Podcast Episode Highlights
30:15 – In The Lab With Brad
32:16 – Someone else’s land
33:39 – Build an asset you control
34:20 – Building a website – The myths
35:00 – 1. It is expensive to create a nice-looking website
35:34 – 2. It takes months to build
36:28 – 3. You’ll need a professional web designer
37:33 – 4. Every change costs money
38:26 – 5. You need coding/programming knowledge
The Goliath Facebook Group Q&A Session
The question this weeks comes from Andrew Lindsey. He asks ““If Estate Agents make money from commission on sale of property how do you make it worth their while to help you source suitable R2R properties, given no sale will be taking place?”
Want to get your property deal sourcing questions answered?
If you have a burning question about property sourcing or need some advice then head to the Goliath Sourcing Academy Facebook group.
Sourcing With Mark’ – Innovative and Advanced strategies for doing better property deals
Sourcing Fees – Fixed Fee vs. Deal Dependent
You’ve worked hard to get the deal and now it’s time to sell it on to a lucky investor. But how much should you charge? Should it be a fixed fee or a percentage of the deal amount. In this episode Mark has the answers for you. You’ll learn:
- How to precisely calculate your property sourcing fee
- What investors should consider a fair fee
- What’s considered a fair and ethical fee for ‘distance’ investors
- What due diligence should be carried out in order to ensure your numbers are accurate and can confidently used to work out your sourcing fee
- When high than ‘normal’ fee are considered acceptable
‘In The Lab With Brad’ – Marketing, systems and outsourcing hacks for property pros
Why You Need Your Own Property Sourcing Business Website and What To Do About It
A lot of property pros are building their online presence on their social profiles. While that should be part of the marketing mix you need to take control of your online presence. Sellers, landlords and investors go online first to check you out. You need to be able to control what they see and read about you. There’s too much at stake. Brad tells us why you must have your own website and debunks the myths associated with building one. You’ll learn:
- Where you should be building your online presence as a professional property soucrer
- Why it’s critical to have your won sourcing business website
- How to quickly and easily get a website built
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To follow is the transcript of the Facebook Q&A, Sourcing With Mark and In The Lab With Brad.
The Goliath Facebook Group Q&A Session
“If Estate Agents make money from commission on sale of property how do you make it worth their while to help you source suitable R2R properties, given no sale will be taking place?”
Mark: This session’s Facebook group question is from Andrew Lindsey and it’s with regards to estate agents. It’s about sourcing rent to rent deals with estate agents, the question being, “if estate agents make money from commission on sale of property, how do you make it worth their while to help you source suitable rent to rent properties given no sale will be taking place?”
So I want to try to answer this in a couple of different ways. Estate agents are assigned the tasked by the seller to sell their property for a fee. Now, there are going to be properties out there that are currently on the market which are suitable for rent to rent purposes but maybe are struggling to sell. If a property is struggling to sell, that means it’s hanging about on an estate agent’s books. Generally, estate agents lose interest in trying to sell a property within the first four weeks especially if a seller is not being very realistic on price. So what they are looking for is potentially a solution that is going to resolve the issues they’ve got with the seller, i.e., not being able to sell it for the price that they want but also getting their commission.
Now, most properties that suit rent to rent that are going to work from a cash flow point of view, you’re probably going to be looking maybe somewhere up to £200,000 – £250,000. Even if we stretch to £300,000, most estate agents are going to be charging a 1% fee plus VAT. So that’s up to £3,000 for the estate agency fee.
Offer a 50/50 deal with estate agents
So what we would do is we would come to an agreement with that estate agent. And if you’re sourcing property deals – so if you’re going to source, package and sell that to another investor for a fee, what you want to do is you want to negotiate with the estate agent and say that you will split your sourcing fee with them 50/50. The reason being they will give you the property so they’ll give you one, and then of course, if they get that sort of deal, every other property that comes on that fits the same criteria that they’re struggling to sell, they’re going to remember you for that as well. And obviously secondly, they’re going to get money for nothing. So ultimately, they don’t have to sell the property, so they don’t have to go through the full sales progression process at all. They need to just take the property off the market and they’ve managed to somehow get a fee for doing nothing. So that’s one way of getting around the estate agents.
