HOW TO MAKE A DEAL WORK WITH A DELAYED COMPLETION
A delayed completion is a fantastic way of making deals viable and more profitable for the vendor and developer.
Securing a deal with a delayed completion is something that most do not understand and always tends to get a frosty response with estate agents that don’t have the experience of this type of deal.
Once everyone involved fully understand the benefits of it, a delayed completion is a great solution for some development deals.
What is a delayed completion?
A delayed completion is simply where you exchange on a property, the developer then goes and gets planning permission or completes work necessary to the property or land and then they complete on the purchase.
In essence it is no different to when you buy a new house. You exchange contracts way before the new house is built, the developers finish the build and then you complete on contracts.
Why would you do this?
1. Delaying the completion reduces financial costs to the developer which can make a deal more financially viable.
2. Delaying the completion can be more profitable for the vendor in the long run as well - see the case study below.
3. Delaying the completion makes no difference to the agent as they get paid on exchange and without it they may lose the deal.
So it's win win.
A Real Life Case Study:
The above property was a formerly a commercial shop in Milton Keynes. The shop took the whole of the ground floor plus there was a very tired and unused flat above. It also had and outbuilding and large garage that we managed to utilise.
The problem
As the property was part commercial and part residential, financing this project was a nightmare, no mortgage providers would touch it as it didn't tick the box of either residential or commercial - it was both. The computer said no.
The property was on the market for a long time with a business agent and they couldn't sell it, the only solution was for someone to buy it outright in cash - (which is NOT a leveraged use of capital) or a developer to come along with some smart and strategic thinking...
The story
The vendor was selling up to retire, he had owned and worked the shop for over 40 years, owned it outright and couldn't sell it. He needed a way out.
The Solution
Because of the mortgage issue, what we did with this deal is exchanged with a delayed completion.
What this allowed us to do was exchange - so we had control of the property and we were legally compelled to complete within UK law - so the vendor also had security.
As soon as we exchanged, we started the works to convert the building and turn it into 3 flats, we also did all the necessary paperwork with the council and solicitors to title split etc.
6 months later, the majority of the works were completed and we were able to re-finance with a mortgage on each flat and then we completed on the sale with the vendor.
The vendor got the asking price plus a bit more for waiting 6 months and we got another project under the belt plus salvaging a building that was just sitting empty.
It was a win, win scenario and the building had already been up for sale for a year. It would probably still be on the market now if we hadn't used a delayed completion.
If you have a property with development potential or land, please get in touch, as we would love to work with you and provide a winning solution that maximises the vale of your assets.