be had if you act fast.
You have to buy at below market value to be able to sell them before you own them. i.e. they have to be sourced at a bargain price and sold at a bargain price.
- getting the leads
I have identified 11 ways you could get below market value properties:
- Estate Agents – I have built an extensive portfolio and I have bought most of my properties from estate agents. Just because they are on the open market does not mean they are not cheap. If you have signed up to Rightmove alerts you will be alerted to a deal as soon as it comes on. Only yesterday I got an alert from Rightmove for a 3 bed flat for £23,000. My offer went in that day!
I know of some sourcers who keep the estate agents very sweet. Free trips to tanning salons (as most of the agents are girls aged in their 20s) bottles of champagne, box of chocolates etc. Whatever gives you the edge so that the estate agent calls you as soon as a deal comes on.
- Letting agents – if ever there was a source of ready made investments then look no further than a letting agent’s book! They will have properties which are tenanted and managed and they may just have a landlord who wants to sell because of ill health or retirement. So get to know all your letting agents in your area.
- Auctions – I have spoken about auctions before in Property Trader (Flip) section on page xx. Please re-read to see how you can bag a bargain by finding properties with low reserves with low bidding demand. Also sign up to EIG to get auction alerts. EIG are a one stop shop for auction properties as they gather data from every auction house and present the information to you in real time.
- Private ads – some people simply refuse to pay estate agent fees. Also with the recent introduction of HIPs and Home Reports the opportunists who do not want to fork out up to £1,000 to sell their home private ads have seen a little surge. So check the classified sections of your local press, Daltons Weekly, Loot, Friday-Ads, eBay, HouseLadder.co.uk etc. Just search for “sell my house privately” in Google and all the sites will come up.
- Developers – Developers want a quick sale. They would rather have someone else manage the sale for them than having to deal with 10 to 150 different buyers all with their own different set of gripes! They will usually offer a discount of at least 15% but in the current climate 40% discounts have not been unheard of due to the lack of finance for new builds.
- BMV lead providers – there are companies out there that are great internet marketers and are able to get leads of desperate sellers. They charge anywhere from £10 to £200 for a lead and they have all the information you need to decide whether it is worth purchasing. Now a word of warning. They do not have exclusivity on the lead. This desperate seller would have done the rounds so you could buy the lead and find out the property has been sold. The best way to test this is to buy quite a few and then see if it has paid off. Expect to get a 1 in 7 hit rate. That is to say expect that 1 lead you buy in every 7 will result in a deal being done.
- Solicitors – Solicitors come across properties where the owners want a quick sale. Take for example a brother and sister who inherit their parent’s home but neither want the property as they live elsewhere. They tell the solicitor they want a quick sale and ask him if he knows anyone who buys quickly without fuss. This is where the solicitor should be on the phone to you! Big, big discounts can be had as all they want is a quick sale with minimum hassle.
- Internet – if you are good at internet marketing or have search engine optimisation skills then building a site to capture property leads could be a good way to get property deals. It is very competitive out there. So search engine optimisation (which is all about getting your site listed top in Google) will take a minimum of 6 months or if you do pay per click with Google it will cost you at least £50 a day to get some decent leads. However it can be an excellent way to get leads as you will be getting them fresh. It could be that they have only made an enquiry on your site so if you are serious about becoming a property sourcer then I would recommend persevering with this method. Also, as mentioned above, you could sell unwanted leads for up to £200.
- Other Property Sourcers – it is an incestuous business! IT is one of those businesses where it makes sense to do business with your competitiors. Tread carefully here like protect your contacts, clients, sources etc. however there will be times when a property sourcer has stock he cant sell. You may be able to take on their deals and punt them out to your sources and split the fee.
- Leaflet drops – Get some leaflets printed stating “We buy homes quick” etc. and target areas where you think you can sell. You can either deliver them yourself our incentivise someone paying them minimum wage plus a £500 bonus for any properties that result in a deal.
- County court repossessions – This involves going to county court and looking for repossession cases. You need to find cases that are listed with the bank v the home owner so Barclays Bank v Joe Bloggs, Woolwich Building Society v John Smith etc. You also need to be armed with a sale contract and you can approach Joe Bloggs or John Smith and say I will buy your property. Then Joe and John can go in to court and present your sale contract to the judge and he has to halt repossession.
