Private Mortgage Arrangement

TFH

Hi there

I have been renting a yoga studio and therapy room from a friend for the last 18 months. She would like to sell it and I would like to buy it. I own no property and have no deposit (though if necessary I ought to be able to arrange this via backers and or fundraising). Her solicitor suggested that we draw up a private mortgage arrangement between us as it would take a much longer time to fulfill traditional lending criteria i.e several years accounts. The situation is quite complicated 1) There is a flat upstairs which currently has a tenant paying £500 rent per month and this would be sold to me too. 2) Although it is a business premises, there was no business as such when I took over - I set up a limited company and have built up a good business pretty much from scratch. I did inherit a handful of students and 1 therapist, but that was it. 3) She is keen to sell, but extraordinarily difficult to pin down to taking action. I'd like to get the ball rolling from my end, get a proposal put together for her solicitor to look over . 4) Her motivation is to keep the building as a yoga studio after all the time effort and money she put in - she's more motivated by this than by making maximum profit BUT she has had the building valued and was disappointed to discover that she had spent more on it than it was worth, she is keen to make sure she recoups her costs, but I think will listen to reason if case presented by a professional - it doesn't seem right to me to be asked to pay more than the actual value of the building?

Apologies for so much detail - can anyone offer advice or point me in the right direction to get the ball rolling? Thanks so much ....

Thrugelmir

Perhaps she doesn't consider you a serious buyer at this point in time. With you having no deposit available she is the one taking the entire risk. Might as continue to receive your rent and that of the tenant. Focus on building the business up. Then start saving.

TFH

She definitely does consider me a serious buyer at this time and is serious about enabling me to buy the business by offering a private mortgage arrangement. My question is about how to get the ball rolling. I'm looking for someone who can help me to put together a realistic proposal, including advising me on what sort of deposit will be necessary.

getmore4less

For a "private mortgage" lender

The deposit is what the seller wants up front.

for you as a buyer you have a few things to consider.

Is it Freehold?

Is it suitable as a long term premises for YOUR business to scale up?

The total costs of buying the place.

The rate on any borrowing required(from any source)

The payment expected.

The terms that can call the loan in early(like death of the lender)

You currently rent the place what costs are you responsible for and what extra costs will you have if you own the building.

Are you aware of your responsibilities as a landlord?

You will need a new business plan for the rental business.

Will you be dependant on both incomes to make the cash flow work?
(if the tenant stops paying can you cover the costs)

how do you fund a big bill if it comes in.

would the flat be a suitable place for you to live and cheaper than your current living arrangements?

4) Her motivation is to keep the building as a yoga studio after all the time effort and money she put in - she's more motivated by this than by making maximum profit BUT she has had the building valued and was disappointed to discover that she had spent more on it than it was worth, she is keen to make sure she recoups her costs, but I think will listen to reason if case presented by a professional - it doesn't seem right to me to be asked to pay more than the actual value of the building?

I would be very concerned about this if she is selling it is no longer her property so what happens to the use is out of her hands.

if she is going to make a loss selling then her motivation to sell to you is clearer as it is probably worth more to you than any other buyer.

The flat makes £500pm what rent do you pay, what is the ball park value

TFH

Thanks for your considered response. I pay £700 per month rent. I love the building and love running the business and would love to buy - every month paying rent is money that could be coming off the mortgage. Would you be able to advise where I would start - is this the realm of a mortgage advisor or a conveyancing solicitor? It would be good to find someone who is familiar with drawing up private mortgage arrangements who would be prepared to help me work through the figures and come up with a sensible proposal - the less work she has to do the better. She would like to sell it to me as soon as possible and will want to enable to me to buy, but is terrible at tackling her to do list.

davidmcn

You need to agree a price, irrespective of how you go about paying it - have you done that yet, as I can't figure it out from what you've said above?

TFH

Thanks for your considered response. I pay £700 per month rent. I love the building and love running the business and would love to buy - every month paying rent is money that could be coming off the mortgage. Would you be able to advise where I would start - is this the realm of a mortgage advisor or a conveyancing solicitor? It would be good to find someone who is familiar with drawing up private mortgage arrangements who would be prepared to help me work through the figures and come up with a sensible proposal - the less work she has to do the better. She would like to sell it to me as soon as possible and will want to enable to me to buy, but is terrible at tackling her to do list.

TFH

This is another problem. The amount that she paid for the build was 500k, but when we spoke about getting it valued, she said that she had had it valued a few times and it was always a lot less than she paid for it. It doesn't seem reasonable to pay more than it's worth. I can't initiate a valuation, as I don't have access to the upstairs flat. Ideally I would like someone to negotiate on my behalf - I feel if it was a professional person she would listen to their judgement re what is reasonable in a case like this, where more has been spent than the value of the property.

TFH

As a ball park figure though, I'm working on £450,000

davidmcn

If you want professional advice about the value (and/or someone to negotiate a price on your behalf) then it's a surveyor you want. Not much point worrying about the details of any mortgage etc if you can't agree a price.

TFH

It's a bit of a catch 22 - I need someone to negotiate on my behalf before survey / valuation can be instigated. Firstly I need to have an idea of how the whole private mortgage arrangement thing works so that I can put together a proposal to bring to her solicitor. I need access to the whole building to get a survey and valuation done which I don't currently have. It's a new build (5 years old) so not envisaging any major issues, though of course you never know. I realise that ordinarily the first thing would be the valuation and that exact figures cannot be drawn up without this, however I need to do as much of leg work as possible before involving her and make it as simple as possible for her. I also need the back-up of a professional person speaking on my behalf before I'll get access to the building and can initiate the current valuation.