Liverpool dockside apt - cut losses?

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Bergin007

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Should I cut losses and run?
Put a 10% deposit of £18,800 on a 1 bed off-plan apt in Liverpool docks back in 2004. It cost £170,500 (+ £6,500 furniture package). It is in a high rise luxury waterfront development but does not have parking. Due for completion in April 08. Have had it on the market for past 6 months with no interest. The contract is forcing us to sell at £195,000 (i.e. can't undercut the developer). The figures look really bad. With an 80% mortgage will still have to come up with £24,500 cash. Taking into consideration the cost of the mortgage and other expenses, the shortfall with a rental income of £500 will be £500 and with no rental income it will be £1000 per month. I know the deposit is a lot of money to walk away from, but I couldn't sustain those costs for very long. This was redundancy money. Novice investor - feeling sick!
 
At the Bernard Marcus auction yesterday a 2 bed flat in Liverpool bought new for £149,950 in 2005 went for £86K !!!!!.

There were some even worse examples in Birmingham.

If you can walk away now - do it.
 
Trying to sell before I take possession. The Dublin agent I purchased through arranged for an estate agent in Liverpool to put it on the market for sale. However, the stipulation is that I cannot sell it below £195,000 which is a ridiculous price in a depressed market. Everything is in the developer's favour. When I put the deposit down 4 years ago, the agent informed me it would get £750 per week in rental income. The reality will be more in the region of £495.
 
Bergin007 said:
Trying to sell before I take possession. The Dublin agent I purchased through arranged for an estate agent in Liverpool to put it on the market for sale. However, the stipulation is that I cannot sell it below £195,000 which is a ridiculous price in a depressed market. Everything is in the developer's favour. When I put the deposit down 4 years ago, the agent informed me it would get £750 per week in rental income. The reality will be more in the region of £495.
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There are flats in Liverpool in the more local area's through forced auctions, selling at just a fraction more to buy outright than you paid on depoist -yielding 8% to 10% per year. You got suckered into the wrong development in the wrong city. If it presents serious negative cash flow walk away, this will fall hard in a depressed Northern market.
 
Bergin007 said:
Trying to sell before I take possession. The Dublin agent I purchased through arranged for an estate agent in Liverpool to put it on the market for sale. However, the stipulation is that I cannot sell it below £195,000 which is a ridiculous price in a depressed market. Everything is in the developer's favour. When I put the deposit down 4 years ago, the agent informed me it would get £750 per week in rental income. The reality will be more in the region of £495.
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Did you get any independent advice on this issue?
 
Bergin007 - I feel sorry for your problem. You are really caught in it. It might not be that easy to simply walk away. The developer might force you to complete. If you got your rental quotes of £750 per week in writing I would simply enforce an action against that agent. Have you checked the legality of the developer not allowing you sell below £195,000 ?? I have written so many times on AAM about this kind of pathetic and unethical behaviour of EAs. Presently there are thousands of buyers who have exchanged on properties in Ireland and the UK and are due to be pasted in financial losses. I saw it in the early 1990s and now and guess what when the market picks up again in a few years the same thing will happen again. I wish that greed was not such an addiction. Regrettably, if you can take the loss of exchange money take it, and again I am sorry for your trouble.
 
> 10% deposit of £18,800

Well if it truly is a deposit, the point of a deposit is that you can walk away and lose the deposit but without any further penalties. You need to be sure if the payment really was a deposit and not a first stage payment with a commitment to make further stage payments upon the developer fulfilling various criteria. I personally doubt whether a minimum price sell-on clause is enforceable, as I would see that as an unfair restriction of normal trade, but on the other hand I'd also expect you to have to be the owner of the property to be able to sell-on and thus have to complete with the developer first. You're then probably going to need substantial amounts of hard cash to bridge until your sale completes. Unless you are talking about a transfer of undertakings on the contract you have with the developer, but I cannot see that working given the strongly negative business case compared to the amount of cash already invested.

In short, it is definitely time to dig out all of the paper work and pay for some proper legal advice to clarify your options and the consequences before you make a decision.
 
Thank you all for your advice. The payment of £18,800 includes a half payment to the solicitor (put in place by the agent) and 10% towards the furnishings. I'm not sure if this money is considered to be a deposit or a first stage payment. I will contact the solicitor in the UK to find out about my options. Do you think this solicitor will not be totally independent? Should I go to another solicitor? The figures are based on an interest only mortgage.
 
