Buying a house at auction

Tiffabebbs

Hi,

We are looking to bid on a property in the next few weeks at auction and i am in need of some advice about financing it.

The property is in the auction with a guide price of £80,000. I am confident of getting it for under £90,000. It will require about £20,000 to renovate it to a high standard that would give it a realistic value of £140,00 when finished. We have upto £10,000 cash available for the auction deposit should we be successful on the day and we have a further £20,000 to pay for the renovations. I would be looking to borrow approximately £80,000 to cover the purchase of the property.

I am a self employed builder and have, on paper, a very small income. My wife has an income of approximately £10,000. I have a property worth £140,000 with very little equity. My parents are willing use their property as security if required. Their house is worth approximately £325,000 and they have no mortgage.

Could anyone point me in the right direction for borrowing the £80,000? Have been looking at bridging loans but they seem very expensive compared to a normal mortgage, but do have the benefit of fast turnaround.

I aim to have the auction property renovated and finished within 8 weeks and sell at well below market value to achieve a quick sale, so we are looking to hopefully borrow the money for no longer than 6 months. I do have the skills to carry out the renovation, i have been doing jobs like this for 6 years now but working for someone else and have decided to go it alone.

Thanks for reading!

Chris.

G_M

I wonder if the profit is really worth the effort.
Assuming you pay 90, and then 25 to renovate (it's always more than expected!) + 1K for purchase costs = 116K
You sell for £130 for "quick sale" so profit of 14K
Less legal/estate agent etc fees = 3K

So profit is £11K for a lot of hard work, time and stress. Rather you than me!

As for your question.
Clearly you cannot rely on a mortgage of your own on this property. a) the condition may prohibit a mortgage b) your income may prohibit a mortgage and c) the amount loaned may be insufficient. As it's an auction, you must have your finance arranged before you bid.

So that leaves your parents. Assuming a) they are willing and b) they are not prohibited from a mortgage by age and c) they have sufficient income for a mortgage, then they could take out a mortgage in their names against their property. They then give/lend you the cash and you use it to bid at the auction.

GDB2222

Another poster today said that there are development loans available, but I doubt that you can implement that very quickly. Bank of mum and dad sounds just perfect for the job!

Yorkie1

If a mortgage was taken out to fund the purchase, would this prevent a quick sale within a couple of months as envisaged by the OP? I have in mind the posts on other threads which state that a new buyer can't get a mortgage if the seller (i.e. OP) has owned for less than 6 months.

G_M

Yorkie1 wrote: »

If a mortgage was taken out to fund the purchase, would this prevent a quick sale within a couple of months as envisaged by the OP? I have in mind the posts on other threads which state that a new buyer can't get a mortgage if the seller (i.e. OP) has owned for less than 6 months.

To clarify, this does not apply to whether or not the OP takes out a mortgage or his parents mortgage/fund the purchase.

It applies to the OP selling the property again within a few months. His prospective buyers might have difficulty raising a mortgage (so reducing the number of prospective buyers considerably).

Tiffabebbs

G_M wrote: »

I wonder if the profit is really worth the effort.
Assuming you pay 90, and then 25 to renovate (it's always more than expected!) + 1K for purchase costs = 116K
You sell for £130 for "quick sale" so profit of 14K
Less legal/estate agent etc fees = 3K

So profit is £11K for a lot of hard work, time and stress. Rather you than me!

£11k is pretty much all i have earnt in the last 12 months, so making that profit off 1 property would be nice

I have been working for a project manager for 6 years who has not really been paying what i am worth, but had until recently quite a lot of work on so i stuck with him.

Also, the £20k renovation costs include my labour for actually doing the work so the £11k on top of that would be nice!

I do know what you mean though. On paper it doesnt seem like a good return for the time and risk involved, but it will keep me working for winter rather than struggling to find work. Essentially i am buying my own work. Plus with the profit i would hope to do another house after it, or use the profit towards gaining more work in 2012.

Not totally relevant to the requests about finance, but the property is identical to mine and only 4 doors away, so not travelling to jobs would be quite handy too.

Tiffabebbs

G_M wrote: »

Clearly you cannot rely on a mortgage of your own on this property. a) the condition may prohibit a mortgage b) your income may prohibit a mortgage and c) the amount loaned may be insufficient. As it's an auction, you must have your finance arranged before you bid.

So that leaves your parents. Assuming a) they are willing and b) they are not prohibited from a mortgage by age and c) they have sufficient income for a mortgage, then they could take out a mortgage in their names against their property. They then give/lend you the cash and you use it to bid at the auction.

Parents are very much interested in helping me with this as much as they can, but they are not willing to sell their shares (which would cover most of the purchase price!) as they get a very good dividend off them. Securing the finance against their property would not be a problem for them, although someone i spoke to this morning said we would struggle to secure a bridging loan on their house due to them recently paying off their mortgage. They have both recently become self emplyed and have no proof of income as yet.

My concern with arranging a mortgage on their house is just the timescale. Dont want to be in a position where we are not able to complete in 28 days due to getting let down with the finance, but the mortgage rates are much more attractive than the bridging loan rates. I think i need to stop looking at the finance charges as a pot of money and look at them as a business expense.

Tiffabebbs

G_M wrote: »

To clarify, this does not apply to whether or not the OP takes out a mortgage or his parents mortgage/fund the purchase.

It applies to the OP selling the property again within a few months. His prospective buyers might have difficulty raising a mortgage (so reducing the number of prospective buyers considerably).

Thanks for that info - i'm glad i asked on here now as that is something i was not aware of.

We could rent the property out when its completed as we know someone who would be willing to rent it from us for at least 2 years. My parents would go along with this but i was looking to sell it and have a small lump sum left as i have some credit card debts that i would like to clear. A sale would give a nice closure to the first project completed by myself and a bit of a pat on the back! Renting would give us a monthly profit around £285 per month after insurances and mortgage costs so could be worth considering.

Tiffabebbs

Oh, and thanks for all your help so far! Much appreciated.

hazyjo

You're presuming it will sell after though - some properties are sitting on the market for years. What's the market like where you're looking to buy? Are things generally moving? Are there many price reductions? Everyone wants a deal these days. To only have £11k-ish profit from a house is cutting it a bit fine, I'd say. You might well end up having to reduce it £10k if it's not selling - still with no guarantee it'll sell. Your parents would be liable for that mortgage (even if you have a private arrangement that you'll pay them each month. What if you can't pay? On a salary of around £11k take-home pay, it might well be a struggle. I presume they wouldn't be taking it out over a long period of time - and I don't know if they'd be able to pay it back within such a short space of time without some sort of penalty.

Jx

poppysarah

Tiffabebbs wrote: »

Also, the £20k renovation costs include my labour for actually doing the work so the £11k on top of that would be nice!

so you're paying yourself?

are you running it as a business and what tax will you pay?