Strike a deal with letting agents
Now of course, the other way is by working with letting agents. So again, it’s a very similar process. Properties that are struggling to let, they’re not getting a management fee from. And so again, what you want to be doing is you want to be putting together an offer to letting agents, managing agents, which covers their management fees for a certain period of time in order for them to get what they would have got anyway without actually having to go through the process.
So what we’re doing with agents, just in a nutshell is saying to them, “We will take that property off your hands. We will offer the seller/landlord a solution. You won’t have to do anything other than relay our message backwards and forwards and we will give you 50% of the commission that we get.” And our commission generally is somewhere in the region of £2,000 to £4,000 a deal. So you’d be getting £1,000 to possibly up to £2,500/£3,000 for splitting the fee.
Agents are not going to turn that down with properties that are already creating a headache. From a different point of view, property sourcing as an investor, you’re not looking to package and sell this deal for a fee. You might be thinking “Well, I’m not going to get a sourcing fee, so how am I going to split that commission?” What you would do is work off the same principle. So if you work to package that deal, you’d maybe get £3,000. You say to the agent, “I would normally get a fee if I did this to sell on but I’m going to keep it for myself.” But what I’ll do is up the equivalent of 50% of that sourcing fee. So you can factor that into your upfront costs for that rent to rent deal and you would pay the agents a referral fee for handing that lead over to you.
So there are two different ways of doing it. They have the same principles, but two different angles, both from an investor and from an agent. Hopefully, Andrew, that gives you an idea as to how to work with estate agents when they’re trying to sell property. And I’ve also quickly touched on how to do it with letting agents as well. So hopefully, you found that useful.
Brad: I feel like clapping because that was such a good answer.
Mark: Thank you very much and I clap to myself every time I answer a question.
Brad: I can see all these people clapping in their cars.
Brad: Or on the treadmill. They’re flapping their arms up. Andrew, thank you so much.
Mark: Oh, Brad. Two compliments in a day!
Brad: I know, I know. It’s just too much. Well don’t expect one for another 28 days. So Andrew, thank you so much for that question. If anybody else has got any questions for Mark or for me for that matter, then please head on over to the Facebook group at goliathfbgroup.com. Get involved with the discussion. Ask some questions and we’ll cover them in one of the upcoming podcasts for you as well.
‘Sourcing With Mark’ – Innovative and Advanced strategies for doing better property deals
Sourcing Fees – Fixed Fee vs. Deal Dependent
Mark: Okay. So in this session of Sourcing With Mark, I wanted to tackle the long-standing debate over sourcing fees. And what I thought I’d do is approach this from two separate angles because I know our listeners come from a mix of investors sourcing for themselves and obviously property sourcers looking to package and sell their deals for a fee.
Now, property sourcing fees are a funny one because you can charge a very hefty fee for packaging a deal. But some people promote the idea of selling deals for a fixed fee no matter what the numbers are, no matter what the deal itself consists of, no matter what the refurb costs are, or the setup fees and the upfront costs. So what I want to do in this session’s Sourcing With Mark is go through sourcing fees, how we charge property sourcing fees at Goliath Property Solutions, in our property sourcing business, and then also look at it from an investor’s point of view. As in how can you justify the sourcing fees that have been asked? What I get asked a lot by investors is “How can I work out whether that fee is justified for that particular deal?” So I’ll cover both of those topics and hopefully you’re going to find that useful.
Now, with regards to how we work out our sourcing fee at Goliath Property Solutions, the way that we do it is we work out the numbers based on the deal itself. So as an example, if we sourced a rent to rent deal, the rent to rent deal was cash flowing £1,000 per calendar month. So net cash flow £1,000 per month and the property itself was immaculate. The only upfront costs were going to be our sourcing fee and maybe a little bit of personalization in terms of feature walls, some cushions and knick-knacks.
Our Fee Scale
Let’s just say it was £2,000 to dress the property, and then our sourcing fee. We would look to ensure that the buyer of that deal, so the investor that we package and sell that deal to, is going to get their initial investment back out of that property deal within year one. So on a rent to rent deal, we usually don’t charge any more than £5,000. So £5,000 is at the top of our fee scale. And the minimum fee that we charge is £2,000. £2,000 is at the bottom of our fee scale. And our fee varies depending on the numbers in the deals.
