Like many BMV investors the credit crunch had a significant impact on our business as with the low LTV’s have made it hard for us to find solutions for the many motivated sellers contacting us.
After scratching our heads for a while the answer was obvious – why couldn’t we agree to buy the property now for an agreed price but break the payment down into 2 stages? We figured this would help us offer a greater total value for the property and that our vendors would like this.
Once we had worked this out, we needed to find a process that protected both parties’ interests during the period, which also assured the vendor that we were not going to disappear without making their second payment! Most importantly the solution needed to be easy to explain as from our experience, complicated processes only serve to confuse the vendor and scare them off. Well we couldn’t find one we liked so we got a solicitor to draw one up for us.
As we all know, the trick is to have as many tools in your kitbag as possible, in order to have the best possible chance of finding a solution to a vendor’s problem. With the current restraints on lending, discounts today need to be at least 28% in order for the deal to be “deposit paid / no money left in”. Naturally most vendors want to achieve the highest price for their property, so in many cases this means that they are either unable, or unwilling to take such a large discount.
Staged Payment deals have really been maximising our cash-flow over 2009 and will be much used through by us through 2010, but they are not new concepts. Basically, when you break it down, it is simply one payment on completion and another in a few years (usually 3-5). It’s a bit of a hybrid between BMV and a Lease Option, with the key difference that you actually own the property from day one.
This methodology has enabled us to buy properties in locations that we may not previously have considered, as we only look at these purchases on a 3 year plan – ie: buy now and sell with exit strategy. We feel the location becomes less relevant as long as the property will make good cash-flow during the term. Clearly the it needs to be managed but we are not seeking to hold forever – simply until the point where we exercise our exit strategy to make a pre-determined profit. To summarise, we have a proven system that offers full legal protection for both the buyer and the seller which will mean you can do more deals.
