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  • Property-a-holics

    Property Deal Structure - Any thoughts?

    Hi all,
    The following concerns an investment property, belonging to a friend, which I had hoped to take control of via an option agreement. Having now looked at the details, the figures don’t sit well with me and it is therefore a non starter. Rather than just walk away I want to advise him on what I think is the best way forward. I’ve thought about developing to build in enough equity to clear his debts and/or convert to an HMO but I view these as temporary (expensive) reprieves rather long term solutions. My reasoning, he’s on a SVR so once interest rates go up he’s buggered and therefore he needs to get shot, now.
    Do you agree with my views on him selling? How would you approach this? What other solutions can you think of, however creative?
    Currently my thinking is he should sell for £270k (buyer in place) and negotiate with the second charge lender to have the debt made unsecured OR sell and see if the second charge is happy for him to transfer the debt onto one of two other properties – he’s happy to do this. Problem is, I’m told the other properties have limited equity which makes a transfer improbable, and I also appreciate secured loans are harder to negotiate.
    I’m up-to-date with the debt negotiation angle and therefore would appreciate comments on the property deals angle.
    Basic details, excluding insurance, maintenance etc:
    MV: £270k - £280k
    Outstanding mortgage: £252k
    Secured loan: £38000
    Unsecured: £1000
    Monthly mortgage payments: £1100
    Monthly loan payments: £250
    Currently rented: £1250
    Income: £25k
    Basically, my friend would like shot of this headache. Any thoughts?
    Many thanks.
    PS: I’m getting the details on the other properties tomorrow and have been told these are less ‘complex.’ It would be nice to sort this out without having to consider a debt transfer onto another property I may, at some point in the future, have an interest in.
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    If he had an option that would give him (or you) £294,000 in 3 years time would that be of interest? If so, drop me an email.
    If he could pay off, transfer, renegotiate some of the loan debts that would then free up some additional equity.
    Then rent it out, HMO it or as Ken says find a tenant buyer who will pay more for the privilege.
    Overall though there is huge risk of it being upside down on both payments and the loans in any case. Not a good place for him to be in but definitely not for an investor.
    Lisa
    https://www.pipaforum.com/blog
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    Lisa All comments are for education and information purposes only and do not construe as advice or a financial promotion. No liability is accepted for comments made. If you wish to receive information in an advisory capacity then please contact me about becoming a client. www.keys-mortgages.com

    Thanks guys for the responses.
    Ken: I had considered the rent to own route but I'm uncomfortable with the risk factor for both parties. It's based on me thinking interest rates will move upwards and I just don't like the exposure. The rent he's getting presently is actually quite high for the area and will drop if I need to find another tenant/buyer. This could mean negotiations starting nearer the £1100 mark when it comes to talking monthly credits with a TB, so not attractive and even with credits possibly nearer the current cashflow.
    Lisa: I used similar figures (£292k) over 5 years but feel uncomfortable for the reasons stated above and in your quote at the foot of this post. At the moment I'm definitely leaning towards negotiating the debt down and selling. I'm favouring removing the headache completely and starting on the 'sensible' properties with a clean slate - he seems to favour this also.
    Many thanks for the input.
    LisaOrme said:
    Overall though there is huge risk of it being upside down on both payments and the loans in any case. Not a good place for him to be in but definitely not for an investor.
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    Hi Marcus,
    what I meant was if an independent party (not a tenant buyer) gave you an equity protection option at 294k would you be interested then? i.e. an exit route at set figure even if the property was worth less?
    If not on this deal would it be of interest on other lease option deals?
    KR, Lisa

    Marcus said:
    Lisa: I used similar figures (£292k) over 5 years but feel uncomfortable for the reasons stated above and in your quote at the foot of this post. At the moment I'm definitely leaning towards negotiating the debt down and selling. I'm favouring removing the headache completely and starting on the 'sensible' properties with a clean slate - he seems to favour this also.Many thanks for the input.LisaOrme said:
    Overall though there is huge risk of it being upside down on both payments and the loans in any case. Not a good place for him to be in but definitely not for an investor.
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    Lisa All comments are for education and information purposes only and do not construe as advice or a financial promotion. No liability is accepted for comments made. If you wish to receive information in an advisory capacity then please contact me about becoming a client. www.keys-mortgages.com

    If he could realistically sell for £260k right now then try to achieve this figure and and unsecure the 2nd charge.
    I can't see how I would make it work for an investor but putting myself in his shoes if I really could achieve £260k from a sale I would try to achieve that. He will of course have to unsecure the 2nd charge in order to sell and I guess they will see there will be little proceeds in the sale to settkle the debt (well none)
    If the do unsecure the 2nd charge then try to negotiate the unsecured debt - if there is any cash left after the sale (not much I would think) pay off some of the balance of the now unsecured debt or carry on paying it as it is.
    Can't see any investor taking it on as it is - will have to find a residential buyer.
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    Editor of Your Property Network Magazine
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    Lisa: Sorry, I misunderstood your meaning. Would depend on the particular transaction but I can see possibilities.
    Ant: I agree with your general sentiments and also agree with your thoughts on reducing the debt - exactly as you've suggested.
    Many thanks for the comments.
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