So for that example, it’s cash flowing £1,000 a month, it’s going to have £2,000 a month refurbishments and upfront costs, so that means that it’s going to take two months net cash flow to get that money back. So we then want the investor to recover their sourcing fee within the remaining term of the year. And so for that particular deal, we would charge the maximum on our fee scale which is £5,000.
Now if the numbers were slightly different in that the property was going to need a £7,000 refurbishment and it needed £1,000 payment upfront as a deposit to the landlord or £1,000 referral fee to the letting agent, so we’re all in £8,000. The property net cash flow is £1,000, so the investor’s not going to get their money out until month eight. That leaves four months remaining for within the first year. We would probably look at charging maybe somewhere about £3,500 to allow for a bit of give in the year. So a £3,500 deal fee for that property because it has a larger upfront cost.
Now, obviously, there are different strategies. So an example of a different strategy might be a below market value property deal. So again, it’s all about how much we can negotiate below the percentage BMV, and that’s where we incorporate our fees. Let’s say for example there’s a property of £100,000, the property is going to need to be bought. Let’s say its current actual value (so forget refurbs or anything) is £100,000.
We will then take off 20%, which makes it £80,000. We’re going to have to reduce that by stamp duty. The stamp duty comes off, the solicitor conveyancing fees come off, any survey fees come off, and then our sourcing fee comes off that again. So we’re looking at probably somewhere around 23% below market value in order to be able to achieve that 20% below market value deal for the investor.
So our fee is going to be somewhere in the region of maybe £2,000 to £4,000 depending on how much we can negotiate. The benefit of us working on your behalf is that we will negotiate 20% below market value and then even more for our fee, so the percentage market value that we advertise properties genuinely is a 20% below market value deal. If it’s 15%, we’ll tell you it’s 15% and you will know categorically that 15% is a genuine below market value deal because our fees then come off the price even further. So it will be 15% plus our fees and all costs. So the genuine below market value deal.
Buying deals from another sourcer
So flipping that around, if you’re an investor looking to buy deals from another sourcer or from another property sourcing company, there are plenty of us out there, that’s the sort of thing you need to look at. There are a number of deals I see on a regular basis where they tell you it’s a percentage below market value and you’re going to need to check that the current market value that they’re telling you is correct in the first place.
Do your own due diligence
You’re going to have to do your own due diligence. But then what you’re also going to have work out is, is that 15% below market value and then you’ve got to add the fees and the costs on top. You have to do this because in terms of the purchase that you’re buying as an investor, suddenly it’s not necessarily that 15% below market value. You’re having to pay the sourcing fee on top, your buying cost increased, and therefore that deal suddenly might become a 10% below market value deal, which to be honest, you probably could have gone and negotiated yourself in an estate agent anyway. So really for deal sourcers to be doing their job properly, they need to factor these costs into their fee and like we do, make sure that there’s a fee scale in order to make sure that that deal is fair.
So that really covers my opinions on fixed fees, as I’m sure you could probably read between the lines. I’m not a fan of just charging a fixed fee no matter what the deal is. I’ve seen a number of property sourcers out there who will package and sell deals and whether it cash flows £50 per calendar month or whether it cash flows £1,000 per calendar month, they will still charge a sourcing fee of £5,000 per month and it’s just not right. Investors who are savvy will pick this up and they won’t pay that sort of sourcing fee.
Unfortunately, there are investors that maybe haven’t got as much experience. Maybe they’re buying blind, they’re buying on trust that the property sourcer knows what they’re talking about and they will pay silly fees for deals that aren’t necessarily true. Now, what I don’t want to do is get into due diligence because there is a podcast that covers due diligence and obviously making sure you check the numbers. But from a sourcing fee point of view, you need to make sure the numbers work and then you need to make sure that that sourcing fee is justifiable really.
There are deals that you might have to pay more for. If we manage to get deals that are substantially below market value or if we are able to buy property flips for example, where we can factor in a higher sourcing fee, but in return the investor is still going to get their 20% net return on investment etc., then we will charge more. That tends to be more the exception rather than the rule. In terms of our general process, the fees are between £2,000 and £5,000.
