This is part 2 of the 3 part look at how no money down finance of a buy-to-let purchases work.
To see part 1 go here.
To see part 1 go here.
Strategy 2 -Structured Purchase.
Overview on typical purchase of £70k with £100k value:
* Finance company supplies the buyer with a business development loan for £28,505
* Buyer purchases property for full market value and puts in a £25k deposit.
* Vendor pays third party finance company (PJT Finance Ltd) £30k on completion
* Finance company discharges the business development loan.
So the order of things from the buyer perspective.
Negotiate deal. eg £100k OMV for £70k PP (OMV = Open market value, PP = Purchase price)
Buyers contacts broker and organises a mortgage valuation based on buying at £100k OMV
Purchase solicitors instructed to start sale process, order searches etc. and told purchase price to TBA after result of valuation of buy-to-let property.
Vendors solicitors instructed and also told PP is TBA after val. After valuation is done both solicitors are instructed at full market value.
Val comes in at £100k Vendor then given an Irrevocable letter of authority to sign for the difference (£100k - £70k = £30k) which the buyer takes and sends to the vendor solicitor.
Landlord buyer applies for Business Development loan for £28,505. He sends the amount needed for completion immediately to the purchase solicitor by CHAPs transfer so that the sale can happen same day.
Purchase solicitor draws down mortgage funds of £75k and takes the £25k deposit and sends £100k to vendor solicitor.
Vendor solicitor pays £30k to finance company as per the letter of authority and £70k to vendor as agreed.
Finance company uses the £30k to clear the £28,505.00 Business development loan and pay their fee for this loan of £1,495.00.
Although there may be other technicalities, it all sounds so straightforward, hence one begs to understand why not everyone is doing this?
ReplyDeleteMy experince of this so far is that you often have to make a decision on a property pretty quickly (within the hour on better deals) which requires guts. I've also experienced a high failure rate on deals which costs on valuations and legal fee's.
ReplyDeleterather than business development loan why not a charge against a property already owned by the buyer. this equity release is fully disclosed the lender
ReplyDelete