Property sourcing business can be tempting to give yourself a head start within property investment.
When you are low on cash.
This probably is the first advice that one will offer when you mention you don’t have money, but want to earn money via property.
The challenge though is:
To set it up with proper legal compliance and knowing to set it up as no different to an estate agency.
If you are on to setting up a property sourcing business, then here are few of the most important factors to consider as minimum requirement.
1) Property Sourcing And Redress Scheme
The word redress just means “set right” or “remedy/rectify”.
By law any entity that is classed as estate agency or letting agency has to be part of a redress scheme approved by government.
The sole purpose of being part of such a redress scheme is to ensure fair and reasonable resolutions to any conflicts with members of public.
The two well know redress schemes with property world are Property Redress Scheme (PRS) and Property Ombudsman.
Limitless Monks are active member of “PRS” as of this year and are setup as sourcing agency.
2) Property Sourcing Registration With HMRC
The primary purpose of registering with HMRC is to setup your sourcing business with a proper company structure.
Be it as a limited company or a sole trader. As a sourcing business you will be treated no different to an estate agency and hence has to be setup as one.
3) Property Sourcing And Data Protection
As a property sourcing agent, you will be required to request clients to share their personal details, check identity of the buyers and request them to sign necessary documents on the deals.
Many a times you would request clients/buyers to sign the non-disclosure agreements and request proof of funds as well.
All this information is classed as personal information and as a sourcing agency you are responsible to protect the personal data without fail.
Such data protection laws have been strengthened with the rollout of GDPR.
Hence as a property sourcing agency, you are required to register your company with Information Commissioner’s Office (ICO).
4) Anti Money Laundering Legislation
The term money laundering is an act of concealing the origins of money obtained illegally by means of transfers from foreign banks or legitimate businesses.
Property is one of the industry where the money changes hands from variety of sources and hence higher chances of money laundering.
Registering with HMRC as part of anti money laundering legislation, you are committing to not be part of any such activities and also not tolerate any such activities if they come to your notice.
You will have to report them immediately to relevant authorities if you have a sniff of such activities.
5) Property Sourcing And Insurances
Insurances are not just restricted to property sourcing but are applicable to any business.
The chances of a person getting sued by clients on any issues is high where there is heavy amounts of money involved.
Property is that industry where money is right at the heart of every single step.
Professional Indemnity and Public Liability are the two insurances that you need as a property sourcing business to protect against any such lawsuits.
6) The Two Key Lists
Once you have setup your sourcing business with all above compliance activities, its time for you to see what you need.
You need two lists.
- Buyers : Investors who can move quickly and buy when they are given a deal suitable to their investment criteria.
- Deals : Properties that are classed as deals and suitable to an investment criteria of the investor.
You are not going to be able to create a database of active buyers and deals in a single day or month.
It is going to be a continuous process to build your lists gradually and could easily take up to 6 months.
You need both of them and is not optional. List of buyers are no good if you have great deals and vice versa.
7) Your Payment Model
While the payment terms vary from one sourcing agency to another, as a guide line below are three stages where payments can be negotiated.
Given that a deal can have interest from many buyers, charging a minimal reservation fee in the region of £100 to £200 is great to secure serious buyers.
Once the buyer has decided to go ahead with the purchase and has done the property viewing, an advance payment of anything between 25% – 50% of sourcing fee depending on the fee you charge can be requested.
Final payment can be requested when property is completed or in some cases even exchanged. The final settlement once the property has been handed over to the buyer.