Pros and cons of using a company to source buy-to-let properties?

by Readers Question

12:53 PM, 14th August 2014
About 4 years ago

Pros and cons of using a company to source buy-to-let properties?

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Pros and cons of using a company to source buy-to-let properties?

There are a number of offerings out there for sourcing properties, prepackaged up, sometimes even offering full management and so on. Presumably these take a healthy cut of the revenue, but does anyone have any opinions on what to watch out for, what are the advantages etc. ? Pros and cons of using a company to source buy-to-let properties?

To explain my personal situation and why I am asking this, I have a couple of BTL properties I chose over the years, they are profitable in terms of return (even the one bought at 2007!), and are luckily in areas that are appreciating very nicely. So I feel I know how to recognise the fundamentals of a good rental investment. I am at the stage where I can release a healthy chunk of the equity to go up a scale, but pressures in the day job this year and next make finding properties in the manner I did before difficult, and outsourcing the whole property search becomes attractive …

There seem a lot of ‘too good to be true’ offerings out there, which is somewhat of a minefield to cross. And of course, the fundamental answer to this question is ‘if you cant put the time in, you have to pay someone else to’.

But given this, I would love to hear from you guys who have experience of both the upsides and downsides of using a company to select properties, or even sort out the whole purchase.

One basic question is about whether there is scope for fees paid for these kinds of services to be offset against tax…?

I know that purchase costs are not, but given some offer this packaged up with management, this might change things.

Thanks

Matthew



Comments

Mark Alexander

13:10 PM, 14th August 2014
About 4 years ago

Hi Matthew

I am a massive advocate for DIY when it comes to due diligence and can't imagine why anybody would dream of outsourcing that.

If you haven't got the time to do your own due diligence then my advice would be don't invest in property.

If you decide to ignore my advice please note that you will be swimming in shark infested waters. A very easy way to initially sort the wheat from the chaff is to ask for a copy of the Property Sourcers Professional Indemnity Insurance Policy and confirmation that they belong to a redress scheme. There are three:-

1) Ombudsman Services
2) The Property Ombudsman
3) Property Redress Scheme

If they can't even provide this they are already breaking the law - see >>> http://www.legislation.gov.uk/ukpga/1979/38

To answer your "basic question", yes fees can be offset against tax, just like all other legitimate expenses and losses associated with not doing your own due diligence.
.

Matthew Turner

22:52 PM, 14th August 2014
About 4 years ago

Thanks for the advice, very salutary. I am sorry if I sound a bit naive!

I guess my concern is less about avoiding doing my own due dliligence, I would never go for a property in place I didn't know and so on. It is more the attraction of avoiding the whole cut and thrust of securing properties, with the market seemingly so active (at least it seems more so since my last purchases, only in recent years). With the break neck speed, and the need to compete with other buyers in a market with little supply, the concept of sidestepping this I am willing to consider paying a premium for.

But of course you are right, I have a real sense of sharks about!!!

Mark Alexander

9:32 AM, 15th August 2014
About 4 years ago

Hi Matthew

I have been giving this some further thought, i.e. what would I do if I were you.

The answer is probably nothing but the alternative is that I would engage a letting agent to help me in the search.

They know the areas, demand for certain types of property, yields etc. etc. Good ones should also be a member of a redress scheme and have PI so that's covered too. I would avoid national chains who employ spivs and bimbo's and look for an established local agent, preferably one who truly understands property, e.g. doubles up as a surveyor or an inventory clerk. I would probably avoid a letting agent who doubles up as an estate agent as that creates a conflict of interest.

After an initial chat with a few agents I would draw up a very clear brief on what I was looking for, i.e. price range, condition of property, location, required yield net of any management and service charges, tenant profile I am most interested in etc. etc. I would then offer to pay a fee of X (say £100) for every such property they could introduce me to and a further fee of X (say £500) for every one I buy which the agent has introduced. Obviously I would further incentivise the agent with the management, but only after being totally satisfied with their ability to manage the property and my ability to get out of the contract without penalty if I'm not satisfied with the ongoing service.

I hope that helps.
.

Ramesh Chhatralia

10:21 AM, 15th August 2014
About 4 years ago

Reply to the comment left by "Mark Alexander" at "15/08/2014 - 09:32":

Recommend you buy books and subscribe to get some excellent basic advice here:

http://indicator.co.uk

Howard Reuben CeMap CeRER

15:51 PM, 15th August 2014
About 4 years ago

Reply to the comment left by "Mark Alexander" at "15/08/2014 - 09:32":

"spivs and bimbo" 🙂

Howard Reuben CeMap CeRER

15:59 PM, 15th August 2014
About 4 years ago

One issue that property investors now have when buying via a property sourcer, is that most BTL mortgage lenders have it written in their terms and conditions that they will not lend any purchase monies if the property was sourced / secured that way.

Their fingers got hugely burned in the credit crunch days and now they avoid property clubs, sourcers and (definitely) the BMV'ers like the plague.


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