Scheme to buy property in 5 years, rent out until then

Egg_custard_2

I have read the OP as the buyer wants to rent the house for 5 years himself and live in it himself for 5 years before then purchasing it (rather than him wanting to rent it to a third party).

It doesn't sound like you need to sell the property in order to put down a deposit on another property, or anything else that would make this impractical. That being the case, in principal this doesn't sound like a bad deal to me. You ought to find out exactly why he wants to rent first and purchase only after 5 years. it's quite possible that the buyer just needs the 5 years to save up a deposit in order to make the purchase, but wishes to secure the property and prevent another buyer from purchasing it.

I think you need to give serious consideration to what would happen if the market value of the house significantly rises or falls over the 5 year rental period. I think it would be better to agree to sell at the market value applicable in 5 years time, subject to negotiations, rather than the current price.

There are also the usual considerations you need to take into account of becoming a landlord... gas certificate needed, presumably you would be responsible for cost of any repairs / maintenance during the tenancy period? Also the rental income would be taxable, so would this still cover any mortgage payments you/your partner are making on the property?

There's a lot to consider before going ahead, but I'm not sure I agree that this is a disaster waiting to happen. If properly thought through and formalised I could see this being beneficial to both parties.

Good luck.

HappyMJ

Take the £5,000 upfront and not at the end of the 5 years. Rent it to him on a standard 6 month Assured Shorthold Tenancy. Do it as a normal landlord/tenant relationship with gas safety and building insurance. Evict him if he doesn't pay the rent then if all rent is up to date then let him buy it in 5 years at todays price.

Trollfever

junglejim2 wrote: »

I think this will all end in tears

Agreed.........

Mobeer

Sounds like you would need a really good solicitor and a complicated contract. For example, you need to consider when he is renting the house out, what if the property is empty, who decides the going rental rate, what management expenses will he deduct etc.

Presumably he thinks that he can save from not having a buy to let mortgage for 5 years? This way he saves a chunk of money.

Then if
- house price has gone up more than 10K, he buys the house in 5 years time
- otherwise he pays you as agreed (assuming the contract is sound)

In the mean time, you have the value of the house tied up. If alternatively you sell, how does investing the cash from the sale compare to 5 years rental (or whatever rental you expect to actually receive) plus 10k, minus the cost of the agreement, possibly minus further legal costs he if gives you trouble in future?

If you really like this idea, then follow HappyMJ's comment and insist on the 10k up front, then deduct this from the agreed future purchase value.

dave_ave

Thanks for the useful replies. The guy doesn't want to rent the house for himself to live in and he has other properties he rents out too. He will rent it out for as much as possible and give my partner the going rent, so I guess he'll make about £200 a month by adding extra people to rent. He doesn't want to mortgage the property because of the current market. The insurance bit of this worries me. The guy will add the property to his own insurance on other properties, but if say it burnt down, my partner would have to make him rebuild the property and what if he didn't or couldn't?

BitterAndTwisted

Do not touch this with a barge-pole!

hcb42

Scam!!
......

theartfullodger

He's a crook on the fiddle: You can quote me...

timmyt

Avoid. Full stop.

G51shopaholic

If you rent the house out you'd need to inform your mortgage provider and more than likely be switched to a buy-to-let mortgage which are normally higher. You'll also need Landlord insurance policies.

2nd - the income is taxable.

3rd - what financial difficulty would you be in if the "tenant" didn't pay.

4th - All your doing is delaying the sale by 5 years - what if the interest rate increases. How would you pay the mortgage shortfall?

Not as easy an arrangement as it reads. As someone else suggests drop the price or stay put.

don't get burned!