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steven · 21-07-2012, 08:02 PM

I have sourced a deal in London where the vendor is willing to sell the property well below market value. The only concern is that there is a sitting tenant in the property who has lived there for over 50 years. The sitting tenant pays a pepper corn rent, and the sitting tenant does not want to move from the property.

My plan is to present the property to investors I work with for them to purchase.

My question is about how I should structure the deal based on there being a sitting tenant in the property.

John Corey · 22-07-2012, 12:43 PM

Steven,

I take it you have no experience with this topic.

Assume that the sitting tenant will be there for a long time. You also need to understand if there is a family member who moved in as they could have the right to stay after the primary tenant dies or moves.

The building will be next to impossible to finance. No one can tell what it is really valued. The discount you think you are getting might be nothing more than the owner selling it at full price given its impairment. If the property is valued based on its income stream (it could not be sold to an owner occupant) then the peppercorn rent is all it is worth. You will have maintenance that could exceed the income so it will be a loss maker year in, year out.

How long has the owner had the property? It could be their nightmare that you are thinking of making your own.

steven · 22-07-2012, 01:01 PM

The owner inherited the property over a year ago after their grand parent died.

The sitting tenant is an 85 year old friend of the deceased who has lived in the property for around 50 years.

I did not realise that the family of the sitting tenant also have rights to reside in the property if they claim it as residence.

I am valuing the property at 530k (if the tenant were not present), and the owner is willing to sell at 389k. Similar properties have sold for over 600k according to the land registry.

How would you go about a deal like this?

quote='john_corey' pid='77606' dateline='1342957429']
Steven,

I take it you have no experience with this topic.

Assume that the sitting tenant will be there for a long time. You also need to understand if there is a family member who moved in as they could have the right to stay after the primary tenant dies or moves.

The building will be next to impossible to finance. No one can tell what it is really valued. The discount you think you are getting might be nothing more than the owner selling it at full price given its impairment. If the property is valued based on its income stream (it could not be sold to an owner occupant) then the peppercorn rent is all it is worth. You will have maintenance that could exceed the income so it will be a loss maker year in, year out.

How long has the owner had the property? It could be their nightmare that you are thinking of making your own.
[/quote]

Vanessa Warwick · 22-07-2012, 01:23 PM

Sorry, but I fail to see why this is a "deal".

If someone has been living there for 50 years paying very little rent, I would imagine that the property has not been up-dated during that time?

Also, are you suggesting that someone buys this property "BMV" and then waits for the tenant to die?

Clearly, there is no cash flow and you would struggle to get it financed due to the sitting tenant.

The best way forwards would be to help the current tenant move to a new property, but I doubt they want to, just to help you sell their home onto an investor?

Why not buy it yourself and work with the tenant to find a solution that works for you and them?

Only someone who invests some time in creating a win/win situation for all parties deserves to be rewarded in this kind of case, imho.

Sorry to be harsh, but you are talking about someone's home of 50 years that the deceased wanted them to continue using. Just because the new owner wants to cash it in does not mean that this person's rights should be ignored.

Glenn Ackroyd · 22-07-2012, 06:23 PM

Hi,

These properties do have a value.

You basically are valuing on;

Value = Value - [Length of time tenant is likely to stay there x Lost rent per year]

Obviously at 85, chances are not too long.

I have one of these and I get around 4 letters a year from various companies wanting to buy it.

They go for around 60-70% of vacant possession OMV at auctions as well. So the price requested is pretty much it's current value.

I should also add that you could offer the tenant a cash incentive to leave.

Given that this would add circa £150k to its value, you have plenty of scope to reach an agreement.

Vanessa Warwick · 22-07-2012, 06:32 PM

Thanks Glenn.

Sometimes, there is not a monetary value to everything though.

This person of 85 might not want to leave. It might be too much upheaval for them. They might not be seduced by money, or they may be feeble minded, and not understand what they are being asked.

I just feel that this tenant has rights and that their position should be protected.

Who protects the interests of the tenant in these situations when someone stands to make a lot of money?

If an investor wants to buy the property and wait until the tenant dies, then fair enough, but that means it is probably only of interest to the minority with that kind of cash .... who are willing to wait.

steven · 23-07-2012, 03:02 PM

I was thinking to help to support the tenant to get housing benefits. That way could increase the rent. Has anyone tried this?

Glenn Ackroyd · 23-07-2012, 10:13 PM

(23-07-2012 03:02 PM)steven Wrote: I was thinking to help to support the tenant to get housing benefits. That way could increase the rent. Has anyone tried this?

LHA will only pay up to their rent amount.

You can only increase the rent every due years via fair rent regs. This will be capped and generally goes up around 5% every 2 years. You never get anywhere near market rates.

See Fair Rent website HERE

(22-07-2012 06:32 PM)vanessa warwick Wrote: Thanks Glenn.

Sometimes, there is not a monetary value to everything though.

This person of 85 might not want to leave. It might be too much upheaval for them. They might not be seduced by money, or they may be feeble minded, and not understand what they are being asked.

I just feel that this tenant has rights and that their position should be protected.

Who protects the interests of the tenant in these situations when someone stands to make a lot of money?

If an investor wants to buy the property and wait until the tenant dies, then fair enough, but that means it is probably only of interest to the minority with that kind of cash .... who are willing to wait.

You can't force somebody to leave. But somebody at 85 offered £50k to fulfill life long dreams may be something that they wish for.

You give them 2 choices to stay or go with a windfall. That is one more than they currently have.

I've got an 83 year old in my house which I bought 10 years ago. She has lived there all her life. The house is in my village and I see her walking the greens most weeks. I'm quite happy with her being their. Her parents had it before her! I've never considered making her an offer, simply because I've no desire to sell or make a short term profit. She'll probably out live me!

John Corey · 24-07-2012, 09:07 AM

Steven,

Given the info you have now and Glenn's estimate of value, do you still think there is a deal at the asking price?

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