Who is sourcing your deals?

Who is sourcing your deals?

This month I thought I would share a recent experience I had dealing with a Deal Packager. I am currently retained to deal with the disposal of a large commercial unit in East Kent on behalf of a private Client. Having spent 20 years as an Estate Agent specialising in investment property, this is something I do with reasonable regularity.

I received a call from a Deal packager who was interested in the building for one of his Clients.  As we discussed the property it became clear that the caller had little idea about the planning process and what redevelopment opportunities could be possible, had no idea whatsoever in terms of calculating build costs for a conversion or new build scheme and was calculating his sums based on a build programme of 8 months which would be completely impossible to achieve.

The property I represent has scope to provide around 50 apartments either via the conversion and extension of the existing building or via the demolition of it and a new build development.

The deal packager I spoke with didn’t seem to appreciate the costs or VAT position of these two options and had not considered the option of phasing the development to preserve cashflow and reduce financing requirements. Incredibly I was not even asked if the seller would consider a subject to planning offer.

By having no real knowledge and not being able to bring very much “to the party” it does seem rather disingenuous that they charge a 2% fee for their “advice.” Furthermore it seems entirely possible that they may present something entirely unsuitable to their Client.

A seasoned investor will ask a myriad of questions before they part with their hard earned money and an inexperienced Sourcer would be incapable of providing coherent answers.

In my view a deal packager should intimately know the area in which they operate, should have a strong network to procure off market opportunities and have the skill and experience to properly evaluate them prior to offering them to Clients. Experience with an investor focused estate agency could be a good grounding together with relentless study to really understand your market place. In addition it would be hugely worthwhile to monitor a construction project in your area. This would give you a greater understanding of how construction works, build programmes and perhaps even costings.. Without this base knowledge it will be all but impossible to filter out unsuitable properties.

It is clear to me that there are many people out there who are cash rich and time poor and who may therefore benefit from using a Deal packager. The public perception is that the Deal packager will be able to successfully identify a suitable property and provide coherent advice in terms of any development opportunity, build costs, resale values, local demand and the like.

As with everything in life, it is your skillset that you are seeking to monetize. It is that depth of knowledge which will see you being recommended by existing Customers as well as other introducers such as Auction Houses, Solicitors dealing with probate and the like.

If you are considering a career as a deal packager then may I respectfully suggest that prior to doing so you get a really good working knowledge of your Local Authority Local Plan, Licensing requirements, the Use Classes Order, Planning process, the role of permitted development and prior notification and the existence of Article 4 areas. In addition you should be able to create a robust development appraisal and residual valuation which can withstand a reasonably thorough level of interrogation. Aside from the property specific matters, you should have a comprehensive agreement with your Client in terms of the level of autonomy you have. For example are you able to submit an offer on their behalf, provide proof of funds to the selling agent or reel off details of some of the deals you have done in the locality.

Administratively you will also need to register with an Ombudsman service, the Information Commissioners Office and hold Professional indemnity insurance.

Get all of this right and you will create an army of loyal customers and be able to charge more as you will be delivering greater value.

For the avoidance of doubt I have no issue with Deal Sourcers provided that they have expertise in their field. Without that unique selling point most potential customers will likely ask the question of “What can you do that I cannot do myself”.

Alternatively, if you are looking to retain the services of a deal sourcer then speak to your network and try to get some recommendations. Equipped with your shortlist ask some probing questions and decide whether they can add value, bring you the properties and provide you with reliable and sensible advice.