Owner to sell house and obtain leaseback letting

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    Owner to sell house and obtain leaseback letting

    I am new to this site and any help or advice would be welcome.

    Due to personal reasons my wife an I are considering selling our property to an investor to rent back for a minimum period of two years.

    I am unsure at this stage if a legal document can be drafted that will ensure that we can be legal tenants for this period of two years if the rental payments are paid 12 months in advance of each year.

    We live in a well sought after location with excellent schools on the Cotswold Edge and this 3 bedroom terrace house (valued at 185k) is the kind of house that sells quickly in this semi rural area, should we decide to move on after two years this house.

    We are willing to pay £700 pcm 12 months in advance, if anyone is interested in discussing this option or if you have an opinion advising if i am likely to be successful in this proposal then please let me know.

    Kind regards

    Kevin

    #2
    There are plenty of companies out there now that offer this type of service. Have you shopped around to make sure you are getting the best price/rent?

    As for making sure you can stay in the house for the full 2 years, there is nothing stopping you getting an AST for a 2 year period. Then subject to you sticking to the terms of the agreement the landlord could not serve notice on you to leave the property until the 2 years are up.
    The chances are however that most landlords would be keen for a good tenant to stay as long as possible.

    Comment


      #3
      Kevin - beware..the press is full of stories of people who sell with a promise to "rent back" and are served section 21s, given rent increases and generally "got out" of their homes as fast as possible by companies who specialise in this kind of thing. Let's face it, all they want to do is buy your house cheaply and sell it on as fast as they can at a massive profit. If the house is so desireable put it on the market and sell it yourself - rent somewhere else! Of course this may not be easy if you have kids in school etc but it is by far the safest option. If you do go ahead you must have a min 2 yr AST in place and ensure you are happy with terms. A deal with a trustworthy private landlord would be better than with a company - Good luck.
      Unshackled by the chains of idle vanity, A modest manatee, that's me

      Comment


        #4
        Originally posted by Colincbayley View Post
        There are plenty of companies out there now that offer this type of service. Have you shopped around to make sure you are getting the best price/rent?

        As for making sure you can stay in the house for the full 2 years, there is nothing stopping you getting an AST for a 2 year period. Then subject to you sticking to the terms of the agreement the landlord could not serve notice on you to leave the property until the 2 years are up.
        The chances are however that most landlords would be keen for a good tenant to stay as long as possible.
        Hi Colin thanks for your reply.

        I have looked at companies that do this but i am sceptical of being offered way below the market value and i have a feeling such companies pray on desperation which is not our situation.

        Kind regards

        Kevin

        Comment


          #5
          Originally posted by islandgirl View Post
          Kevin - beware..the press is full of stories of people who sell with a promise to "rent back" and are served section 21s, given rent increases and generally "got out" of their homes as fast as possible by companies who specialise in this kind of thing. Let's face it, all they want to do is buy your house cheaply and sell it on as fast as they can at a massive profit. If the house is so desireable put it on the market and sell it yourself - rent somewhere else! Of course this may not be easy if you have kids in school etc but it is by far the safest option. If you do go ahead you must have a min 2 yr AST in place and ensure you are happy with terms. A deal with a trustworthy private landlord would be better than with a company - Good luck.
          Hi Islandgirl

          Thanks for your advice, the only way forward i am considering is to a private landlord and not a company.

          This may be a long shot but i am hoping that i can attract attention from this forum from someone that may consider entering in to a fair agreement with us so we can not unsettle the kids, and afterall ive put a lot of work into decorating a nice home !

          Kind regards

          Kevin

          Comment


            #6
            Fully understand Kevin. The problem is that property with tenants is worth less than without...fact of life, so you will get below market value for the property. Anyone wishing to invest will want to ensure a hefty profit in 2 yrs time and will not pay full market value now in the hope that house prices will keep rising...Could you remortgage perhaps??? Hope you find a way around your situation and also manage to keep your lovely home.
            Unshackled by the chains of idle vanity, A modest manatee, that's me

            Comment


              #7
              Home Seller the problem that you are going to have is that with a property valued at £185k with only a potential rental income of £700pcm the yield would only be in the region of 4.5%! That's presuming the investor had that kind of cash just sitting around....

              Do you realise that the rent you propose wouldn't even cover an interest only mortgage? A mortgage would probably cost in the region of £1k pcm and so the investor would be £300pcm out of pocket (& that doesn't take into consideration addtional costs of managing the property, insurance, repairs etc). The investor would be relying solely on making a killing on the capital apprectiation of the property.... by no means a certain entity.

              By my reckoning the property value would have to increase by a minimum of 2% each yr just to cover the minimum losses due to low rental income.

              No offence but even if I had the cash to hand I wouldn't even get out of bed for a 4.5% yield as my money could make just as much sat in the bank and I wouldn't have to lift a finger to earn it....

              You only have to read this forum to get a feel for what hard work being a landlord can be (not to mention extremely stressful)!

              I wish you all the best regardless.

              Kind Regards

              J

              Comment


                #8
                Joanne I disagree (sorry!) Assuming the property is 185k at 20% bmv an investor would probably offer 148k. So say they negotiate and settle at 160k. That would leave an interest only mortgage of approx £633 per month with a healthy 25k equity in the property. Looks like a decent deal and also many private investors who do this kind of bmv deal want the current owners to stay in the property as they are more likely to look after it as their own home.

                Plus you dont have costs involved for advertising as you have a tenant from DAY 1.

