In the world of property deal-sourcing, the opportunities are vast—but so are the responsibilities. As a deal sourcer, your role isn’t just about finding properties and matching them with investors; it’s about ensuring that the deals you source are sustainable, ethical, and compliant.
The rent-to-rent market in particular has faced heavy scrutiny due to a lack of oversight and the unethical practices of some sourcing companies. These bad actors inflate property prices, set unrealistic expectations, and leave investors bearing the brunt of poor decisions. This article serves as a guide for deal sources to operate transparently and ethically, ensuring long-term success for all parties involved.
1. Ensure Full Compliance with UK Regulations
Before you start operating as a deal sourcer, ensure that your business is compliant with all relevant UK regulations. Non-compliance not only puts you at risk legally but also damages trust with property owners and investors. Key steps include:
• Register with The Property Ombudsman or PRS (Property Redress Scheme):
This is a legal requirement for all property deal sourcers in the UK. These organisations provide a dispute resolution process, ensuring that clients have recourse if something goes wrong.
• Obtain Professional Indemnity Insurance:
This protects your business against claims for negligence, errors, or omissions. It’s a sign of professionalism and reassurance for your clients.
• Comply with Anti-Money Laundering Regulations:
Register with HMRC and ensure you follow all due diligence processes to verify the identity of your clients.
• Understand the Consumer Protection from Unfair Trading Regulations (CPRs):
Be transparent in all marketing and communications. Avoid misleading claims about potential returns or the condition of properties.
Operating compliantly isn’t just a legal obligation—it’s a demonstration of your commitment to ethical practices.
2. Set Realistic Expectations for Investors
One of the biggest mistakes deal sourcers make is overpromising and underdelivering. Investors often come into the market with dreams of passive income, but it’s your job to ground those dreams in reality.
How to Set Realistic Expectations:
• Provide Accurate Revenue Forecasts: Avoid inflating potential earnings. Base your projections on real data, including local occupancy rates and achievable nightly rates, rather than best-case scenarios.
• Highlight Risks: Be upfront about potential challenges, such as seasonality, market fluctuations, or property-specific limitations.
• Tailor Deals to Investor Goals: Understand whether your client is looking for short-term returns or long-term equity growth, and structure the deal accordingly.
A transparent approach may deter some clients in the short term, but it builds trust and credibility that will pay off in the long run.
3. Negotiate Rents Below Market Value
One of the most critical aspects of sourcing a deal is negotiating rents that allow the investor some financial flexibility. Without this, even the best properties can fail to generate sustainable returns.
Key Tips for Rent Negotiation:
• Aim for 10–15% Below Market Value: This cushion gives investors room to absorb fluctuations in occupancy or nightly rates.
• Leverage Property Needs: If the property requires refurbishment or minor renovations, use this as a negotiating tool. Offer to increase the property’s market value through your improvements in exchange for a lower rent.
• Include a No-Compete Clause in the Lease Agreement: To protect investors from being exploited as a “trial run,” ensure the lease agreement states that if the property owner unreasonably asks to terminate the agreement, they are prohibited from operating the property as a short-term rental for five years. This discourages owners from using investors to test the market and then taking over operations themselves.
Negotiating effectively not only benefits the investor but also protects your reputation as a deal sourcer who delivers value.
4. Make Ethical Practices Your Priority
Ethics should be at the heart of every deal you source. The short-term rental market has been plagued by stories of investors losing their life savings due to poorly sourced properties with inflated rents and unrealistic forecasts. Don’t be part of this problem.
How to Operate Ethically:
• Visit Every Property Personally: Ensure that the property meets quality and safety standards before sourcing it to investors.
• Be Transparent About Property Conditions: Don’t rely on photos alone. Clearly communicate any issues with the property, including communal areas or maintenance concerns.
• Focus on Long-Term Sustainability: Don’t take on deals that you know won’t perform in the current market. Instead, guide property owners and investors toward realistic solutions.
An ethical approach may seem slower or less profitable at first, but it builds trust, attracts repeat business, and enhances your reputation in the industry.
5. Be Selective with Your Deals
Not every property is suitable for a rent-to-rent agreement, and not every investor is a good fit for this model. As a deal sourcer, it’s your responsibility to identify deals that are truly viable.
Questions to Ask Before Taking on a Deal:
• Is the property in a location with proven demand for short-term rentals?
• Does the rent allow for a reasonable profit margin, even during slower months?
• Are the property owner’s expectations realistic?
• Is the investor financially prepared for potential challenges?
Taking on deals that don’t meet these criteria can harm your business and your clients. Be selective, and don’t be afraid to walk away from deals that don’t align with your standards.
6. Build Strong Relationships
Your success as a deal sourcer depends on the relationships you build with property owners, investors, and management companies. Strong relationships lead to better deals and a more positive reputation.
How to Build Relationships:
• Communicate regularly and transparently with all parties.
• Provide value beyond the deal, such as market insights or advice.
• Follow up after the deal is completed to ensure satisfaction and address any issues.
Building a network of trusted partners and satisfied clients is one of the most effective ways to grow your business.
Conclusion: A Sustainable Future for Deal-Sourcing
The rent-to-rent model isn’t inherently flawed—it’s the way it’s often executed that creates problems. As a deal sourcer, you have the power to change this narrative by operating transparently, ethically, and compliantly.
By setting realistic expectations, negotiating fair rents, and focusing on long-term sustainability, you can create deals that benefit property owners, investors, and the wider market. Compliance with regulations and a commitment to ethical practices aren’t just good for business—they’re essential for the future of the industry.
Let’s raise the bar for deal-sourcing and ensure that it’s a profession built on trust, integrity, and real value.
Disclaimer for the Blog Post
This post is not intended as professional advice for property sourcers. I am not a property sourcer, nor do I position myself as a property expert. My background is in hospitality business development, where my focus is on creating sustainable and successful solutions for clients in the short-term rental market. The insights shared here reflect what I believe would benefit investors, property owners, and the wider industry based on my experiences. Always consult a qualified professional for legal or property-specific advice.
Comments