Sell your house and rent it back - wee question about these companies

[sellickbhoy]

Anyone know (roughly) how these companies work?

my neighbour finds themselves in financial hardship and with their house chain just collapsing, needs to sell the house quick

He is gonna phone a few of these companies that buy your house and rent it back to you - though to be honest, he is quite happy just to sell it to them and move back to his home town to be near his family

I'm sure they only offer you something 70% of the valuation price - but i've no idea how much rent they charge.

But i do believe that the rental agreement isn't like a normal rental agreement - where the landlord is responsible for teh upkeep of the building, instead in this case it falls onto the tenant.

any info much appreciated

 

[vvaannmmaann]

Never used them,so don't know the details.As I understand it,one of the companies offered you silly money for your house,and of course charged you a fee for making the offer.
Will try and find the info for you.

 

[vvaannmmaann]

From the FSA.
http://www.moneymadeclear.fsa.gov.uk/pdfs/equity_release.pdf

And the pitfalls!
http://www.headlandshouse.com/home-equity-scams-and-how-to-avoid-them/

 

[Rainbow Chasers']

Commercial version of an old developers trick!

You find a house you want, preferably with an older person resident. You then either:

1. Buy the house from them, allowing then to live there rent free until they pass on - then you have a house at a fraction of what it is worth as the prices rise.

2. You buy the house and rent it back to the occupier at a discount rent - you earn enough to pay the mortgage, and should they leave or pass away, then you have a house - often free as it has paid for itself in rent either partially or wholly.

3. You buy a part of the house, usually controlling half or more - and when the person passes away blah blah, you can force the sale or sell to the beneficiary at an agreed price which is often the market value which has usually risen.

It is a risky tactic in some partial sale cases, but when they are wholly purchased it is a winner for the buyer. Developers use this to snatch old properties that have large peices of land with them, or are in areas that are or will become desirable, They then deveop and make a fortune!

Put it this way - say you approached old boy fred in 1990 and purchased his house for 35K - He dies in 2006, his house values at 200k before development!

 

[Will-man Rodders]

vvaannmmaann's links are to 'equity release' schemes. These are governed by the FSA (Financial services Authority). Only authorised financial advisers can deal with them as they are now a regulated product.

With equity release the process is simple ... an aged occupier wants to release money from their property - which they own outright and is free of mortgage. The provider allows the occupier to take money out from the property and in return they either take a charge (mortgage) on the property, or have a % of the property transferred into their name. The occupier does not repay the loan until their death, upon which the lender then recoups their loan, interest, fees etc from the property sale proceeds.

These schemes have a minimum age of around 60 for the occupier. As their age increases then so to does the percentage they can take out. vvaannmmaann's links explain these percentages.

The OP however is [I believe] referring to the latest schemes whereby an owner of a property [and of any age] is in financial difficulty. They cannot afford their mortgage repayment, but nor do they want to move out of their existing property. The solution is ...

Loan company offer the occupant a percentage of the market value of their property - and the opportunity to rent the property back. It seems so simple - as it provides the solution the occupant desperately wants. Here is a simple example:

Owner lives in a property valued at £100,000. His mortgage outstanding is £60,000. He cannot afford his mortgage of £500 per month. Loan company offer the owner £70,000 for the property and the opportunity to rent back the property at £450 per month.

Owner accepts the Loan company's offer. With the £70,000 he repays his mortgage of £60,000 - leaving him with just £10,000. He can now afford his rent of £450 per month.

But ... 1. if the owner misses the rent he will be evicted. He then only has £10,000 as deposit for the next property. 2. If the loan company get into financial difficulty (which I understand is quite common in the present climate) the property may be sold by the then landlord to ease their cashflow problems - and the new landlord can impose whatever rental they want; they are under no obligation to limit it to the £450 used in this example; they could set it at £600 p.m. at rent review time.

I do not know what percentages loan companies offer at the present time - but 70% seems about right. Nor do I know what terms will be granted to the tenantl; the tenant will have to explore these themselves - and seek professional advice. But I hope the above explains how these schemes work, and highlights some of the often undisclosed risks.

