# Any ideas on finding private investors to take over a bank loan?



## StillaMellis (5 Jul 2009)

My interest only loan has three years to run. At 67 I am too old to take out a 30 year mortgage. I have calculated that that is how long it would take to pay off the capital and pay the interest on a beautiful house I have let to tenants. The income is likely to be sustained as the house is beside a university and there is considerable demand for accommodation each year. Having had a cousin die at the age of 96 recently there is no guarantee that I will die before I am 77, 87, or even 97. Even if I do pass away I have family ready and willing to take over my assets -- and my debts. This is such a beautiful house that I do not want to part with it under any circumstances. 

My solicitor suggested forming a "consortium". What on earth is that?

What are my chances of finding a number of private investors to lend me money on the assurance that they will receive a regular payment of interest and capital over the next 30 years -- and that if I fail they will receive a magnificent house in an excellent location for much less than I bought it for?

How does one find such investors? Abroad? In China?


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## rustyjack (5 Jul 2009)

StillaMellis said:


> My interest only loan has three years to run. At 67 I am too old to take out a 30 year mortgage. I have calculated that that is how long it would take to pay off the capital and pay the interest on a beautiful house I have let to tenants. The income is likely to be sustained as the house is beside a university and there is considerable demand for accommodation each year. Having had a cousin die at the age of 96 recently there is no guarantee that I will die before I am 77, 87, or even 97. Even if I do pass away I have family ready and willing to take over my assets -- and my debts. This is such a beautiful house that I do not want to part with it under any circumstances.
> 
> My solicitor suggested forming a "consortium". What on earth is that?
> 
> ...


 
stilla, my father is going through something similar at the moment. We are considering trying to get the bank to put me on the mortgage to extend the term but not on the deeds .. joint mortgage, single deeds. This prevents any CGT or stamp duty exposure. However, something in your will would have to state that the property would go to the family member who was named on the mortgage. What do you think?
Rusty


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## Gervan (5 Jul 2009)

There is some website in the Uk where people who have money club together to supply loan to borrower. I don't know if they would accept an Irish applicant.
I think you would find irish investors, am very tempted myself. Whereabouts is the property?


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## StillaMellis (5 Jul 2009)

Thanks for your reply, rustyjack. That is one of the options facing me and it is a good idea. It is an obvious solution. The downside danger is of burdening your offspring with debt to a degree that they cannot bear. I have no problem including such a provision in my will. The only financial impediment I have against me is my age. I would have plenty of collateral to cover this particular loan even at reduced house prices. All the other mortgages are either well-advanced to maturity or almost matured.

In my case there are a number of considerations: We have two grown-up daughters, one living with her partner in her own house that we helped her to buy and already paying a mortgage on a house that probably has gone down considerably in value but is still worth holding on to since they have to live somewhere. Thankfully she has a good professional salary and can cope with the repayments -- provided interest does not go up dramatically in the near future.

The other daughter is the one I would expect to take over this but she is not yet fully qualified in her profession although one year more of post-graduate study should clear the way for her to get a permanent, pensionable, well-paid job. 

On another thread here I envisaged setting up a limited company to take over ownership of the property but most replies to that idea were extremely negative.  I hadn't considered the Stamp Duty although it might not be prohibitive considering the cast-iron arrangements allowed for in a company to protect each shareholder's investment when the divvy up eventually occurs. 

If you are into letting accommodation in a good location however the idea of setting up a company, buying a few really good lettable properties in an ideal location at a "realistic price" and biding time until the current recession bottoms out and prices begin to rise again. In the meantime my experience is that rents are still capable of providing a return to people with money to invest. I have a sum of money lying in a Fixed Term Deposit Account with a bank that was initially offering 3.85% interest approx and has now been reduced to 00.05% on the turn over from term to term. Surely investing in a Propery Letting Company would earn more than that for an investor.


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## StillaMellis (5 Jul 2009)

Thanks for your response, Gervan. I will certainly search for that UK Based group. Considering the mess the banks are in there must be people around who would take the opportunity to earn generous interest on their capital as well as a gradual repayment of the principal. 

When you consider the overheads of Banks and Building Societies with their plush offices and astronomically generous bonuses to their directors a private little arrangement like this between trustworthy people should be possible and beneficial to all concerned. 