- turning leads in to deals
So you now know how to generate property leads how do you turn them in to deals? Well you need to do the following 3 actions:
You need to check that the deal “stacks”. Stack is a term used by the industry to check that the figures actually work. This means the lead is:
- below market value
- has enough equity to be sold on
If the lead is all of the above then you have a green light.
- Below Market Value (BMV)
To establish whether the property is below market value you need to establish the market value and the price the vendor is willing to accept.
The great thing about the internet is that market value can be determined very quickly. All you need is the postcode, the street name and the size of the property and you can use www.houseprices.co.uk or Rightmove to get an idea of what properties have sold for in the area.
Also you can visit all the property portal websites and see what properties in that street are going for now. You will quickly be able to establish market value from seeking information from these sources only.
So once market value is established you need to compare this to the price the vendor will accept. To establish this you need to ask them what they will accept. This would have either been already asked or you will need to obtain this information from them. A simple phone call or email will do. You need to get this information very quickly. There is no point listening to the vendor on the phone about what a great area or property it is. It all starts with the price. If the price is good then you can keep on listening!
- b) Mortgageable
Now if the price they want is below the market value you have established then you are getting warm. You also need to find out if it is mortgageable. Now this can really only be established by a surveyor but you can ask certain questions to help you establish whether it would pass a survey like:
- Is it lived in currently? – this would establish that it is at least, on the face of it, habitable.
- Does it suffer from any subsidence? – properties that are subsiding are not mortgageable so it is good to get this question in early.
- Does it suffer from damp? Surveyors put on retentions (an amount withheld from the mortgage advance to reflect the work required) or request remedial works are carried out to make the property mortgageable due to damp issues.
- Does it require any work? Retentions and remedial works will be requested by the surveyor.
If the outcome to the questions above are favourable then you need to find out whether the vendor can sell it on.
c)Has enough equity to be sold on
A property can only be sold on as long as all debts secured on the property can be cleared. So if the mortgage is £75,000 and the vendor has agreed to sell the property for £70,000 then the vendor needs to come up with another £5,000 as there will be a shortfall. Most of the time vendors do not have this shortfall so the deal cannot happen.
So you need to know all the debts secured on the property. So ask them what the size of the mortgage is and if they have any other debts secured on the property such as 2nd charge loans.
If the price that you are willing to pay is greater than the total amount of debts on the property and is within the ball park figure of what the vendor will accept then the property requires a visit.
This is where you see the property with your own eyes. You will quickly be able to establish whether this property is going to work. You have to try and view it from a surveyors point of view as they have all the power. Do you think it value up?
When you meet the vendor this is your time to start the negotiation. You need to convince them that your offer is:
The best they can get
Remember you may not be the only person they have seen. Ask them have they seen anyone else. Let them do the talking. Things to help you make the deal sway your way:
- Offer to pay their legal fees
- Let them name the exchange and completion date
- Show off your credentials i.e. show them a bank statement with the cash to buy the property (if you have one) or how you have a ready bank of investors lined up already to take the property.
Once you have agreed a price it is then tme to secure the deal.
To secure the deal you need to bring paperwork with you. The paperwork you bring will depend on how you wish to sell the deals which is dealt with in the next chapter but bringing the paperwork is vitally important.
You want a signature there and then. People can change their minds all too quickly however the act of signing a piece of paper cements things in the vendors mind.
If they wish to think about it then say that is ok but inform them that you are seeing other properties and since you have limited funds you may not be able to buy theirs when they do decide to give you the call.
Now if you are lucky enough to have secured a deal now you just have to get rid of it……fast!
- how to monetise the deals
Now you have a deal all signed up you now need to sell it. Speed is everything in this game. You do not have the luxury of not being able to sell it. If you compare this with the Property Trader (Flip) method where you own the property if the property does not sell then you just put it back in the next auction.
With deals the clock is ticking. You need a sale as quickly as the contract you signed. So if you agreed a completion in 8 weeks you need to find a buyer who accepts the price AND can complete in 8 weeks. If there was ever pressure in a property business then this would the one!
Let me explain how deals are sold.
Deals can be sold by one of three ways:
An assignable contract is a contract which you can assign to someone else. So lets say I have secured a property for £100k. I can then sell this contract to another investor for a fee. All that needs to be in the contract of sale is that the contract is assignable.
