Re: Would like advice please regarding flipping houses

AlanP_2

Andrea2528 said:

Surely, if there also a first charge in place, then it is safe?

A first charge on a half demolished / half built house if it all goes pear shaped before it is all finshed, sold and the money is in the bank may not be much value or help at all.

What is the property worth now?

How much will renovations cost?

How long will they take?

What will be the expected sale price at completion?

What will the profit be after all costs e.g. legal, building regs compliance etc.?

Who will have to stump up the extra few thousand that will be needed at some stage as something unexpected crops up or prices are higher than estimated?

Andrea2528

Partner's investment amount will cover the house purchase and the work to be done on it.  The house is going to be auctioned online and he has been in contact with the people selling it.

Section62

Andrea2528 said:

This is actually the first time person is doing it, he doesn't have any experience with it.  They don't have the money to it themselves, all their money is tied up in assets.

That is all you need to know then....  people with extensive experience and contacts in the trade can struggle to make any profit on property renovation.  Someone who hasn't done it before is being overconfident if they are promising 10% to the funder on top of anything they keep for themselves.

Andrea2528

They are lending to an individual who apparently has got plenty of security.  I'm not happy with this unless there is something in writing, signed by a solicitor.

CliveOfIndia

Andrea2528 said:

This is actually the first time person is doing it, he doesn't have any experience with it.  They don't have the money to it themselves, all their money is tied up in assets.

So basically your partner is taking on all the financial risk, hoping that the other person can somehow muddle through it and make a profit.  Do they even have a realistic idea of what's involved in such a venture, how much it's all going to cost, what sort of profit they can realistically expect at the end?

If it all goes pear-shaped, the other person can walk away without having lost anything, meanwhile your partner is thousands out of pocket.

If it were me, I'd be heading to the nearest chandlery to buy myself a barge pole .......

Darren91

Literally no upside here, would be insane to even consider it.

Andrea2528

Had a word with solicitor and he says that he is guaranteed 10% of his investment and all the money returned.  Thing is, why wasn't anything signed when he and this person were at the solicitors?

Andrea2528

So even though my partner thinks he knows this person well and trusts him, is that of any assurance?

CliveOfIndia

Andrea2528 said:

Had a word with solicitor and he says that he is guaranteed 10% of his investment and all the money returned.  Thing is, why wasn't anything signed when he and this person were at the solicitors?

How can a profit of 10% be guaranteed?  There are so many variable at play, the costs of renovation almost always end up being more than was originally budgeted for, the final sale price of the property will be influenced by the local housing market at the time, and there are dozens of other unknowns.

How can anyone guarantee a specific return on investment - is there some sort of insurance policy in place which will cover any shortfall, or something like that?

jimjames

Andrea2528 said:

This is actually the first time person is doing it, he doesn't have any experience with it.  They don't have the money to it themselves, all their money is tied up in assets.

If it's such a great deal then why doesn't your partner buy it himself and get the trades in to do the work? He will then make all the profit for all the risk rather than just 10%. Your partner has exactly the same amount of experience as the person who wants him to fund his project so that person isn't bringing anything to the deal.

Andrea2528 said:

So even though my partner thinks he knows this person well and trusts him, is that of any assurance?

Absolutely not. How many friendships are wrecked by bad business deals. Even if trustworthy things can go wrong especially if the person has no skin in the game themselves as well as having zero experience.

Andrea2528 said:

Had a word with solicitor and he says that he is guaranteed 10% of his investment and all the money returned.  Thing is, why wasn't anything signed when he and this person were at the solicitors?

The solicitor is either lying or has no understanding of property deals. How can a return of 10% be guaranteed when it's dependent on doing up and selling a house which are both variable costs?

Maybe you can tell us why nothing was signed at the solicitors? From your previous posts it now sounds like your partner has already gone ahead with the deal? If he has then clearly too late for all our advice but if not then get him to walk away now.