@Chris McCarthy wrote:
Are you suggesting that I should tell John and Mary they should make an offer to the developer to buy the 12 units instead of the one home they have been looking for?
You either missed my point or you are role playing the devils advocate. 👿
My point is the developer has had so many unsold units in this development for some time. I can only guess at his new build and land costs plus tax expenses. Lets say his costs work out at 75K per unit and with 15 unsold that’s around 1.125 million less the properties already sold, since each sold unit reduces his outstanding costs. The losses on the balance sheet will reduce his tax liabilities but not his interest payments to the bank on whatever outstanding financing arrangement he has.
Lets say he is paying 5% on an overdraft facility then his interest costs are around 56k per annum. His company may well be able to absorb this costs on other projects or selling 1 -2 units per annum and maybe not. Either way if he can off load all these unsold units at cost it will save him money.
The likelihood of selling them retail in today’s market at 240k is somewhere close to 5%. That’s why I suggest he finds an investor willing to take on the risk attracted by a very low price. Cash in the bank is king.
However any investor will be faced with the same difficulties as the developer and in my conclusion it’s simply not worth doing.
I have been presented with many variations on this same theme and in this financial climate the risk is too great.
My point about cheap buying in costs and a 100% mortgage is in a falling market negative equity appears from day one. Add to that his interest payments over 5 years which are about to increase, community charges and taxes over say 5 years. Even given an optimistic scenario the property is likely to be worth no more than what he paid for it in five years time.
So five years expenses puts him in a very poor position plus he probably can’t sell it and recover his outgoings.
Yes he will have enjoyed the property for holidays but given his level of cost he could stay in the local five star hotel every year and come out with change.
Sorry Chris but whichever way you look at this it’s a dead duck.