                Kevin, I use another forum which is full of bmv investors. Bare in mind you WILL have to sell to a private individual at approx 15-20% below market value. I have PM'd you details.

                Regards

                Comment


                  #9
                  At what interest rate are you basing your £633pcm interest only mortgage payment and where did you get the deal (I'd be interested in securing one myself at that rate).

                  My above calculations were based on paying the 'asking price' and the mortgage was calculated at the rate of the most recent mortgage that I have secured.

                  Using your presumption of getting the property for £160k (cash) and receiving rental income of £700pcm - the yield still would n't be much above 5%. Given that capital appreciation isn't what it has been in recent years I doubt I'd invest my £160k on this particular deal.

                  An investor taking out a mortgage wouldn't make much (if any) immediate profit and so would be relying totally upon a rising market.... again I would consider that this would be risky given the current climate (rising interest rates etc).

                  I can buy 2.5 properties for that amount where I am and get at least £400pcm per property (total £1k pcm). Not to mention being able to 'spread the risk'.... one property with void period = no income, two properties with one void is only a 50% reduction in income.

                  I am currently in the process of buying two properties (total combined value £153,950) and will receive (when tenanted) a total combined rent of £950. If I go down the route of converting the four bed house into 2 self-contained flats I will actually achieve in the region of £1,200 pcm rent. Total cost of properties (with renovation and conversion costs) would be max of £180k and yet the rental yield would be minimum 8%.

                  I know which deal I'd be going with....

                  Everybody is entitled to their opinion and this just happens to be mine....

                  Kind Regards

                  J

                  PS. No offence intended to any member by the way.

                  Comment


                    #10
                    Originally posted by jai View Post
                    Joanne I disagree (sorry!) Assuming the property is 185k at 20% bmv an investor would probably offer 148k. So say they negotiate and settle at 160k. That would leave an interest only mortgage of approx £633 per month with a healthy 25k equity in the property. Looks like a decent deal and also many private investors who do this kind of bmv deal want the current owners to stay in the property as they are more likely to look after it as their own home.

                    Plus you dont have costs involved for advertising as you have a tenant from DAY 1.

                    Kevin, I use another forum which is full of bmv investors. Bare in mind you WILL have to sell to a private individual at approx 15-20% below market value. I have PM'd you details.

                    Regards
                    Jai,

                    I agree, looks like a fair deal to me. Which other forum do you belong too for BMV deals?

                    Comment


                      #11
                      Joanne that deal was based on a mortgage that I sourced myself at 4.75%. (I'm a mortgage advisor).

                      Agreed the cash flow wouldnt be very good but assuming the valuations hold up, you would have a healthy 25k equity in the property plus a tenant from day 1.

                      Comment


                        #12
                        Originally posted by jai View Post
                        Joanne that deal was based on a mortgage that I sourced myself at 4.75%. (I'm a mortgage advisor).

                        Agreed the cash flow wouldnt be very good but assuming the valuations hold up, you would have a healthy 25k equity in the property plus a tenant from day 1.


                        I don't disagree about the equity in a stable market.... but that is only whilst the market remains static or house values are rising.... £25k wouldn't last more than 5 mins if house values started to depreciate.... then you'd be in a negative equity scenario fairly quickly and wouldn't even have a rental income that covered your overheads!

                        (the argumentative) J

                        Comment


                          #13
                          Joanne do you really think that the market could drop that sharply in the coming months? There is nothing to suggest this outcome at this moment in time and even if prices did drop slightly. There would have to be a pretty serious crash for you to get negative equity in that deal.

                          Inflation is not out of control at 2.8%. Interest rates are fairly high but not excessive. Unemployment is low and housing demand remains high. I really cannot see a serious downturn. I think we will have a fairly flat market for the coming years...

                          It' all about your individual approach TBH. Some are in it for capital growth. Some for monthly cashflow...

                          Jai

                          Comment


                            #14
                            Looking at the situation as a potential investor I don't know the Cotswolds area at all and would have difficulty managing a distant property. Even if the figures were right I would prefer to focus in an area I know and where I have easy access.

                            For that reason I would go for Joanne's approach as making the best business sense.

                            In general - and not referring to Home Sellers circumstances..........

                            Would and should the prospective investor seek more information about the prospective tenant?

                            Does the urgent need to release the whole of the equity in the house indicate a serious money management problem? It seems that a second mortgage is inadequate or inappropriate.

                            What guarantees would the landlord have that the vendor will maintain sufficient funds to be able to pay the rent!!!

                            Personally I would need to know more about the potential con tricks that could be inflicted on an unsuspecting landlord.

                            Would the vendor be willing to pay the rent in advance for the whole of the fixed term or will Housing Benefit be claimed ?
                            Vic - wicked landlord
                            Any advice or suggestions given in my posts are intended for guidance only and not a substitute for completing full searches on this forum, having regard to the advice of others, or seeking appropriate professional opinion.
                            Without Plain English Codes of Practice and easy to complete Prescribed Forms the current law is too complex and is thus neither fair to good tenants nor good landlords.

                            Comment


                              #15
                              Originally posted by jai View Post
                              Kevin, I use another forum which is full of bmv investors. Bare in mind you WILL have to sell to a private individual at approx 15-20% below market value. I have PM'd you details.
                              Why keep the forum secret? there are others here would be interested in the forum too...

                              The best at this I currently know of for the investments side is www.singingpig.co.uk, scroll down for the property forums. There's a good chance of people there who can help/advise the OP.
                              ~~~~~

                              Comment

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