This blog is all about deal sourcing for beginners. So what is deal sourcing? Well very simply, it’s about finding great property deals, either for yourself, or to sell onto another investor for a fee. I am going share exactly what makes a great deal in this deal sourcing beginners guide.
One of the most important things you need to learn to be a successful investor, is how to find good property deals. So first of all, you need to know what makes a good property deal. Here are some criteria I want you to think about when looking for property deals.
Equity On Day One
It is great if you can get equity in the property on day one, the day you buy it, instead of just having to wait for the market to go up in value. This is done by purchasing from motivated sellers.
Let’s say you find a property that is worth £200k, but if you buy if from a motivated seller who needs speed and certainty, you could save tens of thousands of pounds off the purchase price. So, if we buy at a discount, you could buy a £200k property for say £170k, which means the day we buy, we get £30,000 of instant equity.
Just to be clear here I am not saying that you should always buy at a discount. Sometimes we will pay for full market price, I’ll explain why we might do that later on. But buying with equity on day one is always a good thing.
Buy In An Area of Strong Rental Demand
The next thing is, we want to make sure we buy a property in an area of strong rental demand. We want to be able to quickly and easily rent it out to new tenants if the current tenants move on.
“We only ever buy properties that have positive cash flow, if there is no cash flow then it is not a good deal.”
Buy Property With Strong Cash Flow
Linking to strong rental demand, we want to make sure we get cash flow from any property that we buy. What that means is, when we take the rental income each month and we pay all of the costs including; the mortgage, insurance, management fees, anything else, there must be some profit leftover. That’s what we call positive cash flow. We only ever buy properties that have positive cash flow, if there is no cash flow then it is not a good deal.
Buying A Property Where You Can Add Value
The next thing in terms of how to do deal sourcing, it’s great if we can buy a property where we can add value. If you buy a brand-new property, you can’t really add any value to that. If we buy an older property, then we can do things to increase the value. Maybe we can renovate it, we can put a new kitchen in, new bathroom, new carpets, and we can paint it. After this, what was a tired house suddenly becomes a desirable property again. Maybe we can extend it. Do a side extension, convert the garage into a room. Maybe we can extend the back, go into the attic. In some areas like in London it can be worth digging down into the basement, because space is at a real premium.
So what can we do to add value to the property? Sometimes, we might actually buy a property at full market price. Maybe it’s worth £200k and by spending £30k on it, the total cost to you would be£230k in total. But the value might be as high as£300k. So if we can add value to a property, there’s maybe a good reason why you might be happy to buy at the full market price.
“Return on Investment is a comparison of how much does it generate for us every single year, compared to how much we have to put in to get that cash generating asset.”
Minimise How Much You Put In & Maximise The Return On Investment
The next thing you want to do is where possible, minimise the amount of money you have to put into the deal. That’s always good, because that means you can buy more deals.
Return on Investment is a comparison of how much it generates for us every single year, compared to how much we have to put in to get that cash generating asset. It’s a percentage. So we take the annual profit, divide by the initial investment, multiply that by 100 to give us a percentage. The higher the percentage, the better the deal is for us.I have written another blog on ‘How to Calculate Return On Investment‘ if you want to find out more.
Does Your Deal Meet The Criteria?
When you are looking for great deals, you need to look for as many of the criteria as you possibly can. You probably won’t get all of these criteria in one deal, but if you don’t find one which meets all of these criteria, you need to move really quickly. Because if it’s a great deal, and if you don’t buy it quickly, someone else who’s quicker will come in and snap it up. By educating yourself, learning what makes a great deal and moving quickly when you know you’ve got a great deal, then you’re going to be a more successful investor.
You should to pick an area sometimes called a ‘gold mine area’ you want to focus on. Typically, it should be close to where you live or where you work, because you’re going have a better understanding of which are the good areas, which are the not-so-good areas. But, if you have a local power team of professionals who can help you, then maybe you can infest further afield.
“By educating yourself, learning what makes a great deal and moving quickly when you know you’ve got a great deal, then you’re going to be a more successful investor.”
Most people starting to invest, should firstly look where they live or work. If the deals don’t stack up where you live, try looking in an area up to 45 minutes from where you live. Somewhere within that radius there’s going to be an area where deals stack up better.That’s the area to focus on.
I hope this blog on how to deal source properties has been useful. Please feel free to share it if you think it has helped you.
FREE DEAL SOURCING TRAINING AVAILABLE
If you would like to learn more about what makes a great deal, Simon Zutshi has put together a FREE 2 Hour On Demand Master Class – all all about successful Deal Sourcing.
To find out MORE about how you can access this valuable Deal Sourcing training at NO COST – click here.
Share this Post