Pension Horners Croft
This deal is what I call a “pension option”. It is a deal that I don’t own, that someone else pays the mortgage down for me, and in the future I can complete and own out right.
The house is worth £125,000 and the Vendors had outstanding loans totaling £119,000. When they made contact with us, they were in the process of being repossessed, as they had £5,000 of arrears. Their monthly outgoings totaled £690 between the mortgage and their outstanding loans.
They had received one of my leaflets, and were replying to my offer:
“We Can Buy Your Property And Rent You Another One”
We negotiated a deal with them, which suited them perfectly. They moved out of their house, and into one of our properties.
They pay us rent of £735 per calendar month. We had to get prior agreement from the Council Housing Benefit office, prior to them moving into our property, to ensure that the council were happy to pay this rent.
We had to get approval as they still owned the property we were about to buy. However, the fact that they get no monthly rental profit, meant Housing Benefit were ok to pay the £735 a month rent for them.
We explained to Housing Benefit that if we did not rehouse them, they were facing repossession and then they would be chased by the building society for the shortfall, including the building societies substantial legal costs – resulting in a probable bankruptcy.
So they are now in a much better position. They live in a secure home with Housing Benefit paying the rent, rather than being in their old house, under threat of eviction.
The cost to refurbish the property was £2,385.99. The house needed tidying up, and has a rentable value of £750pcm as a single family let. With regard to their outstanding loans, we requested the vendor’s permission to speak to their building societies, and negotiated on their behalf.
A repayment plan was negotiated on their outstanding debt. Their repayment mortgage had 16 years left to run. The mortgage has a low interest rate, and in 16 years the loan will be fully paid off.
As a single let, the rentable value of the property is £750pcm. By utilizing the 2+2 rule, we can rent the property for £990pcm. This strategy involves letting to 2 tenants, (each over 35 years old,), in 2 self contained units. A single tenant in 1 unit would attract a LHA rent of £495, hence for 2 units our income would be £990.
So, having taken over the vendor’s mortgage, we now pay £690 per month and get £990pcm in as rent. In 16 years the property will belong to us, which is why I refer to this as a “pension option”. We exchanged contracts with a small amount of money, which was enough to pay some of the arrears off, and keep the mortgage company happy.
The completion price simply the outstanding loan on the mortgage and we can complete at anytime during the life of the mortgage, so it’s actually a delayed completion deal, but I call it a “pension option” because at the moment I have tenants paying the mortgage down on a property I don’t own.
When the mortgage nears its end, I will complete on the property and own it outright. It will have cost me very little, apart from the initial refurbishment cost, a bit of arrears and the legal fees.
The biggest risk in this deal, is the Sellers not keeping up the repayments on the two restrictions with Hilldesden, which total £4,500.00.
Both share the kitchen and each has access to 2 rooms.
The monthly payments include a £50 payment to pay of the arrears. Most people are unaware that the rate at which the arrears is paid off can be negotiated. This can be negotiated in court with the judge. The decision is at the judges discretion – but the building society must be paid back within the lifetime of the mortgage. In this case, the arrears amounted to roughly £6,000.