Tenant wants to buy - saving for deposit

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    #16
    This is a classic case where complications need to be avoided. Avoid loans and anything which smacks of a mortgage or stamp duty land tax fraud.

    I think you need to keep it to one of the following:

    1. Do as suggested in the second paragraph of post 2.

    2. If you are not in a hurry, exchange contracts with a delayed completion date. How far ahead will depend on how long the tenants need to make up the difference between what they need to borrow and the purchase price. There is no need for you to be paid a ten per cent deposit. You just want enough to encourage the tenants not to back out and which compensates you adequately if they do. Payment of a deposit is not a guarantee that a purchaser will complete, but in my experience default is very rare.

    We wish but sadly there will be fees to our managing agent so no great saving!
    Do you mean there is a clause in your management agreement that if the tenant buys you have to pay the agent commission? I think the (now defunct) OFT considered that to be an unfair term. It is the sort of clause which needs to be drawn to the consumer's attention. See here: https://en.wikipedia.org/wiki/J_Spurling_Ltd_v_Bradshaw

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      #17
      We're in a position where we have a property we'd be willing to sell to tenants who are a young family with almost no hope of getting a foot on the property ladder. Is there a way to do this without them getting a mortgage which they would find difficult to secure? I'm thinking of a situation where the rent they pay would end up totally the property value at which point we'd make the transfer. They'd have the option to pay us off if they managed to secure some kind of loan/mortgage in future. He has a steady job and they've never missed a rent payment in two years. We have a good relationship with them.

      Or does this way lie madness?

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        #18
        Originally posted by tatemono View Post
        Or does this way lie madness?
        I admire the thinking, but I'm not sure how practical it is in reality.

        It would (guessing here) take them 20 years plus to pay rent to the value of the property (which would possibly increase in value at close to the rate of payment in some years).

        You could reduce the rent to allow them to save for a deposit?
        When I post, I am expressing an opinion - feel free to disagree, I have been wrong before.
        Please don't act on my suggestions without checking with a grown-up (ideally some kind of expert).

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          #19
          Originally posted by tatemono View Post
          Or does this way lie madness?
          As jpk says, the idea is difficult to put into practice. It is also not really a very good one as it is likely to tie up your capital for longer than you may find you want.

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            #20
            we're not really worried about when the capital's released. We've got plenty of other capital in reserve which is instant access and we didn't plan on releasing any of our properties for at least another 8 years anyway, when my wife's teacher's pension kicks in.

            At their current rent, it would take them 14 years to pay off the current market value of the property. It's unlikely to gain much value. Such is the nature of property in that particular area of Teesside. The rent is already just below the market rate for that street.

            Appreciate your input though. Unless the tenants are super keen on the idea, I'm not going to encourage them. If they are, I'll talk to a property solicitor to see if there's a feasible way of managing it which protects everyone. Cheers.

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              #21
              Why dont you say that you are selling the carpets, curtains, etc for £5000. Reduce the price by £5000. Have an invoice drawn up for the £5000 and after the sale goes through they just become a debtor and you can sue them if they dont pay.
              PS When I was selling a commercial property the tenant said they wanted to buy it, I mentioned this to the agent I was using and he said that in 25 years of being an Estate Agent he had come across many cases of tenants wanting to buy but non had ever gone through.
              I would be inclined to say "show me the document which says you have a mortgage agreement in principal" Which means they have to spend money to pay for a valuation, And if the valuer does not agree with what you are selling it for, you are wasting your time talking to them.

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                #22
                Originally posted by tatemono View Post
                If they are, I'll talk to a property solicitor to see if there's a feasible way of managing it which protects everyone. Cheers.
                There is not really a way of buying a property by instalments. Anything a property lawyer comes up with is likely to be to complicated for the sale of a residential property. There will also be the question of when the disposal is for for CGT

                Available options include granting an option or right of first refusal. You could sell and grant a mortgage back, but you would have to check that that is not an unauthorised financial transaction.

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                  #23
                  To the two people asking the same question, it seems that the tenants are the only ones in the world that want to buy your property.
                  When the time comes, put it up for sale, and those that have cash or a mortage offer "in principal" can be considered.

                  You WILL be disapointed, probably by lost sales if you continue with the silly idea your tenants MUST have your property at all costs.

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                    #24
                    thanks everyone... Based on the info shared here and knowing that some of you have a wealth of experience that I lack, I'm convinced that the idea isn't worth pursuing. Cheers everyone.

                    ... except ram ... who perhaps needs a bigger font due to perhaps not being able to see clearly enough to understand messages. So, here we go:

                    No two people here are asking "the same question".
                    "It seems" indicates that you have drawn an assumption. Your assumption is, at least in this case, incorrect.
                    No one's ideas on here should be considered as "silly" but rather reasoned with as everyone else has respectfully done to their credit.
                    No one has insisted that their tenants "MUST" have any property "at all costs".

                    Hope that's cleared that one up for you ram.

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                      #25
                      I have researched the question of a Vendors deposit, I can confirm that certain lenders will allow a gifted deposit from the vendor provided it doesn’t exceed 5% and is matched by an identical amount from the purchaser , however if the deposit is greater than 5% from the vendor the amount will be deducted from the agreed sales price and base the loan on the lower figure. The biggest issue is that lenders will want the Vendor to provide a declaration that the gifted deposit comes with no agreement to repay the monies with or without interest.
                      Sorry I cannot provide better news but there is a potential chink in the lender criteria.

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                        #26
                        Originally posted by tatemono View Post

                        ... except ram ... who perhaps needs a bigger font due to perhaps not being able to see clearly enough to understand messages. So, here we go:

                        No two people here are asking "the same question"
                        Well if you think post number one and post umber 17 are not asking similar qurestions then you need smaller fonts to be able to see the full width of the questions.


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                          #27
                          Originally posted by Codger View Post
                          Rents need to be higher if we have no sec 21.
                          Why is that then?

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                            #28
                            Originally posted by Lawcruncher View Post

                            Why is that then?
                            Basic economics.

                            https://www.investopedia.com/ask/ans...ing-market.asp

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