31 Aug What is an assisted sale, and what makes it profitable for property investors?
An assisted sale is when you flip a property without owning it.
For example, the vendor has not been able to sell their property because it’s in poor condition. The investor pays to refurbish the property and then markets the property for sale.
In an assisted sale, the investor will secure the deal via an option agreement. This could be a deal whereby if the property is sold above a certain amount, then the vendor will also receive additional profit.
This is an attractive proposition for all concerned if a property is struggling to sell. A price is agreed, an agreement signed, the property is modernised and then marketed – when it sells, the profit is realised.
Benefits to investor
Advantages to the investor are that no stamp duty or mortgage are needed – and no six-month rule. In fact, if you can find an investor to fund the refurbishment, there’s little cost on your part.
You’re not buying the property, but you’re still going to make a profit. So, it’s potentially a no money down deal, which is an extremely attractive strategy.
If you have a refurbishment budget of £50,000, you could easily make 50% plus return on that investment. There’s a lot of flexibility in the profit, but it needs to be worth your while.
If you’re acting as an investor, and you’re getting tradespeople to do the work, your involvement is simply agreeing the deal and monitoring the refurbishment, which means you can have a number of these going on at one time.
Benefits to vendor
The vendor will get a quicker sale than has happened to date and gain cash sooner than they would have otherwise. You’re going to improve their property at no cost to them.
Essentially, the main advantages for the vendor are a no-cost refurbishment, their property gets sold, and they usually get more than they were asking.
Benefits to agent
Work with local independent agents rather than the chains and sell them the solution, e.g. you’re going to provide a property in a much better condition, which means they can sell at a higher price and get a higher commission.
They’re also moving stock, so they’re not left with an unsaleable property on their books. Refurbished properties are much easier to sell than a house in poor condition.
You could also offer a referral fee.
Finding suitable properties
Look for properties that are not selling, where a refurb is needed and where the vendor has been reluctant to discount. Even if they’ve discounted and the property is not selling, there is still a potential opportunity there.
You’re looking for tired properties rather than any that need major structural work. Fitting a new kitchen, bathroom, boiler, etc. is still a major investment for the vendor, which is why they may not be willing to do it.
Often these properties are in a probate situation after someone has died, and their beneficiaries are dealing with the estate. Ideal properties to look for are ones that have been on the market for at least three months, maybe longer, and are vacant, though it can work in other situations.
Costing the project
Once you’ve found a suitable property for an assisted sale, you need to run the numbers. Check similar sales in the area for like-for-like properties in good condition to give you an idea of what the property will sell for.
Also, check with agents regarding movement in the local market and their views on the likely sale price. This is useful if the market is increasing and prices are on the up as it gives you a better idea of the potential extra profit you could make. Or, if the market is static or decreasing, you’ll need to include a contingency in your sale value.
Next, work out the refurbishment costs or get builders to give you a better idea. Define what you need doing before you get tradespeople in to quote. Once you’ve done that, get 3 to 5 quotes, not estimates, and make sure the tradespeople are VAT registered.
You may also decide to pay for the vendor’s solicitors though this is negotiable.
Once you have a realistic selling price of the property in good condition, take off your refurbishment costs, legal fees, deduct the agent’s selling fee, and decide what profit you want to make.
The assisted sale process
Once you’re confident of your numbers, make an offer.
You need to ensure you have funds for the refurb or have an investor because an assisted sale should be a fairly quick process, so have a builder ready to start straight away.
Try to control the legal process on your side, and the vendors, as you’ll need a solicitor that understands the process of an assisted sale and can draw up an appropriate contract.
Agree a start date with the builder and a marketing plan with the agent. The agent will re-advertise with photos, so you might want to consider staging the property, i.e. houses that are furnished look better to a potential buyer than ones that are empty.
You and the vendor must agree on the sale price. Once the property is sold, the solicitor will distribute the proceeds according to the assisted sale agreement, e.g. vendor’s solicitor receives the sales proceeds, they will retain a share for the vendor as per the agreement, your solicitor will receive your share, which is then paid to you.
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