So if you have bagged a deal and just want to get rid of quickly and simply you just assign the contract to another investor for a fee. They will then step in to your shoes and perform the contract.
If you have structured the deal as a no money down deal you can still assign this contract to another investor.
A sub-sale is where A contracts to sell a property to B who then contracts to sell the property to C before completion of the A to B contract.
You are B. The Middleman. B’s transaction never gets registered on the land registry. There are ways you can do this so the purchaser C does not fall foul of the 6 month rule. I have heard you need two fax machines and two people faxing at the same time to stay the right side of tax law!
So for example you have found a property you can buy for £50k and you have found a buyer for £70k. you would:
Have a contract to buy for £50k
Have a contract to sell for £70k
And the purchase and sale would occur simultaneously netting you a £20k profit. Nice! Now if you were able to get a valuation for £100k then you would be able to structure the purchase for the end user no money down.
I talk about options further in this book but basically an option gives you the right but not the obligation to buy. So you can sell this option on to another investor.
If you are willing to provide bridging deposit finance (by teaming up with a bridging finance company) then you can structure the deal no money down which makes the deal very attractive. This again requires a valuation in excess of the purchse price.
Now you have to find a solicitor who understands these type of purchases and sales. They are quite fiddly and deals will fail. It is just the nature of them. Due to lenders changing the rules all the time, vendors not understanding what is going on and certain rules needing to be followed with precision it is natural for some deals to fail. However it is worth the persistence as the rewards can be very high.
- finding buyers
Now you need to find buyers for the deals. They will be investors generally. You may be able to find owner occupier buyers but I will warn you they are VERY difficult to deal with. They will need a lot of hand holding and they will be buying based on non-financial reasons which can be difficult to grasp when you just want a quick sale! So my advice to you is stay away from these sort of buyers. The clock is ticking when you are a property sourcer so you want people who know what they want and can buy fast.
I have my own hierarchy of buyers. They are ranked as such:
- cash buyers
- credit worthy buyers with deposits
- credit worthy buyers with no deposits
- soon to be any of the above
- Cash Buyers
Not a lot can go wrong with these buyers. They do not need finance as they have the full asking price to put down CASH! So deals can be done quickly and neatly. Some buyers can complete in 7 days. Now these cash buyers know they have the highest status and boy don’t they know it! Do not expect them to pay the price you want. They hold all the negotiating power. However if you can agree on price and you are not greedy you can make regular hassle free profits.
A lot of these cash buyers have facilities with commercial banks. They can simply write cheques for the full amount as the bank has security over their portfolio. They have whats called hunting licences which enables them to go out and hunt for deals and pay cash so they can complete quickly. If you can get to deals before them then they are forced to pay your fee.
- Credit worthy buyers with deposits
This is the next best buyer. At the mercy of a lender but nevertheless able to buy. The good thing is they do not need any complex no money down structure so they are able to purchase in the normal fashion. Their deposits may be tied up in equity in their current portfolio so be sure to classify how much they have in liquid reserves and how much is equity tied up in their properties.
Expect a buyer like this to take anywhere between 4 and 12 weeks to complete on your deal.
- Credit worthy buyers with no deposits
At least these people can get credit! Now they will need to use a no money down scheme so the transaction will be a bit more fiddly as mentioned earlier but they may be less fussy on the deal you have got. As long as the deal is 25% BMV then it can be done without the need for the investor to put in a deposit. Because the nation is not overflowing with these sort of deals this buyer will usually jump at a deal like this as they do not come up very often.
We specialise in deals like these for our investors. 90% of our buyers fit in to this category. Not to say they do not have any money it is just they want to get the highest return on any cash input they have to put in so they want near 100% financing as possible. Very sensible in my opinion!
4.Soon to be any of the above.
You may come across buyers who are potential buyers. That is to say they are not in a position to buy at the minute but will be soon. These buyers are your pipeline. So keep in contact with them to see when their circumstances change so you can start offering them deals when you get them.
So how do you find these buyers?
Well you have to become a property sourcer (client facing) or contract with a property sourcer (client facing).
My organisation is a property sourcer (client facing). We work with plenty of property sourcers (property facing) and are always looking for more! So if you want access to buyers please contact us at www.ajayahuja.co.uk.