 

[Westbound]

Be very wary of these companies as unfortunately many unscrupulous ones about IMHO looking to exploit.

I have found that when a family member looked into these thatthey dramatically undervalued the house and was almost criminal what they were trying to do.

Same with anything do a lot of research beforehand.

 

[OldWelshGuy]

As stated above, the biggest risk is the company who buy your property going bust. The house will be sold and then the ex owner will be out on the arris.

 

[JGOffshore]

There is also the (potential but common) issue that the purchaser (usually a company) is limited by their lender to offering assured shorthold tenancies of 6 months (even though the upper limit is normally 2 years) then renewable on a 1 or 2 monthly rolling basis. If the purchaser defaults then even if the seller (now the tenant) goes to court to fight an eviction they will be lucky to get more than a month or two's extension. Given that they sold in the first place because of financial problems - no doubt including defaults and/or CCJs - apart from the problems of having to move they will also find it hard to find a landlord to take them on.

 

[estwig]

I love forums as a resource for finding information, you can't beat reading about and asking questions of real people.

Singing Pig is the forum for BMV property deals, lots of very knowledgeable, helpful people. Be warned they can be a little abrasive, make this place look like nursery school!!

 

[sellickbhoy]

i have to come clean here - i'm not asking because i'm a good samaritan

I'm asking because i want to buy their house!!

if they are gonna accept an offer of 70% of the market price, then it makes it a lot easier for me to buy their house (it's actually the upper flat of a building they share with me - i own the lower property)

then i can make 1 nice big house and in a few years time sell it for a handsome profit!

however, i'm not a complete heartless git - there would be several benefits down the line for them if I bought it and not a 3rd party - mostly being that they would keep all their land and not have to sell any of it as a garden/access for the new owners and in the future build a semi detached property on the side (for which they have planning permission - but the planning permission is dependant on there only being 2 properties on the site - if they sell to a 3rd party, then they can't build)

So, now to find a suitable mortgage product that i can actually get in this climate!

 

[cakeboy]

Hi Sellick

Just be careful - new laws came in this year saying you had to be a licensed SARB (sell and rent back) company if yu a going to SARB. Whether a one off like this will get through is a different matter.

Plus mortgage companies also ask about this now. Bear in mind you'll need a BTL (Buy to Let) mortgage not a normal one, and they do ask about this, if you are letting it back to them.

There are many kosher SARB companies out there. A lot of the scare stories just highlight the bad stuff. I've bought a couple of these via a SARB friend of mine.

If they need to sell quick you'll be bloody lucky to get a quick turnaround on the (now very limited and quite expesnive) BTL mortgages out there. You're looking a 5.5%+

 

[sellickbhoy]

thanks cakeboy - but i have no intention of renting it back to them - i'm just wanting to buy it and convert the whole building into one house

but if they are prepared to accept a 70% offer on the valuation, then i can match that and they have the added bonus of still being able to build on it in the future

but if these companies give them 90% - then i can't match that!

from what iv'e googled and read tonight, they'll get about 70-75%

that's right up my street and i'm off to the mortgage adviser tomorrow

 

[estwig]

Gillie, a long time member on here, does some very good finance deals, lovely lady, look her up, talk to her.

 

[Colin Parker]

My company ONEPORTFOLIO is an established broker/sourcer of below market value property for investors and an affiliate of an FSA interim authorised SARB company.

Since 1st July 2009 SARB transactions have been exclusively allowed only by companies who have applied to and been granted interim authorisation by the FSA. The FSA are regulating SARB purchases due to the unscrupulous activities which have been practiced by a minority of those previously involved in SARB.

The FSA regulations on SARB are very complex and as yet many of the rules are open to interpretation and even SARB 'experts' disagree on who is/is not allowed to purchase a SARB property.

My advice is threefold:

1. Do not UNDER ANY CIRCUMSTANCES purchase a SARB property from any company that is not FSA interim authorised.

2. Do not UNDER ANY CIRCUMSTANCES purchase a SARB property even from a SARB interim authorised company unless you discuss the legalities of the purchase with the FSA and your own legal advisers.