In the first instance, ask the solicitor for copies of all the papers without mentioning anything about you pulling out as if he is linked to developer, invention might take centre stage. From what you are saying you might not have exchanged contracts as in normal circumstances exchange means 10% of price payable at the time of exchange. If the solicitor is linked to the developer there is a conflict of interest and the law in relation to this is the same in the UK as Ireland. They can't act for both parties. Be careful and advise as to how you are getting on.
 
Bergin007 said:
Do you think this solicitor will not be totally independent?
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If the solicitor came on the suggestion of the selling agent then I would wonder. In theory they should always adhere to the standards of the professional and act on the ultimate client's behalf but if they/their practice are also acting for the seller in some capacity then there could be a conflict of interests. In my opinion it rarely makes sense to engage a solicitor on the recommendation of the selling party.
 
Clubman- What they should and shouldn't do really beggars belief. In the UK it is somewhat different than here. The legal profession over there is in a right state outside of the main centres.
 
When are you due to complete? Is there a further valuation due for the lender?? Do not mean to put more of a downer on things but the reality at present is that valuations are coming in far shorter than purchase price, which will mean that the Bank will only lend you 80% of current value... Just sometihng to bear in mind. Hopefully you can get out now, check your contract if you have one!!
 
It is due for completion in April and the bank will have to get a valuation done. The agent said he doesn't know what the valuation is because it has not been carried out yet. This is strange considering it is almost complete. I pulled out the legal documents and the Report on the Title Deed refers to the money paid as a deposit (not a stage payment). I can't find anything about the implications of me not completing the purchase. It only refers to delayed completion where the developer can charge interest.
 
Bergin007 said:
I pulled out the legal documents and the Report on the Title Deed refers to the money paid as a deposit (not a stage payment). I can't find anything about the implications of me not completing the purchase. It only refers to delayed completion where the developer can charge interest.
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You really need to talk to a good/reliable solicitor about the ins and outs and implications of the legalities.
 
And get confirmation if you have paid a deposit or exchanged contracts
 
Hello Bergin 007, I am sure you don’t need me to tell you this now, but that was a very high price for a 1 Bed in Liverpool. It is probably on a ‘High Up’ Floor with a View, but when buying for investment purposes the yield is everything, so don’t pay anymore than you need to (i.e. lower floors with no view can command almost the same rent).

You should always look at potential Capital Growth as just a bonus and only focus on the potential yield. In other words, will it stand on it’s own two feet in any market conditions.

If you can get out just losing the deposit, then you should. All kinds of new expenses will start to hit you when you close on the Apartment , (Legal fees, Water Charges, Management Fees, Rental Agency Fees) and there is no guarantee you will let it out immeadiately.

Be thankful of one thing, you did not take out a Euro Loan to Close on the Apt. 6 months ago (I am assuming you are Irish borrowing in Euros). Sterling has since dropped by 10% so you would have lost that too when selling in Sterling(at current exchange rates).

Now you might think I know what I am talking about, but it’s only because I am learning from experience too. I also have a decision to make soon:

I bought a 1 Bed Off-Plan in Manchester in 2005 for 95K GBP and closed on
1 September 07. The latest Phase is selling for 120K but the developer won’t get that now ,I can see the price dropping back.

I am getting 495 Per Month Rent (450 per Month Net) currently. This is not quite covering the interest and the drop in value of Sterling is not helping. The Apt. is let out until June 08.

As time goes by the Yield will continue not to meet the Interest, unless interest rates come down a lot. And the outlook for Property prices in the UK is not good either. Sterling is another big factor.

Nothing seems to suggest I should hold onto the apartment and in two months time I am likely to put it on the market to try to get out Even or slightly ahead. (There is no guarantee I will get a buyer though).

Therefore my advice Bergin007 is to Forfeit the Deposit (if you can) and move on. You will rest a lot easier . My situation is not serious and I am ready to get out. If I was in your position I would be in no doubt what to do.
 
Michael,

In the same Bernard Marcus auction a 2 bed in Manchester sold in 2005 at £179,950 went for £106k.
 
Thanks BigRog, yeah it's true I could quite easily lose out too.

Lets see what happens . I'll keep you posted.
 
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