So hopefully, that covers how you should look at fees. As a deal sourcer, what you want to be looking at is you want to be looking at the quality of the deal, the numbers in the deal and whether the investor will get their money back out within the first 12 months.
Lease option deals
For lease option deals, it’s slightly different. But if you’re negotiating a good purchase price now with a long-term lease, they will make the money at the back end and that’s how you justify your higher fee. Again, you’ve got to make sure the cash flow is going to be a relatively decent cash flow. Don’t try and sell a deal that cash flows £50 per calendar month for £5,000 because it just isn’t right. What you want to be doing is looking at the cash flow. You want to be looking at a fair sourcing fee and then you want to move onto the next one. So you’re better to sell lots of deals at £3,000 than to spend four months trying to sell a deal at £5,000. It’s just as simple as that really.
For investors, make sure you’re looking at the numbers in the deal. Make sure that you’re going to get that money back out within the 12 months. Or alternatively, you’re going to make that money back at the back end in terms of the capital appreciation, the flip resell value. And obviously, check the numbers, make sure they’re all right, and then pay a fee that is fair. There are a number of sourcers out there, so just keep your eyes open. The fair ones, the ethical ones will always charge a fair fee for the deal that they find.
Hopefully from a sourcing point of view and from an investing point of view, you found that Sourcing with Mark was useful. As always, just remember, happy sourcing.
‘In The Lab With Brad’ – Marketing, systems and outsourcing hacks for property pros
Why You Need Your Own Property Sourcing Business Website and What To Do About It
Brad: Hi, and welcome to this episode of In The Lab With Brad – Why you need your own property sourcing business website and what to do about it.
Now, many years ago I used to work in a record shop, Track Records it was called actually. It was that kind of classic suburban, independent record store you’d picture in your mind and it was great for browsing new releases and had just enough back catalog to keep the geeks in there for hours on end flicking through the racks.
There was a rack for staff recommendations and even a small section on local bands. And occasionally, they’d have bands come down and perform maybe an acoustic set and sign some of the records that people bought. They did so much right and the customers would show their appreciation by buying the records. But soon after I stopped working there, they closed down.
Why? You might be thinking. Well, it wasn’t for the reasons you might be thinking. It wasn’t Amazon, Spotify, iTunes or the free torrenting file sharing sites that called time on the business. They shut up shop for the last time because they were leasing the shop from a landlord. The lease came to an end and the landlord almost tripled their rent. So overnight, the business just stopped working. They could no longer make a profit. The business model just didn’t stack up anymore. So the decision from a third party, and one the owners of Track Records had no control over, took what was a great small business and crushed it overnight.
Now amongst property sourcers, I see this exact same thing happening all the time. Business owners are using their social media profiles on the likes of LinkedIn, Facebook, or YouTube to build their online presence. By doing this, they risk their business being dependent on the decisions of another company that they have zero influence over.
Someone else’s land
So essentially, if you’re doing this, you’re building your business’ online presence on someone else’s land. As property sourcing professionals, we know that stories that start this way tend not to end too well. So let’s be clear. The content you create on your Facebook page or LinkedIn profile, your YouTube channel, does not belong to you. It belongs to them. It belongs to the site owner. If Facebook decides that you violated their terms of service, they will shut you down.
If you think you can just pick up the phone and give them a call and have a nice chat with someone who will ultimately clear up the confusion and get your profile back up online, you really need to think again because it doesn’t happen that way. The Internet is littered with stories of people’s profiles being unjustly wiped and no channel for recourse at all.
So if your only online presence at the moment is your social profiles, then you’re really crossing your fingers that your landlord continues to like and support your business. In reality, they have no idea who you are and being brutal, they just don’t care about you. Now you could be excused at this point for thinking that you should be ditching your Facebook page but that’s far from what I’m saying. Social media sites are a critical piece of your marketing puzzle mix.
Build an asset you control
The secret is to spend your resources building an asset that you control. Now, namely, this asset is your website on your own hosting package. And as well as your website, you should be looking to build an email list of sellers, landlords, and investors as well depending on your strategy. Building your own asset or your own website is the equivalent of buying a piece of land and building on it, not renting a building you ultimately can lose control of.
So hopefully, I’ve argued the case for building your own website and you’re convinced by that.
