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Refurb and refinance – How a flexible purchase worked for this investor

Homes With Options, investment propertiesRent to Buy is a really well known concept these days, but people still have a certain idea of how it could work for them. Homes With Options have many different options for buyers, low down-payments and monthly part rent-part buy payments, or a higher downpayment and a seller financed repayment plan.

Each buyer requires something different to suit their lives and finances.

We took on a property that was in a very sorry state when we first visited. It was a complete refurb so, not for the faint hearted! We then sold this to a property investor who was looking for bargain properties and refurbs in the area.

The interesting thing about this case study is that, he could have afforded to buy the house cash, as well as paying for the refurb himself. What he decided to do was to buy the house with the flexibility built into the deal, keeping the majority of the money in his own bank and completing the refurb before refinancing.

It’s now we should note that the house wasn’t a ‘cheap’ house. The seller had a mortgage on the property that was higher than it’s current value, leaving the seller in negative equity and stuck with selling the house for what he owed on the mortgage. This was the sellers motivation for giving the buyer a flexible purchase, leading to a real win-win situation.

Here’s how he made it work:

The Purchase

Purchase price: £49,500

Downpayment: £3,000

Flexibility: Up to 8 years to buy at the outstanding amount of £46,500

Monthly fee: £290 (50% for the first 6 months)

Amount of work needed: Around £10,000

So the buyer only had to pay a £3,000 downpayment, plus the estimated £10,000 to refurb the property, total investment £13,000

For the first 6 months he only had to pay a monthly fee of £145 (please note that this is not deducted from the purchase price each month, this is a fee to cover the interest on the outstanding £46,500 owing)

After 4 months he had refurbed the property and after another month moved a happy tenant into the property, paying £475 per month rent.

So our buyer is now paying out £290 per month on the property and receiving £475 in rent.

After 18 months the buyer then decides to exercise his option to buy at £46,500, the outstanding amount left after paying his downpayment.

He has the house valued and the house is now valued at £80,000. As he is a landlord, most Buy To Let mortgage companies will only lend up to 75% of the house value. This means that he can borrow £60,000 on the property. So remembering how much he put into the property as well as how much he owes the seller, we can see how he’s made it work:

£3,000 downpayment

£10,000 refurb cost

£46,500 outstanding to owner

Total – £59,500

The buyer has now taken all of his investment back out by remortgaging and hasn’t left any money in the deal at all. He also has an asset growing in value and a happy tenant covering his mortgage. He also makes around £200 per month on the property.

So the lease option he took on has really worked for him.  Interested in an investment like this? Get in touch today and see what we have available!

 

Figures are intended for illustration purposes only and do not constitute financial or mortgage advice.  Homes With Options do not give financial or mortgage advice.  You would need to get independent advice from a financial professional regulated by the Financial Conduct Authority to be confident that you will be eligible for a mortgage when any lease period comes to the end.
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