Is Deal Sourcing Profitable? What Sourcers Actually Earn

Yes, deal sourcing can be very profitable, but only if you source genuinely good deals and charge properly for the work you are doing.

One of the biggest mistakes I see beginners make is spending hours finding and analysing a profitable property and then charging a tiny fee for it.

We teach our students to aim for a sourcing fee of around 5% of the purchase price. On a £300,000 property, that would be a £15,000 sourcing fee.

But there is an important other half to that.

If you are going to charge a good sourcing fee, you need to source a genuinely good deal. We teach students to find highly profitable property opportunities where the investor can look at the numbers and comfortably see that the fee is worth paying.

The aim is not to squeeze the biggest possible fee out of an investor. It is to find enough profit in the deal that both the investor and the sourcer can make good money.

Most beginners charge too little

A common starting point is charging one or two percent of the purchase price, or perhaps a flat £2,000 or £3,000 regardless of the value of the deal.

The problem is that sourcing properly takes work.

You may have spoken to 100 estate agents, analysed dozens of properties, carried out viewings, researched comparable evidence, negotiated the purchase and put the opportunity together properly before the investor ever sees it.

If the deal could make the investor £50,000, £100,000 or £200,000, charging £2,000 simply because you are nervous about asking for more does not make much commercial sense.

Charge fairly, but make sure the quality of the deal justifies the fee.

Get the compliance right before you start charging

Deal sourcing is not simply finding a property and introducing it to somebody.

If your activities amount to estate agency work, there are compliance requirements you need to understand and put in place before you start operating.

That can include:

• Joining an approved property redress scheme, giving customers a formal route for complaints if something cannot be resolved directly.
• Registering with the ICO where required because you will be handling personal information.
• Putting appropriate insurance in place.
• Registering for anti-money laundering supervision with HMRC where your activities fall within the estate agency rules.
• Having proper written contracts setting out exactly what you are doing, what the investor is paying and when the fee becomes due.

Do this at the beginning rather than trying to fix the paperwork after you already have an investor and a live deal.

Qualify your investors properly

Not everybody who says they want property deals is actually ready to buy one.

Some people will happily look at every deal you send them for six months without ever putting their hand in their pocket.

You therefore need a system for qualifying investors.

Do they actually have the funds available? What are they looking for? Where are they buying? What return do they expect? How quickly can they make a decision?

Your time is valuable. Spend it working with people who are genuinely capable of buying the type of property you are sourcing.

Protect yourself against investors going around you

Occasionally an investor will see a property you have introduced and then try to approach the estate agent, auction house or vendor directly.

Your contract should deal with this.

For example, it can make clear that if the investor purchases a property you introduced to them within an agreed period afterwards, your sourcing fee remains payable.

You also need good records showing exactly when each property was presented and to whom.

Put that protection in place before you send the deal, rather than discovering you need it after somebody has gone around you.

Be very clear about when you get paid

Your sourcing agreement should state exactly when the sourcing fee becomes payable.

We have generally structured our fees around exchange of contracts, because by that point the investor is legally committed to purchasing the property.

Make the payment process clear from the beginning and remind the investor what money they need available well before exchange.

Do not assume everybody knows their bank transfer limits, remembers where all their money is sitting or has thought about how quickly it can be moved.

A good deal can still become a stressful deal through poor administration.

Joint ventures need different paperwork

If instead of charging a straightforward sourcing fee you are entering into a joint venture, that is a different legal relationship and needs different protection.

The agreement should set out who is putting in the money, who is doing the work, how profits and losses are shared, what happens if somebody wants to leave and how decisions are made.

Depending on the structure, your solicitor may also advise putting appropriate protection against the property title.

Do not rely on a handshake simply because you like and trust the person.

Good paperwork is there so everybody knows what was agreed while everybody is still getting along.

Most investors are straightforward

All of this can make deal sourcing sound terribly defensive. It isn't.

The vast majority of investors we have worked with have been perfectly straightforward, and good investors often buy repeatedly once they trust the quality of the deals you bring them.

The contracts and compliance are there for the small number of situations where something does go wrong.

You want the protection in place without running your business as though every investor is about to cause a problem.

Where to go from here

Deal sourcing can produce a very good income, but the model only works properly when all three parts are there:

• Source highly profitable deals.
• Charge a fair fee for finding them.
• Get the contracts and compliance right.

That is what turns deal sourcing from an occasional side income into a proper business.