Over the past few weeks there has been significant media interest in the practise of buying property below market value from motivated sellers and allowing them to rent back for long term.
The coverage has on national TV has been varied. “The Money Programme” which featured Glen Armstrong of Repossession Angels, showed the positive side of the business where people are saved from repossession, allowed to rent back at a fair market rent and even have an option to buy back in the future.
In contrast, “Tonight” with Trevor McDonald had a more negative spin about people who sell their homes to BMV companies with the impression that the will be able to rent back, only to be kicked out of the property 12 months later. This is of course totally unethical. I have no doubt that there are some unscrupulous companies out there who are deliberately taking advantage of people.
There are also an increasing number of amateurs investors out there who are attracted to the concept of being able to buy property with no money down but who have no clue about what they are doing and how to handle motivated sellers. The danger being that they don’t know what they are doing and may make promises that they just can’t keep.
So what does this mean for you? Should you be looking to adopt this strategy? My advice is only if you do it ethically. Anyone who has seen me speak about buying property below market value will know that I always talk about ethics and how you can make it a WIN WIN deal for all involved.
There is no doubt that if someone is about to get repossessed and experience all that is associated with it, then it has to be better to sell their home to an investor who will pay off their debts and give them a fresh start and an opportunity to minimise the disruption to their life by renting the house back.
It must be in your interest to keep the motivated seller as a long term tenant. Yes it may be possible for you to get more rent but it if you increase the rent and kick out the vendor of the property you may well have a void period whilst you find a new tenant. This may cost you more in lost rent than you gain from the rental increase.
The other benefit of allowing the tenant to stay long term is that often they will treat the house as their own home and continue to make improvements to your investment. That has to be a goof thing. So by being ethical both the seller and purchaser get a good deal.
To learn how to buy property below market value ethically you may want to consider my property mastermind programme. The next one is full but we are taking names on the waiting list. For full details and to express your interest click here.