Myth Busting: Co-Sourcing For Property Deal Sourcers
Apr 15, 2024We are Myth Busting...again. This time circling back to Co-Sourcing for Property Deal Sourcers.
It's something we have covered a number of times over the years - see our video from last year at the bottom of the page!
Unfortunately there's still a LOT of mis-information being spread about co-sourcing in property on social, online, WhatsApp, and even through training.
What we are finding more so, is this false narrative is giving people sort of hope that they can start sourcing with very minimal investment upfront and 'sort out compliance' later on.
This mis-information is potentially (and in some cases actually) landing sourcing agents in very hot water.
Unfortunately it's too late at this stage for us to really help as the fine has already been issued by HMRC or a Property Redress Scheme, OR the sourcing agent's reputation has been seriously damaged by an investor complaint.
All we can do is help get the property sourcer fully compliant so they can continue their business legally in the future.
So here we are...shouting from the rooftops and anywhere else we can, to help those who will listen BEFORE they get in trouble.
Myth One: You Co-Source Without Compliance
Firstly, many deal sourcers we talk to have been told at some stage that the 'way in' to property sourcing is through Co-Sourcing. With minimal upfront costs and an experienced sourcing partner by your side, it's the 'perfect' way to get your business going...
Even better, you don't need full compliance in place to get started as this is 'co-sourcing' and not actual property sourcing...so all good there.
FALSE
Why would you need compliance to property source, when what you are doing is finding an investor, sourcing them a deal, negotiating and completing? Isn't this what you would be doing as a 'co-sourcer' - just with another property sourcer involved too?
Even if you are just finding deals for your co-sourcer's investors, or you have an investor contact to share with another sourcer to assist with the location and strategy. You are still part of the overall deal strategy, and as such, are required to be fully compliant.
Myth Two: You Co-Source Using Another Sourcing Agent's Compliance
This is the second Myth we come across, obviously similar to the first but with a compliance spin.
Unfortunately no matter how much you try and argue, you can't 'piggy back' on another sourcing agent's full compliance.
Even if you have checked and verified their details yourself and happy with the information they have provided, this WILL NOT COVER YOU, it will only cover their sourcing business.
Would you drive a car using someone else's insurance that doesn't actually cover you driving? I doubt it...unless you enjoy risking points on your licence and a fine (or worse).
If I Chance Co-Sourcing Without Compliance, What Will Happen If I get Caught?
This year alone, three sourcing agents have come to us, each receiving fines from HMRC ranging between £1,500 and £1,700.
How did that happen? How did HMRC find out?
All of these sourcing agents were told during UK training courses that they could register their business with Companies House and Co-Source until they had the cash to register with HMRC.
They Co-Sourced and registered with HMRC after.
HMRC then checked each as to when they'd initially registered their company at Companies House, and sent out letters in the post informing them that HMRC believed that they'd been training without being registered.
This is a major breach of money laundering regulations, and they were each issued the above fines.
Let's dive a little deeper
One of the sourcing agents had completed training in the UK.
Their trainer had stated, "you don't have to bother getting compliant if you don't have the money. Co-Source with my company and find my investors deals. I will share the fee with you, so you can build the money up and then get compliant."
The deal sourcer did just this for a while, then decided that they wanted to go solo because they didn't want to share the fees any more. At this stage, they registered with HMRC and started going through the process.
HMRC immediately issued them with a fine of £1,500.
Now we know what you're thinking...if that person was trading, why wasn't the fine higher?
That deal sourcer was fortunate as they hadn't traded and shown cash coming into the business accounts. They had done it on a personal basis, but they still have the £1,500 fine.
Did the training company / deal sourcer trainer offer to pay or contribute to the fine for giving poor advice in their courses? No they did not.
So, if you're on a Sourcer Course and you're given the following advice:
- Set up your limited company and get "some" compliance in place (insurance, ICO, redress etc.)
- Co-source straight away with the training company to build up cash first
- Find a fully compliant deal sourcer on Facebook / other platform and you can co-source with them and piggyback on their compliance to build up your experience
Please question their advice, as it's down to you, and only you to protect your business. HMRC will not see ignorance or false information provided in a course as a defence.
