UPDATE (28th December 2020): Setting up your property sourcing business to be compliant can be a lot of work. Read our Ultimate Guide to Property Sourcing & Deal Packaging first so you can avoid the unnecessary expense of going the compliant route.
If you’re thinking about setting up a property sourcing business, one of your biggest concerns should be how to set up your business legally and properly. If you don’t get this right, there could be consequences to your business and to you individually as the business owner. So before you start doing any business, make sure that you’ve gone through the appropriate legal steps.
To help you, I’ve listed the 5 most important factors in ensuring your property deal sourcing business is set up correctly:
The first thing to think about is whether your business is in fact, a property sourcing business. If you’re purely sourcing properties for yourself, rather than packaging and selling on for a fee, you don’t have to set up a sourcing business. If you’re going to be a property sourcing business, you will need to have all of the relevant legal checks in place.
The property industry is highly regulated to protect all parties that are involved in property transactions. Property deal sourcing comes under the same category as estate agents in terms of governance, so we have to work by the same rules.
You must register your business with HMRC in the correct way, so select the relevant set up such as limited company, sole trader or limited liability partnership.
The property industry is governed by three separate ombudsman schemes, which offer independent bodies for customers to raise complaints through. This would happen if the customer wasn’t happy with the way that you dealt with their complaint, so the ombudsman is the next stage of escalation.
The three property ombudsman schemes are: Ombudsman Services, The Property Ombudsman (TPO) and the Property Redress Scheme (PRS). Property deal sourcers must be members of one of these schemes. Goliath Property Solutions are members of the PRS, which costs around £95 plus VAT each year.
Criminals often use the property industry to launder money. If you’re not familiar with the term, money laundering basically means that they try to hide the money that they gained through criminal activity by using what looks to be legitimate methods.
Property sourcing businesses must be registered with HMRC for the Anti Money Laundering Legislation. This means that any suspicions of such activities must be reported and you can be subjected to fines if you are deemed to have not taken appropriate action.
Setting up the correct types of insurance will protect you from potential issues such as being sued. In the property industry, where large sums of money are involved, this is more common than you might think. For example, you may find yourself in a situation where investors try to sue you for what they perceive to be giving incorrect information on a deal. If you take out the correct types of insurances, you will protect yourself from this.
The two types of insurances we have as brokers, are professional indemnity insurance and public liability insurance. It is really important that you get these set up, ours costs around £500 per year for the combined policy.
We also have huge responsibilities in regards to data protection. We are holding lots of personal information about buyers, sellers, landlords etc. and we are responsible for protecting that information. Property sourcing businesses must register under the Data Protection Act with the Information Commission Officer. This only costs £35 per year and is really important.
We’re not trying to scare people but property is an industry where you must comply with all the regulations and register and set up correctly. Missing anything out could lead to huge consequences; look at what happened with PPI/miss-selling etc. You really do need to ensure that you dot all of the i’s and cross all the t’s when it comes to setting up a property sourcing business.
Ensure you’re set up correctly by downloading our free ‘Property Deal Sourcing Business Setup Checklist’ below.