Another thing about Bank & Building Society Mortgages: is it true that for the first few years nothing is paid off the capital but the interest that would accrue over the full term of the loan is collected first? So if you win the Lotto five years into the Mortgage and want to redeem it you find you have already paid ALL the interest and still owe ALL the capital? Additionally you may have paid a serious amount of fees to the broker who so kindly facilitated the Mortgage for you, filled in the forms, and shook hands with you at the door with a peculiar smile on his face that should have set alarm bells ringing. 

A private arrangement can be agreed beforehand and be fully transparent.

Regarding giving details of the location of the property this is a public forum and I would prefer to keep the specifics private. If you are interested in taking this further we can pm each other and meet offline and establish each other's credentials before taking any serious steps. Thanks for the encouragement.


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## dubrov (5 Jul 2009)

StillaMellis, a quick guide to mortgages.Sorry if it is a bit long.

When you make a mortgage payment, a part of it goes to pay off the interest and the remaining part pays doen the outstanding amount borrowed. People like to pay a fixed amount each month and so at the start of the  mortgage, the amount borrowed is quite large and so the proportion of the payment which covers the interest is quite large. By the end of the mortgage, there is very little outstanding and so the interest portion is very small.

E.g. say you took out a mortgage of 100,000 at 4%. Say you paid 5,000 a year. In the first year, you would owe 4,000 (4% of 100,000) in interest so the remaining 1,000 would pay down the principle outstandiing so that only 99,000 remains. The following year you would owe 3,960 in interest (4% of 99,000) and the remaining 1,040 would pay down the principal outstanding. As you can see the interest portion decreases and the prinicpal paydown portion increases as time progresses. 

The last year of your mortgage would looke something like, you would owe 4,807. At the end of the year, the interest would be 193 (5% of 4807) so the 5,000 would pay the interest owed and reduce the amount outstanding to zero. You can see that in the last year, very little of the payment is interest


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## dubrov (5 Jul 2009)

As to your dilemma. It sounds like the property that you are looking to finance is in negative equity so any potential investor would almost certainly look to secure the risk against some of your other assets. Otherwise, they would effectively be taking all the risk without any eal upside. A private investor would also almost surely seek a higher interest rate than a bank.

I think the easiest solution is to go the route that CrustyJack suggested. I know that it does transfer a bit of risk to your daughters but even if they do get into trouble, it sounds like you do have other assets which should cover the problem.

If your daughters are unwilling to take on the risk, maybe you should consider selling the house. I know you say it is a beautiful house but why take on this risk if your daughters aren't prepared to take it on and you will never live in it?


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## Complainer (5 Jul 2009)

StillMills - Are you saying that you had agreed to go interest-only for a number of years? Can you confirm the amount outstanding on the mortgage, years outstanding, current rate, market value (realistic) of the property? Monthly rental income? How many years were you into the mortgage?


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## Brendan Burgess (5 Jul 2009)

> This is such a beautiful house that I do not want to part with it under any circumstances.



This worries me. Is this not a financial investment which is providing for your retirement? If so, you should be taking a very blunt, unemotional approach to it. "Beautiful" when it comes to investment means a good rental yield and low risk. 

You don't need to do anything for three years, do you? Wait until you see how you are fixed then. If the loan to value is low and you are not in arrears, the bank may well extend the mortgage. 

If the house might be suitable for one of your children, then it might make sense for them to live in it. After three years, you could give it to them and they would not incur any Capital Acquisistions Tax. 

But the main thing is that three years is a long way away and you should not worry too much about it now.

Brendan


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## StillaMellis (5 Jul 2009)

Thanks all. 

Dubrov
Regarding the calculation of the repayment of the amount owed I simply programmed MS Excel to do the calculations. Since the rental income was €18,900 last year that allows a figure of €1575 per month to maintain the house, pay taxes, & service the loan. The current interest only charge per month is €610.00 with a further €30 insurance. This is being paid to the bank at the moment. In three years time the bank may become difficult and I want to have an alternative plan in place to retain ownership of the house.

Incidentally when we bought the house we had more than enough to buy it outright: in Bank of Ireland shares. Why we didn't simply sell the shares and buy the house without a mortgage I'll never know. 

Describing the house as "beautiful" was a slip. I was using the language used when advertising it to prospective tenants. 

As for other collateral to cover the negative equity we have that as well in plenty. We would prefer not to have to part with any the other properties either however. If an investor decides to get involved sufficient security will be put in place to make him happy. I haven't worked out what to do if the investor wants to pull out of the deal after four or five years. Perhaps the price of houses will have begun to rise again by then? 