HMRC Are Getting Wiser By The Day
HMRC are now wise to this and they're checking Companies House to see when your company was registered and if you're trading.
They may even go to Companies House and check when you registered your company to see how long you've been trading without compliance.
The level of the fine issued is dependent on the length of time between you registering your company at Companies House and registering with HMRC.
Either way, if you register your sourcing business with Companies House, they'll take it that you've been trading, and legally, you have to have full compliance in place to operate a sourcing business, regardless of what anyone tells you.
If It's Costly, Why Would People Spread False Information on Co-Sourcing?
It all boils down to sales. Telling you that it could cost you around £2k and 30 days of your time to get your business fully compliant and understand what's involved in running a sourcing business isn't as compelling as saying...you can start co-sourcing for limited (or no) investment upfront and make ££££ in just a few months...by starting TODAY.
Trust us, we have fought this battle with our own property sourcer training. We speak to many agents or those wanting to become sourcers each week...and when they are given the choice between learning and forking out for compliance upfront to get it right for their own business vs co-sourcing with a 'traininer' or 'experienced sourcer' - most unfortunately pick the 'easiest' path.
What we know however, is this 'easier' path comes with a lot of risk and potentially company ending consequences.
Not only that, many of these sourcers who take this route still end up knowing nothing about property sourcing and what's involved and after training are left to their own devices, only to get a letter from HMRC or a major complaint from an investor, fail to get paid, or receive a fine - then we go full circle and a call request for help, usually around 6 months later.
Why Should You Take Our Word For It?
We of course run a training business - with compliance a key component - this would certainly give us incentive to say "you should be fully compliant" before starting your sourcing business.
Whilst this is definitely true, we come from an honest place. Our goal is to cleanup the sector and its reputation, which is why we launched the only National Association for Property Sourcing Agents, NAPSA - at our own cost...and developed the Code of Practice for Sourcing Agents, approved and followed by both Property Redress Schemes.
We have worked tirelessly with the core moderators in our sector over a number of years to get facts of what a sourcing agent should and should not be doing. We did this to protect our own property sourcing business (after realising the lack of actual guidance there is) and to help others:
HMRC's Anti-Money Laundering Team
National Trading Standards for Estate and Lettings Agency Team (NTSELAT)
The Property Redress Scheme (The PRS)
Tina works very closely with all of these teams, to stay up to date on the latest issues in our sector, so we can make sure our training and guidance is up to date.
However, even though we have put all this work in - you shouldn't just take our word for it. Do your own research. At the end of the day, all of the bodies above will come after you and your business if they feel you have not followed the law.
Training companies are there to make sales - they are businesses after all. If you follow their guidance without question and your business is fined, who is going to pay the fine? ...We can guarantee it won't be the training companies.
We have spent the time - literally years - researching what is required, to protect our own property sourcing business, but to also build the training side to help protect others. Our sales count is nothing compared to many of the UK training providers and platforms out there, however the customers we do receive are there to build reputable, professional, compliant - and above all, successful sourcing businesses in the long-term.
I Have No Cash to Deal Source Compliantly, What Options Are There?
What we say to anyone who comes our way with this question, is to simply save. Work out what you need and how long it will take you to save the cash to set up your business the right way.
Not only that, assess how long you can run without completing a deal. How much time can you invest into your business each week? What will be feasible in the starting days of your new business.
If you're unsure of what you need, we have created a Free Compliance Calculator to help you assess what you have already (even if starting from scratch), and receive a ballpark figure for how much you need to save.
If you are coming into this sector and not sure whether property or deal sourcing is actually for your, we have an introduction course (complete in just 2 hours), which will guide you through the costs, time commitments and legal requirements you should consider before starting a sourcing business.
We teach what others just don't want you to know - as it doesn't make easy sales. What it does make is professional and compliant sourcing agents, who go on to develop successful and enjoyable businesses - which is why we really do this.
Here's a Video We Prepared Earlier
In case you need more convincing, this is the video Tina recorded last year on co-sourcing and myths.
We are now convinced this will be an annual activity, however we are determined to keep pumping the message out until the false information disappears from your screens and ears!
