property investment company want my HMO

kinger101

Check in the bathroom mirror.  It's possible on you your mates has written "MUG" on your forehead.

snickpan

well, another one has approached me, the way it works is:
He pays me 10% deposit, the sale has a delayed exchange of contracts (say, a year), so still a legal sale, still legally binding.
He renovates as much as he can, as quickly as he can before exchange.  If my outgoings were a grand a month (for example), he'll pay me that so that I don't lose any money in the meantime.  Once sale is complete - he applies for a commercial mortgage, which is valued differently to estate agents values.  Ie, if property would have sold for £500K, upon completion, he can get a commercial mortgage for possibly £700K, which covers all of his costs and gives him enough for a deposit on the next property.  This modus operandi allows him to offer me a good price on the house, and to get him a nice lump of cash at the end.

I wonder if the members who were so rude and insulting would like to comment (as it seems that despite their arrogance, they knew NOTHING, but were happy to comment)

Guesses that he was hoping value would go up, or he'd welch on the deal seem a little wide of the mark.
https://www.fundingoptions.com/knowledge/property-development-finance/

"Commercial mortgages vs. buy-to-let mortgages

Another situation where a commercial mortgage might be suitable is when a landlord with a large property portfolio wants to buy more properties — by combining multiple properties into one mortgage, it’s possible to cut arrangement fees and take advantage of economies of scale, as well as having one point of contact with one provider.

Where this type of commercial mortgage differs from a buy-to-let mortgage is scale. Generally it’s a setup that would be reserved for a full-time landlord with multiple properties, and wouldn’t be appropriate for a private individual acquiring their first rental property. "

blue_max_3

This is called a lease option deal.
This will tell you all you need to know.
https://www.youtube.com/watch?v=vg8NaJU4NCo

snickpan

not quite, but along those lines.  Bloke I spoke to doesn't want a 5yr lease, he wants to add bathrooms and get his commercial re-mortgage asap.  The video points out disadvantages and pitfalls for the prospective buyer/investor, quite interesting

tom9980

snickpan said:

not quite, but along those lines.  Bloke I spoke to doesn't want a 5yr lease, he wants to add bathrooms and get his commercial re-mortgage asap.  The video points out disadvantages and pitfalls for the prospective buyer/investor, quite interesting

You seem to know enough to go ahead then and sign that contract, do come back  in 5 years time and let us know how you got stiffed.

davidmcn

snickpan said:

well, another one has approached me, the way it works is:
He pays me 10% deposit, the sale has a delayed exchange of contracts (say, a year), so still a legal sale, still legally binding.

Have you got "exchange" and "completion" confused? If exchange hasn't happened yet then what is legally binding?

Once sale is complete - he applies for a commercial mortgage, which is valued differently to estate agents values.  Ie, if property would have sold for £500K, upon completion, he can get a commercial mortgage for possibly £700K

That makes no sense. Commercial lending is viewed as more risky (hence why you can normally borrow up to 95% of value as an owner-occupier but only 75% as a landlord). Nobody's going to be lending 140% of the valuation - unless of course you've got other collateral to throw in as security, but it still doesn't mean the lender is valuing the property higher than anybody else would.

snickpan

bless your heart.
I probably won't be taking advantage of his offer, but how might I be stiffed, or you're just being an expert?

snickpan

shocked at the absurd amount of aggression, rather than a peer group chat!

snickpan

davidmcn said:

snickpan said:

well, another one has approached me, the way it works is:
He pays me 10% deposit, the sale has a delayed exchange of contracts (say, a year), so still a legal sale, still legally binding.

Have you got "exchange" and "completion" confused? If exchange hasn't happened yet then what is legally binding?

Once sale is complete - he applies for a commercial mortgage, which is valued differently to estate agents values.  Ie, if property would have sold for £500K, upon completion, he can get a commercial mortgage for possibly £700K

That makes no sense. Commercial lending is viewed as more risky (hence why you can normally borrow up to 95% of value as an owner-occupier but only 75% as a landlord). Nobody's going to be lending 140% of the valuation - unless of course you've got other collateral to throw in as security, but it still doesn't mean the lender is valuing the property higher than anybody else would.

Good points, if I speak to him again, I shall ask, thank you.  Maybe I was typing faster than my brain could cope...once exchanged, completion would be set for a year, or less, in the future.
As for him getting the commercial loan, that's his look out.  I didn't learn his entire trade in one short phone call, but got the impression he was confidant that once the property was his, he could get the bigger commercial deal, taking into account what he'd invested, and what rent he was getting

numbercruncher8

Don't take it personally, but it doesn't require much expertise to realise this isn't a great deal.
The guy here is in business to make money. The deal as described gives him most of the upsides, with few downsides - if the property market falls, he can just walk away. It makes a lot of sense for him.

He can present things so it might seem that he is doing you some kind of favour, but that is what all good salesmen do. The stuff about a £200k uplift just because of a change of mortgage is baloney to me. For that they would need either a massive improvement to the house (house values are more or less the same whether HMO or not), or achievable yields would have to be massively out of kilter with the current price (in which case, why aren't you charging that).

Much like the 'we buy your house for cash' guys, you'd have to be desperate to want to do a deal this way. I don't think its a case of being rude or insulting, but such deals are pretty derisory for those who don't need to sell in a rush.