While the floor has fallen out of the property market and worldwide banks and their money dealings have been shown up as no more than gambling I cannot believe that Governments will not get control of the situation in a few years. In former times -- in Germany after WW1 the currency lost its value, in Russia also the Rouble has little or no value and the danger is that the dollar and the euro might be devalued leaving the amount owed as a relatively small sum in comparison to the value of the property when expressed in the new currency. How is the Yen doing these days?

I'll come back with more details and calculations later.


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## dubrov (5 Jul 2009)

If I were you I would try to approach a bank as well as seek private investors. If you are willing to post collateral that more than covers the outstanding loan then you are a pretty low risk investment and banks hsould be clambering over each other to get your business.

As for a standalone deal, although the numbers look pretty good now, interest rates are at an alltime low. If you are on say an ECB tracker +0.75% and rates went the current 1% to 4.5% you would see your interest rate payments triple.

With all the major countries pumping currency into the system you may be right about a loss in value of the Euro/Dollar. This would result in an inflation of rents but with that much higher interest rates.


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## StillaMellis (6 Jul 2009)

Thanks for that comment on the banks, Dubrov. You have given me food for thought. 

I have heard it said that on the continent mortgages that span two generations can be given and are relatively common. In my case I suppose I could ask for a 30-year mortgage on this sum 340K with all four of us signing for the loan and offering both the family home --mortgage paid off -- now worth about 500K but about 800K or more two years ago and the house in question bought for 400K but now worth only 300K or less and attach a copy of my will! Having those who will interit the asset when I pass on sign for the loan should enable the bank to overlook my age.

That would leave us exactly as we are now and if I outlived my own life expectancy I could find myself in my old age whooping it up in VEGAS followed by a prayerful pilgrimage to Lough Derg. Meanwhile the recession will have ended and house prices will have begun a cautious increase again and whether we keep the properties or sell them the options will be far more favourable than at present. 

Thanks everyone for allowing me to sound out the possibilities here. It has been a help.


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## rustyjack (6 Jul 2009)

StillaMellis said:


> Thanks for that comment on the banks, Dubrov. You have given me food for thought.
> 
> I have heard it said that on the continent mortgages that span two generations can be given and are relatively common. In my case I suppose I could ask for a 30-year mortgage on this sum 340K with all four of us signing for the loan and offering both the family home --mortgage paid off -- now worth about 500K but about 800K or more two years ago and the house in question bought for 400K but now worth only 300K or less and attach a copy of my will! Having those who will interit the asset when I pass on sign for the loan should enable the bank to overlook my age.
> 
> ...



Stilla, hope it goes well for you. We will try something similar. It will be interesting to see whether our bank agrees. Please let me know by pm if your bank agrees to the proposal and I will likewise. It may be that some banks will agree and some will not. Rusty


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## StillaMellis (6 Jul 2009)

Thanks Rusty. 

I am going to wait one year more before alerting my bank to my difficulty. By that time I will have paid off the mortgage on the home and will be in a position to offer them the title deeds to that house as well. Let me know how you get on however.


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## Complainer (6 Jul 2009)

StillaMellis said:


> I am going to wait one year more before alerting my bank to my difficulty. By that time I will have paid off the mortgage on the home and will be in a position to offer them the title deeds to that house as well.





StillaMellis said:


> I have heard it said that on the continent mortgages that span two generations can be given and are relatively common. In my case I suppose I could ask for a 30-year mortgage on this sum 340K with all four of us signing for the loan and offering both the family home --mortgage paid off -- now worth about 500K but about 800K or more two years ago and the house in question bought for 400K but now worth only 300K or less and attach a copy of my will! Having those who will interit the asset when I pass on sign for the loan should enable the bank to overlook my age.


Tread cautiously about putting your home up as security. The 'small print' warning that this puts your home at risk is very real, as many property investors are currently finding. Do you really, really want to put your own family home (and your own retirement) on the line for this investment?

It looks you are planning on spending €340k to get an asset worth €300k - are you sure this is a good investment?


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## StillaMellis (7 Jul 2009)

Again, Complainer, you are causing me to stop and ponder. Thanks for your comment. I am confident that we can meet whatever monthly payments are required and I suppose I am hoping that property values will not go down any further but start up again soon or at least stabilise.  Time will tell!