3. Do not UNDER ANY CIRCUMSTANCES personally advertise/negotiate etc., to buy property and rent it back to the vendors unless you yourself are FSA interim authorised or (if the purchase is a 'one off') you have cleared the purchase with the FSA and your legal advisers.

The worst case scenario for an investor buying a SARB property outside of the new FSA regulations is that a) they could be fined substantially AND b) they could be in breach of their mortgage lenders T&C's and the mortgage could be repayable immediately AND c) the property could be handed back to the vendor. Result for the investor - possible bankruptcy.

There are some (usually opportunistic) companies within property investment who will say that my scenario above is 'scaremongering' and that their 'interpretation' of the FSA regulations makes it perfectly OK/legal for an investor to buy a SARB.

If you believe this without taking independent professional/legal/FSA advice ... just make sure you have deep pockets if the smelly stuff hits the fan at a later date.

Colin Parker

 

My company ONEPORTFOLIO is an established broker/sourcer of below market value property for investors and an affiliate of an FSA interim authorised SARB company.

Since 1st July 2009 SARB transactions have been exclusively allowed only by companies who have applied to and been granted interim authorisation by the FSA. The FSA are regulating SARB purchases due to the unscrupulous activities which have been practiced by a minority of those previously involved in SARB.

Strange I did not notice the FSA regulating the larger mortgage companies on there favourite scam of offering old people 50% cash for there property and letting them live there free untill they died ,when the property became the mortgage companies.

Of course you had to be 80 years old to qualify for this generous scheme.:|

we live in hope,but I do have reservations.

Earl

 

[Colin Parker]

Strange I did not notice the FSA regulating the larger mortgage companies on there favourite scam of offering old people 50% cash for there property and letting them live there free untill they died ,when the property became the mortgage companies.

Of course you had to be 80 years old to qualify for this generous scheme.:|

we live in hope,but I do have reservations.

Earl

The FSA have made the regulations and cost of being SARB registered draconian and because of this it is estimated that less than 10 companies will receive full FSA authorisation after the interim period.

This will almost certainly not be to the benefit of the vendor who will receive lower offers for their property due to the regulation costs and lack of competition.

This outcome is typical of Government officials over regulating a business sector without any commercial nous being applied.

It wouldn't surprise me at all if the mortgage lenders decided to exploit the new restrictive regulations by offering their own 'SARB solution' which leaves a vendor further out of pocket - but being a bank/lender and not a 'nasty property company' receiving a favourable FSA response.

Colin Parker

 

[Rainbow Chasers']

Nothing wrong eith that! Before you consider conversion, I would seriously look into it in a little more depth.

Consult an estate agent, and value the property as one and as two units - two units are often worth more, hence they are converted in the first place!

Work out the sale and rental prices on the individual properties, and decide if you would own the freehold on a price to charge per annum.

Having two properties on a portfolio is worth far more that one larger one, flats appeal to far more prospective buyers/renters.

You can then sell both and move on, or use them as security to remortgage and buy the bigger house you want, with the two flats supplying a rental income which would boost you mortgagable rate, allowing you to have a better house, and cover some of the mortgage on your new house.

Or if sold, keep the freehold and have a small yearly top up income coming in for ground rent - though this is typically around 1000/year

Look into it and decide if you want short term profit, or long term profit - the properties with rise in price, so there is no rush to sell.

 

[Gillie]

thanks cakeboy - but i have no intention of renting it back to them - i'm just wanting to buy it and convert the whole building into one house

but if they are prepared to accept a 70% offer on the valuation, then i can match that and they have the added bonus of still being able to build on it in the future

but if these companies give them 90% - then i can't match that!

from what iv'e googled and read tonight, they'll get about 70-75%

that's right up my street and i'm off to the mortgage adviser tomorrow

I hope chatting to my colleague helped you out with knowing where to head next in your quest.

 

[sellickbhoy]

Cheers Gillie

had a good chat with yer man - off to speak to a couple of banks this morning. Fingers crossed!!!