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Hello everyone, I'm a new member and PT has been an invaluable source of useful info!
I have a £50K plus savings pot which I planned to invest in an HMO (for a second income)having done a fair bit of research and attended a couple of property investment courses. I've just been to view 10 properties in Hull & Sheffield (I live in London but chose these locations because of the affordable prices) but the properties I viewed were vacant & not that great and with a little research whilst out there, I also realised renting the rooms out may not be as easy as the agents made me believe. I haven't given up though and currently looking into the Nottingham area.
In the meantime one of my property course trainer wants me to invest the 50K in a JV with him for my capital plus 10% return in 8 months. it sounds like a good project but he has no skin in it, he will be supervising the whole project and has done similar projects may times. He is also giving me a personal guarantee to return my money even if he project does not work out as agreed.
I've been reading up on JVs here on PT and considering suspending my HMO plans to invest in this JV (which could boost my capital in the short term) but I would appreciate some experienced opinions on this.
deal is to convert a 3 bed to an en-suite 5 bed which would add value and then refinance.
" If there really is a recession on its way you really don’t want to be invested in the North."
I despair. Can you expand on that comment please. Just wondering if you have investments in "The North".
Hi Kach and welcome.I have a few insights which I hope will help you find a safe way forwards:1. If you are a newbie to property, I have concerns about you considering HMOs. They are typically the domain of experienced "hands on" landlords because of the much higher risks associated with them. If a standard BTL is a Ford Fiesta then an HMO is a Ferrari. What happens when you put a learner driver in a Ferrari? A crash is inevitable. If you have no previous landlord experience I would strongly advise you to stay away from HMOs, not to mention that you may struggle to raise a mortgage on one as most lenders like to see someone with experience.Furthermore, HMOs are far more regulated and you have many more compliance regulations including management regulations. If you are not fully versed in these, then you are adding further risk.Then investing "remotely" amplifies the risk further while decreasing your margins as you will have to pay for an HMO manager to manage the property for you.2. With regards to your mentor, have you considered this: Why don't they borrow the money from the bank at 6%, rather than giving away potential profit to you at 10%?I am sure someone who calls themselves a property mentor must have some success, access to cash and access to finance. Why doesn't yours?3. Doing a JV with someone when they have no "skin in the game" is exceptionally high risk. They have nothing to lose yet everything to gain. Why are you willing to risk your hard-earned £50K on someone who is not putting a penny into the deal and can walk away if it goes pear-shaped? Could you finish the project and get it re-financed if it did?4. JVs are fraught with pitfalls and I recommend that you watch this video to understand the risk you would take if you got involved in this:
I would recommend that you learn to walk before you run and also suggest that the best person to control your money is the person you see in the mirror each morning.Start with a single occupancy BTL 2 or 3 bed house in a good area with good transport links and high tenant demand, and you won't go far wrong.Only "invest" with your mentor if you can afford to lose it ... because there is a strong possibility that you will.Also, from an ethical point of view, I think it wrong of your mentor to try and borrow money off you without putting any in themselves. There is nothing "joint" about the venture at all. You are taking ALL the risk with no guarantee that the property will even get valued at what is needed to refinance and get your capital back.I will hazard a guess that your mentor wants to roll the interest payment up into the final payment at the end of the project? If so, what does that tell you?What security has the mentor offered for your loan? A personal guarantee is meaningless if he has no assets. Have you done research on his assets or asked you to provide evidence of them from the Land Registry along with a copy of his personal credit report?I sincerely hope you give due consideration to my input, and don't do this. I think the risk of losing your money is very significant.
Vanessa Warwick Landlord and Co-Founder of PropertyTribes.com **If you have got value from Property Tribes, find out how you can support it in remaining a free to use community resource**
thanks for your advice Vanessa.... Actually I read some of your comments on another JV related post some weeks back, which was helpful.
I did ask why he is not putting any money down...and the answer was 'he was bringing his skill\experience, helping us make money, and finally underwriting the whole project (i.e. his personal guarantee). Therefore, putting his money down would be too much if he was playing all these roles in the deal. He apparently knows the right way of completing the project on time and getting it refinanced, without issues.
On why he wasn't borrowing from the bank...answer was the fees and hassle for surveys, etc, all add up, so raising money from private investors was less of a headache.
I must say he has been a helpful mentor since we crossed paths and to be fair I requested to be involved in his JV deals when it was brought up in one of our conversations, not vice versa. When I checked him out online they were no obvious red flags ( didn't do the land registry or credit file bit you mentioned though). The only niggling issue I had, was feeling a bit rushed to transfer my funds, although this could be understandably attributed to timelines for starting the project.
However, he has no skin in the game and if it goes pear-shaped I'm screwed, unless the personal guarantee kicks in. Yes, the interest payment will be rolled up into the final payment at the end of the project..
Well I'll put the brakes on this one for now , he's supposed to have other investors willing to invest, I was just being offered a spot to make more money
It sure is easier to borrow money from newbies! They don't do the same due diligence as banks do.As for being offered a "spot", that rings even more alarm bells. Is he trying to borrow £50K off multiple people? You might find yourself in a long queue of people who can't get their money back if things do not go according to plan.I know of one instance where someone lent £25K in similar circumstances. Once the project was completed, the mentor cut off all communications. The project was sold and he did not get a penny back. In desperation, he went to the mentor's house to ask what was happening and the mentor called the police. The police came and removed him from the property and he was told that there was nothing they could do and that he had to take civil action to get his money back.That civil action would have cost many thousands of pounds and he could not afford it. He had no route of redress. He lost the lot.I don't want anyone to be the next person who finds that they've been gullible and their naivety taken advantage of, hence I give these strong warnings ....
"was feeling a bit rushed to transfer my funds, although this could be understandably attributed to timelines for starting the project."
I am assuming that the mentor has given you a legal contract for the JV for you to chew on prior to socialising their bank account details?