Is this deal too good to be true ?

Jinto

Hi, Please could somebody give me the benefit of their opinions on this house purchase scheme:-
A small developer has offered my son a rent to buy deal, it would involve him agreeing a purchase price for the house based on current market value, he would then get an option to buy the house for this value in five years time, in the mean time he would rent the house from the developer for a market value rent.
If he then went through with the purchase, the developer would give him back ALL of his rental payments as a deposit towards the purchase. If he decided not to buy the house then obviously the developer would keep the rent payments made.

I have seen some rent to buy deals before but not one that claims to give back the entire rent.
Has any body come across this kind of scheme before?

It seems too good to be true, I am going to talk to the developer myself but would like to get other peoples views before I do, I get the impression that they haven’t entered into this kind of deal before.

1) Why would the developer do this ? if it was my property I would just rent it out then sell it in 5 years time.
2) How can the developer give back 100% of the rent, wouldn’t they have to pay tax on this as rental income ?
3) What happens if the developer goes bust, is there any way of protecting the money paid towards the deposit ?

Any other views or answers would be appreciated thank you.

poppysarah

What guarantees do you have that the developer will still be around? And what if he isn't but your son is obliged to buy a house at todays prices - when they may be very low in the future AND it won't be a newbuild anymore)

Smacks of desperation and there'll be better offers on the table.

Jinto

poppysarah wrote: »

What guarantees do you have that the developer will still be around? And what if he isn't but your son is obliged to buy a house at todays prices - when they may be very low in the future AND it won't be a newbuild anymore)

Smacks of desperation and there'll be better offers on the table.

Yes I know the builder could go bust, but the deal doesn't oblige my son to buy the house, he can walk away at any point and forfit the rent, but as the rent is market value rent anyway he hasn't actually lost anything, he has just rented a house for a while.

Thats the bit I find strange, if the property market collapses he just doesn't buy the house, if it recovers and goes up, he gets it at todays price. It all seems a bit too good to be true.

poppysarah

Rents are also getting very negotiable at the moment - something to do with a surplus - so what's market rent in the developers eyes probably isn't.

Use rightmove and property bee to look at rents in your area

Jinto

I checked Rightmove and the rent seems to be pretty much in line with other properties in that area.

Jinto

OK I've had a chat with the developer, he hasn't done this before but is keen to shift his property.
What would be the best way to have the rent returned at point of sale ? what would be the implications of a cash back deal verses a discounted price ? I'm thinking in terms of a mortgage lender accepting it as a deposit against the final loan.

poppysarah

You should be seeking solcitors advice at this point if you're serious.

Jinto

poppysarah wrote: »

You should be seeking solcitors advice at this point if you're serious.

Yes, absolutely I just wanted to get ideas about the options before taking the next step of getting solicitors involved.
The developer seemed quite open to suggestions so I was trying to formulate the kind of deal I was looking for first.

Pyewacket338

I've done something like this.

I rented out a house and told the tenanats they could buy it from me after 2 years at the market value from when they moved in.
This did 2 things, it ensured they took care of the house while they rented it, after all, they'd always be thinking "this could be ours" it also stopped them from moving elsewhere as they would lose out on the deal, this almost guaranteed me rental income for at least 2 years, I didn't promise to pay back their rent though.
They bought the house off me after 3 years.

Jinto

On the surface is does seem a really good deal, if all of the rent is going to be returned. I'm not convinced that the deal will be quite as good when the developer talks to his solicitor about it. I expect it to get tripped up by some legal or tax reason.

RainMaker_2

Jinto wrote: »

A small developer has offered my son a rent to buy deal, it would involve him agreeing a purchase price for the house based on current market value, he would then get an option to buy the house for this value in five years time, in the mean time he would rent the house from the developer for a market value rent.
If he then went through with the purchase, the developer would give him back ALL of his rental payments as a deposit towards the purchase

Providing your sone has an option to buy, as opposed to an obligation, he has nothing to lose. Especially if he's only paying to market rent for 5 years.

Have to say though, it does sound to good to be true !