Investors and buyers are always on the lookout for reliable property sourcers to find them lucrative and genuine property investment deals. It’s a competitive industry but a quality approach can help you stand out from the crowd.
How can you improve your property sourcing skills and attract the right clients? Here’s what you should do.
Unlike residential property where it is all about how a person would envisage themselves living in the area and property itself. Investment Property is not about how a place looks or feels, it’s about the numbers, what type of return the investor is likely to obtain for their investment and the demand in the area either for rental or for selling, depending on which of those exit strategies they choose. Investors will base their decisions on key metrics and will want to be confident that they can rent or sell the property in the area for the property that you are presenting. It is essential that you understand the following metrics to present to your investors-
Work out what you will spend-
Purchase Price= £220k
Deposit= £55k assumed at 25% of purchase price
Costs(legal, surveys, refurb)= £50k
Gross Development Value(GDV)
(value after works complete) £355k
Total capital employed(TCE) £105k (deposit plus costs)
Eg-Annual Rental income- £11,420
Therefore ROCE is calculated £11,420(annual rental income)/105,000(TCE) x 100
= 10.8% ROCE per annum
Profit from sale(POS) is GDV £355k -purchase price £220k – Costs £50K= £85k profit on sale
Therefore ROCE is £85,000(POS)/105,000(TCE) x100= 80.9% ROCE
You need two number for this- the return and the amount invested eg-
If renting the property, the return is the annual net rental income. So rental income after costs in example we will say £11, 420
If flipping the return is the profit after purchase value and costs, let’s say for example £85,000
Next we need to the total investment which is purchase price plus costs in this instance we will say £270,000. You will then work out the ROI in the following way-
11,240(net rental income)/270,000 (total investment) x 100 = 10.8% ROI per annum
85,000(profit on sale)/270,000(total investment) x 100= 31.4% ROI
This is a headline indicator for an investor, which will give them an idea whether to look at the numbers further. The calculation is simply purchase price divided by annual gross rental income. It is only a headline indicator as it doesn’t take into account any other costs apart from purchase price and the gross rental income before any costs are deducted. For example if gross annual rent is £17,500 and the purchase price is £250,000 then the gross yield is calculated in the following way-
£17,500(gross annual rental income)/250,000 (purchase price) x 100 = 7% Gross Yield
This is similar to gross yield but gives a more accurate assessment of your returns as it takes into account costs of both purchase and the ongoing rental. So it would be calculated in the same way as gross yield but would use net annual rental income(gross annual income minus letting fees, maintenance, tenancy voids etc) and purchase price plus estate agency fees, surveys, legal fees etc. So, let’s say net annual income is £14,800 after maintenance, letting fees etc are deducted and total purchase price is £257,000 after agency fees, legal and survey costs etc are added. Net Yield would be calculated as-
14,800(net annual income)/257,000 purchase price plus costs x 100= 5.75%
This is available via a postcode search on property portals such as Zoopla, Rightmove etc
Knowing your numbers is crucial to being a successful Property Sourcer can help you stand out from the crowd, as many in the industry don’t know any or only some of the above calculations. Being able to present your properties to Investors in this way, helps you build trust and show Investors that you are credible. It also helps you to assess deals properly and helps you determine the difference between a great deal, an average one and a downright bum.
It may take time and practice to fully understand this but it will pay dividends for you time and time again in the long run.
Don’t forget about the legal regulations involved in property sourcing! Reliable property investors wish to work with compliant property sourcers who adhere to the regulations laid out by the UK government.
Get in touch with our team at Intelligent Property Sourcing Community today to become an IPS Verified Member and learn more details on sourcing compliance in the UK.