Tag Archives: sell and rent back

HM Treasury want Sell and Rent back

The HM Treasury have contacted me as they would like more information on the Sell and Rent Back type of business. They sent me a letter asking me to fill in a questionaire as the media have shown concerns in these types of transactions.

This is the letter they sent me:
HM Treasury

The wording of the letter:

As you will be aware there has been some recent interest in the sale and rent back market. Mortgage industry representatives and consumer groups have expressed some concerns about the experience of consumers considering these types of products.

Her Majesty’s Treasury, the Department for Business, Enterprise and Regulatory Reform, the Department for Communities and Local Government, and the Ministry of Justice, working alongside the Financial Services Authority (FSA) and the Office of Fair Trading (OFT), are therefore seeking to establish further and better information on the sale and rent back market, and the role that these schemes play in the UK housing market.

We would be very grateful for your response to the attached questionnaire, which will help us to understand the market from an industry perspective. We would be happy to discuss this issue with you directly.

HM Treasury Concerns

Their concerns are totally understandable and I will help them in everyway they can to learn more about “sale and rent back” transactions. With many horror stories from families who have sold their homes to rent them back its no wonder that these transactions have been highlighted by the media.

I reported recently about Repossessions Stopped going into liquidation and getting their tennants evicted. I’ve also heard of other horror stories of families who have sold their homes at big discounts to rent them back, but only to find their homes in the next property auction listing to be sold on by the investors.

Lets Regulate

As the industry is unregulated there are many unscrupulous and unethical operators who are just out to make a very quick buck out of desperate and naive people. Anything that can be done to weed these operators out will be welcomed by the handfull of ethical and hard working landlords. It is very annoying that us honest and ethical landlrds have to be tarnished with the same brush as the cowboys of the industry.

Some of the good landlords in the industry are dishearted that the FSA cannot regulate sale and rent backs as they are not a financial product as such, they are property trancactions. They are working together to set up a trade body for which a code of conduct must be followed. I welcome the move, I am however concerned that a trade body will not get rid of the cowboys as mandatory membership cannot be enforced. Not yet at least.

Repossession Stopped – Are Stopped!!

A Property buying company trading as Repossession Stopped and Retail and Domestic Properties have this April gone into liquidation. They owed £19million to mortgage lenders on 230 properties.

They had been operating the sell and rent back system long before other property investors got in to the game. I remember seeing their advertisments in the local papers going back a good few years. You may have seen the red postage stamp sized ad with the hand to stop repossessions.

repossession stopped
repossession stopped

I always thought that they would have been really sucessfull in what they do as they seem to appear in most local papers around the midlands. On occasions we did go head to head with some of my clients telling me they had also called repossession stopped. Sometimes we beat them and did deals with clients, othertimes they beat us but I guess that is just business. I think they must have bought some properties for very low prices whilst they were the only company doing the sell to rent back scheme.

They must have run in to some pretty serious cash flow problems to go into liquidation. Some of their tenants were evicted from their homes even though they had always paid rent on time. Richard Dewsbury states on the BBC website:

he’s devastated this situation has arisen and it was never the company’s intention to cause distress to tenants. He says although the Wilkinsons paid their rent on time, lots of other tenants didn’t, causing the business to struggle. He says there are still investors who may purchase their properties, reducing the likelihood of evictions.

link to article

He stated that lots of tenants were not paying their rent, which is no surprise to me. They were facing repossession for whatever reason, usually because they were very bad at handling their own finances. So now they’ve been helped out one last time by an investor buying their property and renting it back to them. More often then not they get back into old habits, falling behind with their payments on rent rather than mortgage.

£19 million Debt

What are the monthly payments on 230 properties and 19 million worth of debt?
If average interest rate is 5% assuming they bought the bulk of the properties when the rates were lower and fixed the rates.
That would make the annual payments a mere £950’000.
The monthly payments would only be a whopping £79’167.
The monthly rental income should be around £102’000 assuming £100 average coverage on each property.
If a third of the tennants didn’t pay properly the rent recieved per month would be £68’000.
Leaving a monthly deficit of £11’000. or annually £132’000.
It’s no wonder they went into liquidation..

70% Below Market Value

If like most investors of this type I’m guessing they would have bought most of their properties at 70% of the true market value. Homes they bought a few years ago would have been purchased for even less. They then remortgage them to 85% of the market value pulling out the equity to reinvest (or spend).

If the £19 million owed was only 85% of the value of their potfolio.
They must have owned over £22.3 million worth of property.
Purchasing them all for around £15.6 million.
Releasing around £3.4 million of equity in the process.

Part of the released funds will have been used to pay the monthly deficit and part will have been spent on a lavish lifestyle?

Thats must have been some lifestyle!

Buy and Rent Back system

If Repossession Stopped were using the buy and rent back system and they failed, should I be more careful? I think so, I think it may be wiser to do more traditional buy to lets. Buy to lets with more ordinary tenants are sought rather than those with financial problems.

I’ll also I’ll be buying more properties to do up and sell on. Which means I’ll need to find those cheap builders again.