Have you ever used a 'portfolio of investors' rather than a mortgage company to finance your property purchase?

[MrsMerryHenry]

DH and I are thinking of doing this - basically, using a solicitor to come up with water-tight legal paperwork, getting together friends/ other contacts who have money to invest but don't want to purchase a whole house. They can invest anything from I suppose £5k-ish upwards.

If you've done this I'd love to know how you did it, what worked and what didn't, etc.

[HerHonesty]

dont know anyone that has done this but likewise, would like to know...sounds like a bit of a nightmare tbh

[LadyMuck]

We did this with some friends to assist a third couple to finance their own home. Only up to 4 people can be listed on the deeds, after that you need to set up a trust. In our instance we committed to invest until the point that the couple no longer wished to live in that home, so it was pretty open ended. One issue will be about end time and how investors can access their capital. The other issue was around household improvements and decoration:- we didn't want to be involved in ongoing financing of new kitchen or bathroom etc, yet these things do impact the selling price, so you need to consider how improvements are financed and what mechanism is used to ensure that the capital reward of such improvements is shared fairly (I'm assuming that you wouldn't just be looking at an investment which models a mortgage, but more one that models an investment in the property).

When you are looking at "watertight" I guess you need to be clear as to what sort of guarantees you are looking for and from whom.

[MrsMerryHenry]

Ladymuck - yes, we'd like to convert the roof space if poss, and would expect to allocate the profit accordingly.

Also we'd set a time limit with the option to extend.

Interesting about the number of people that can be listed on the deeds, I didn't think that was necessary - if we're using a solicitor I hope they'd be able to work that out plus guarantees, etc.

How did it work for you - was it a worthwhile project, would you recommend it to others, did it throw up any problems, etc?

[LadyMuck]

We made a 50% return in 2 years so were quite pleased. I suspect that the couple who occupied the building lost out as they paid for improvements yet we all benefited. But the key issue investment-wise I guess was the fact that we didn't have much say in the timing of the sale of the property. I'm not sure how easy it is to put an endtime on an investment like this unless you are happy to commit to sell - otherwise it is very difficult to get a valuation that is satisfactory to everyone.

[LadyMuck]

Oh, and in the end we weren't all on the deeds, partly because the occupiers did still need a commercial mortgage for their proportion.

[MrsMerryHenry]

Wow, 50% in two years!

We basically just want a family home and would hope for a longish-term investment - say about 10 years, for e.g. That way we'd hopefully be able to save enough to buy out an investor. Still working on the detail.

We'd definitely be happy to commit to sell, we feel that if we are asking people to invest in our property we have to view it as their investment, i.e. that they must have the possibility of getting a decent return on it.

I think in theory if it worked, at the end of the investment period anyone who wants out could sell their share to us or a new investor.

[LadyMuck]

I think that the issue that you have in terms of buying people out is to agree a valuation methodology which works, especially if you have people investing different amounts. This sort of investment is fairly illiquid, though in theory if you have 4 or more people involved that should be sufficient to keep some sort of "market" in play.

You also have to consider various worse case scenarios - what happens if house prices crash, what happens if something causes one or both of you to no longer be able to work.

[MrsMerryHenry]

Yes, absolutely - these questions are just as relevant if you go with a mortgage company.

Certainly if we were to buy a wreck rather than the lovely home we're currently renting that would help protect the investment against market crashes (that's what happened with our last house purchase - phew!). But however you finance it, it's always a gamble.