Building a website – The myths
So what next? Well, you’ve got to build the website. Now I speak with property professionals all the time who have played significant psychological barriers in front of them when it comes to actually starting and seeing the process of building a website through for their business. The barriers are perpetuated by various myths that seem to exist around building websites. So I just want to take a few moments now to try and debunk some of these myths for you and enable you to see a much clearer path forward to having your own business website.
- It is expensive to create a nice-looking website
So first myth, it’s expensive to create a nice-looking website. Now there’s an assumption that it costs thousands to grow a website. This simply isn’t true. You can start to create a website using a free website builder tool like Wix.com for example. There are literally hundreds of thousands of skilled web designer virtual assistants who will build your website for under $200.
Once your site is built, you’ll then need to host it. This will cost anything up to £120 a year for example. So there’s really no excuse for money being a barrier for not building your website.
- It takes months to build
So the second myth, it takes months to get a website built. Now even if you decide you want to build the website yourself, using one of the kind of the drag and drop website building apps on the market like the website builders, it still shouldn’t take more than a week of your focused time to get a decent website built.
However, I highly recommend that you don’t build your own website. As a property professional, your value is not in your ability to create a one-off website. It’s in doing property deals. So get a specialist to build your site for you. What you’ll need to do very basically to get going, start with some basic pages. For example, a homepage that shows the visitor what you do and what the benefit is to them. An About page that goes into some detail about your story and why you might be the right person or company to do business with. And then you’ll want a Contact page so people can easily email or call you. Now as you grow, you can add pages to that basic structure so you can add case study pages, testimonials, for example. But for now, just get the basic started and you can get your website off the ground quickly.
- You’ll need a professional web designer
Okay, myth number three, you’ll need a professional web designer to create a good-looking site. Now five or six years ago, this might have been the case. But over the last few years, there has been massive growth in the market for website themes and templates. These are great looking off-the-shelf websites that have been professionally designed and optimized for today’s Internet.
One of the most popular website platforms on the Internet is WordPress. Now you may have heard the name. A quick search on Google for WordPress themes will throw out literally hundreds of thousands of these pre-designed themes and templates. Here at Goliath Sourcing Academy, we actually offer a pre-designed website building service. I’m going to give it a quick plug here because it’s relevant. So what you’ll do is you’ll be able to choose from one of the numerous beautifully pre-designed WordPress themes that we offer. You’ll give us your content and we’ll set your site up and running in normally under 14 days. So for more on that, just go to goliathsourcingacademy.com/services.
- Every change costs money
So let’s get on to myth number four. It’s difficult and costs money every time you need to make a change to the website content. Now it’s actually quite easy to amend and alter your website’s content when it’s completed. A website built on any reputable content management system or CMS like WordPress or one of those market leading website builder apps I’m talking about will allow you to log in and do what you need to do to the content relatively quickly and easily and without the need to go back to a designer. So if you’re working with a designer at the moment, that demands that whenever you want any changes made, you need to go back to them, I would seriously re-think your approach and whether you want to continue working with that designer.
- You need coding/programming knowledge
Okay, so in this episode of In The Lab with Brad, I’ve laid out some compelling reasons why you need to seriously consider building your own asset online and not renting space for Mr. Zuckerberg and his social media mates. Now I’ve also looked at helping you overcome some of the barriers to getting started building your own site as well. Let me tell you that when I started getting websites built back in 2002-2003, it was so much harder than it is now. It was unheard of to be able to get a beautifully designed website up and running in 14 days back then. But it absolutely can happen here.
So as ever with these segments, we’re always looking to give you some tools to help you actually take a step forward in your business. So I’ve produced a download for you which is the 12-point checklist for building your first property sourcing business website. Along with that download, I’ve also included a comparison shot of some of the market leading website building software. So if you decide to take that route, then this will be a great resource for you.
To get that download, just go to goliathsourcingacademy.com/session5 to download it. Now lastly before we move on with the show, just one last mention of our pre-designed website service. So we’re all about beautiful-looking WordPress websites that get built fast so you can get on and actually start making some money from your website. You’ll be able to choose from one of the 20+ pre-designed websites. You can give us your content and we’ll have the site up and running and live in under 14 days. For a full breakdown of how it works and the costs, go to goliathsourcingacademy.com/services.