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## Complainer (8 Jul 2009)

StillaMellis said:


> Again, Complainer, you are causing me to stop and ponder. Thanks for your comment. I am confident that we can meet whatever monthly payments are required and I suppose I am hoping that property values will not go down any further but start up again soon or at least stabilise.  Time will tell!



Can you clarify if you are

a) Coming to the end of an interest-only mortgage, or
b) Coming to the end of an interest-only period on a mortgage?

If b, please let us know the outstanding amount and term. To be honest, I think we are focusing on the wrong question. The real issue is not how to get a mortgage. The real issue is whether this is a good investment for you.


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## StillaMellis (8 Jul 2009)

Again, thanks Complainer.

The thing is this property was bought two years ago with a deposit of 60K and a 5 year interest only loan of 340K until we could sell Bank of Ireland shares to clear the lot. At that time we could have bought two such properties for cash with the amount of equity we had in the shares. Our attitude was "What's the rush". We did not see the fall coming. A five year loan at that time was intended to leave us in a position to sell the house again before the end of the period and make a nice profit on it if the trends of the previous 15 years were maintained. I was a speculator. 

Now the shares that were to pay off the loan have vanished. The "value" of the house will probably go down to little more than half of what I paid for it. But for how long? I do not believe the recession can last more that five years or so? (How long did other recessions last? Japan? the 30s etc?)

The only redeeming factor is that the house itself is a "good earner". Being near a third-level college it is in demand every year by students who are willing to pay a premium rent for such a spacious well-appointed house. I like it, find it easy to maintain and let, and when the upturn comes it will appreciate well and I'll get the money back with profit if -- or whenever -- I or my successors choose to sell. 

My problem is that in three year's time I'll have to pay off the loan for it.

Thankfully the situation is not diastrous. I have other properties which are either mortgage free or with less than ten years to run. In addition I have a very large plot of land that could be sold with planning permission if necessary. Who knows but even the Bank of Ireland may sort itself out and the shares may survive and go up a little in value. 

There is plenty of collateral to cover the loan but the question is how to find someone else willing to lend to an old man and his successors so that the loan may be reduced, partly paid off, within the next three years and the remainder set up as a ten, fifteen, or twenty year mortgage which can be easily -- and generously -- repaid from the rental income. 

Alternatively would the bank be willing to extend the interest-only period? Has anyone heard of that? Do they invariably take possession and force a sale or do they seek other solutions?

It is easier to sell and get rid of property than it is to aquire a good earner such as this. If I sell now I'll regret it later. Saying that "the present value does not justify holding on to the property" is to ignore the intangible unquantifiable value that the premises has for me. 

As long as I hold the house no loss has been made. I prefer to have the house earning than suffer the losses and be left with a handful of useless currency notes that may decrease rapidly in value due to inflation or other turmoil in the financial systems of the world. 

It is only if I am forced to sell that the deposit and the present - temporary? - negative equity will be lost. When the upturn comes all will be well and I will be happy to have held on through the bad times. Meanwhile the house will have generated a substantial amount of income for me over and above the amount required each month to cover the interest due on the loan if the lender is willing to extend the loan. 

Any ideas? Any takers?


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## Complainer (8 Jul 2009)

Can I be harsh?

1) I think you're kidding yourself when you say "As long as I hold the house no loss has been made". The value of the property is as it is, whether you choose to realise the loss or not.
2) If the bank find themselves at a loss, they will chase you for it. Given that you have other significant assets, I think they could well force you in court to make good their loss.
3) You gambled on capital appreciation over 5 years and you lost. By considering a further investment, you are taking a 'doubles or quits' approach. You could be doubling your losses, or you could get to walk away with a profit. It is a fairly high-risk approach.

The real question for you is, if you didn't already own the house, would it be a good investment to buy, when your interest-only mortgage runs out?


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## StillaMellis (8 Jul 2009)

Thank you, Complainer. It's a harsh world. This website askaboutmoney.com is a reality check for people like me. 

The bank haven't lost anything. If they don't extend the term of the loan for another few years I will pay off the loan myself from other resources. I would prefer to have a mortgage at arm's length however that could be "washing its face" from the rental income and simmering away quietly for many years. 

Your reaction is good and helpful because it makes me realise the hostility I may face by a bank which may have to deal harshly with others who are not as lucky as me in having other resources to call upon. 

One thing is certain. There will be no court case. I will have this sorted out long before the due date. 

Thanks again.


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## Complainer (9 Jul 2009)

Best of luck with it.


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## StillaMellis (9 Jul 2009)

Thank you.


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