A Beginner’s Guide on How to Source Property Investment and Development Deals

26 Feb A Beginner’s Guide on How to Source Property Investment and Development Deals

How to source property investments and development opportunities

The Property Industry is an attractive but somewhat daunting field to invest in. With high returns but also high risk, detailed legalities to follow and a seemingly endless list of jargon to sift through, it’s difficult to understand where to even begin. Avamore Capital are creating a step-by-step guide to lead you through the process from inception to completion over the coming weeks and our first instalments is a starter guide on how to source property investment (helpfully in layman’s terms!).

In property, you make your money when you buy. A cheaply bought property forgives even the worst asset managers and boosts the returns of the best. If you’re looking to get into property development or if you’re looking to improve your rate of return, where should you look for deals? We analyse the simplest methods of deal hunting that you should get you started whilst also looking into their effectiveness:

  1. Online Portals – i.e. websites such as Rightmove.com, www.Zoopla.co.uk etc can be an easy and broad place to find properties for sale. But can you find a bargain here?

Pros of Online Portals:

  • Easy to access
  • Transparent
  • Open
  • Wide marketplace
  • Easy place to find the best local agents (you could also try getagent.co.uk)
  • Excellent place to do market research on sales prices and most active agents

Cons:

  • You are competing with the whole market for a deal. Which makes picking up a bargain less likely.
  • Agents don’t list all their properties on portals so you aren’t necessarily seeing the whole of the market.
  • Agents can be lazy in updating listings and something may have sold that you might be interested in which is listed as available on a portal
  • You still will ultimately need to go through an agent of sorts (including online agents)

 Summary: online portals are ultimately just that, portals. Whilst you can occasionally find a seller directly here, most portals lead to estate agents anyway. Nevertheless, for an investment or development pro, portals serve as a handy research tool, as opposed to a bargain bucket but it is key to browse the market through the process.

Ease of access: 10/10

Effectiveness: 2/10

  1. Estate Agents

Estate agents have a mixed reputation, but fundamentally they provide an important service for property vendors and buyers alike (although their customer is ultimately the vendor, rather than the buyer). But can you find a bargain through an estate agent? We examine further below:

Pros:

  • It is easy to register with estate agents, but it requires more effort than with a portal.
  • If you can develop a close relationship with an agent or get a reputation as a “hot” buyer, you can get an “early” on a deal before the rest of the market.
  • Again, if you have a close relationship with an agent, they may put you forward as a preferred buyer, even if your offer is not the highest.
  • Not all agents are motivated to get their seller the best price. If you can complete the purchase quickly an agent may recommend a sub-par offer. No guarantee the vendor will take the offer, however.
  • Agents can also advise you of properties that need to be sold quickly (e.g. probate, failed sale with onward chains etc) which can be a source of good deals.

Cons:

  • You are still competing with a wide market of buyers, including owner-occupiers who don’t have to make a profit.
  • It takes time and patience to develop relationships with good agents.
  • In strong markets, very few vendors are forced sellers so “lowball” offers will rarely be accepted and could damage your credibility with sellers and agents.
  • Very hard as a buyer to differentiate yourself with competitors at first.

Summary: A relatively easy way to access “opportunities” but will require a lot of effort and luck to find real bargains. Occasionally in the loop on off-market development opportunities if they have a land or new homes team. But do not expect so much if they’re specialists in selling homes only.

Ease of access: 7.5/10

Effectiveness: 4/10

  1. Residential Auctions

As seen on TV’s “Homes Under the Hammer”, perceptions of property auctions as great places to find deals have risen in recent years. Does it live up to the hype though? We lay out the case for and against below:

Pros

  • Relatively easy to access properties at auction, with lots starting at just a few hundred pounds (usually ground rents).
  • Transparent
  • If a property goes to the room, highest bid wins if reserve price is met.
  • Fast process (catalogues sent out 3 weeks prior to auction). Exchange of contracts when the auctioneer’s gavel comes down.
  • Bidding can be done remotely (i.e. online/by phone/proxy).
  • Potentially properties can be bought before the asset goes “to the room” especially if vendor is nervous about failing to sell/meet reserve (which can carry stigma).
  • Banks put repossessed properties for sale through auctions sometimes with low reserve prices (i.e. potential for bargains).

Cons:

  • Highly competitive at present so the chance of getting a bargain is slimmer.
  • Requires upfront due diligence (lawyers & surveys) when there is no certainty of completing a purchase.
  • Each property you attempt to buy can be highly speculative and you can do a lot of work and still not “win” the bid.
  • Poor due diligence can be costly. Title matters or structural issues that might have reduced a bid prior to auction cannot be rectified.
  • Competing bidders can get carried away with their bids. Investment rationale can go out of the window.
  • If your finance fails to come through on completion, you could find yourself having to fund the entire purchase in cash or worse, you would lose your 10% deposit.

Summary: Auctions represent a fast and certain way of accessing deals. However, bidding can be ferocious and you could waste a lot of time trying to buy things. Worse still, if you’re too successful, your misadventure could be costly if you don’t get your due diligence right. That being said, one of my most successful investments was bought through auction, so they can be very effective if you are lucky and do your preparation.

Ease of access: 6/10

Effectiveness: 4/10

We’ve come together to provide you with the advantages and disadvantages of some of the most accessible investment routes. Our next instalment will lead you into the second stage for sourcing sites, delving deeper into the industry. If you have any questions, feel free to get in touch with the team and look out for our next piece in two weeks’ time.

Avamore Capital

Dedicated to driving your portfolio #letsgrow

Nickolay Petkov
np@avamorecapital.com