Chance to invest in property development - legal advice plz!

sarymclary

I have been approached by a friend to invest in a property development. The set up is this: the friend has just sold his own property for £160k, he's raising £170k, and I can afford to invest about £25k, which will help him to acheive the £350k budget he needs. The building plot is on a site with a 3-bed bungalow already in situ, to the rear is a plot with planning permission for a 4 bed house. He's offering a return of £6k on my investment, which I think is about 24%. I anticipate the investment will last for a year, but I fully anticipate that it might take up to 2 years to sell a property in the current fluctuating climate.

Whilst I feel more than secure about the friend's ability to service his own mortgage and raise any extra cash as it may be necessary (he owns 3 businesses), what I need advice about is the type of legal document I need to have drawn up to protect my investment.

Has anyone else had a similar experience? My money is not something I want to gamble away, as I really wanted to use it to invest in a business for myself eventually, but I'm having problems locating suitable properties, and have done for more than a year, so I'd rather it were doing more than earning just basic interest in the a/c it's in right now in the meantime.

clutton_2

whatever you do, do not accept a legal charge on the development as security - if the development fails, you have lost your money. i would normally say Ask for a charge against his own property - except he has just sold it.

You are not only putting your faith in a freind's business skills, but, much much more importantly - you are gambling on the future of the property market.

Does he have any other assets you can put a charge on ?

You do need legal advice on this ....

horace_2

Your friend runs 3 businesses!!! He presumably has many friends/business contacts.
Why has he selected YOU to join him in this venture?
Perhaps he asked others before you? I would be inclined to find out.

horace

clutton_2

Horace, what a brilliant observation !

Rick62

Why put £25k at risk for a possible £6k return in maybe 2 years, if everything goes well, if there is no property crash, if he manages the development OK if he is honest about the returns. Seems like quite a large risk for relatively little return to me.

sarymclary

clutton wrote:

whatever you do, do not accept a legal charge on the development as security - if the development fails, you have lost your money. i would normally say Ask for a charge against his own property - except he has just sold it.

You are not only putting your faith in a freind's business skills, but, much much more importantly - you are gambling on the future of the property market.

Does he have any other assets you can put a charge on ?

You do need legal advice on this ....

He has 2 (barbers) shops, which I believe are leasehold, so no property there to secure against, and runs another business where he provides workers in local produce factories (latterly called gangmasters, but his is VAT registered and runs above board unlike the older versions). He's my boyfriend's best friend, and knows I want to try to use my money to earn money. I think he asked me, because the majority of his other friends wouldn't have this kind of cash. He's a guy who's made a successful living for himself, but has stuck with his old friends, rather than switching to friends of a similar business/social standing. I am under the opinion that he's going to live in the 3 bed bungalow, so I could have a charge put on this I presume? Otherwise he's got a nice BMW M3, so I'll have that too!

Thanks for everyone's advice, and I hear what you say about the demise in the property market.

thesaint

If everything you say is true, then it does seem a good idea to me.

I would want to know whether he is going to live in the 3 bed bungalow, not "be under the opinion". It makes a huge difference.
As far as I know, it isn't possible to put a charge on a bungalow that hasn't been built yet, but I may be wrong.

As for the M3, if it was worth 25k, wouldn't he sell it for this amount now and not have to pay you 6k when the houses are built?

noyk

If it weren't for the issue of potential/current falling property prices then a 24% return is pretty good. If you can get your initial capital secured with a charge then you reduce the risk substantially, so all in all not to bad an investment IMHO.