Back-to-back Sale (No Money Down Deal – NMD)
A back-to-back deal is another way of making some cash without having to put up any of your own funds up front.
A back-to-back deal is another way of making some cash without having to put up any of your own funds up front.
Remember, to always consult your solicitor before drawing up contracts of this nature. We can’t offer legal device here and, remember, English and Welsh Law is distinct from Scottish Law. Don’t just assume that if something is legal in Liverpool it will also be kosher in Kilmarnock.
Back-to-back deals can really work for you if you do them properly and you have a reasonably good understanding of your local market.
What you do is, you agree to buy a property from Mr Jones and then get Mr Smith to complete for you.
Depending on how you set up the contract, you will receive a pre-negotiated ‘finders fee’ either on completion or exchange. This could be up to £10,000 (or more). It’s entirely up to you and your negotiating skills.
For Example:
Your finder (someone you have employed on a piece-rate basis to sniff out potentially lucrative deals) brings you a hot lead.
It is a four-bedroom house worth £250,000, which Mrs Smith-Jones wants to sell for £200,000 (in exchange for a hassle-free quick sale).
Consequently, you agree to purchase the house from Mrs Smith-Jones and you set the date of completion as 12 weeks from the time of your agreement.
Once you have exchanged contracts with your new best friend Mrs Smith-Jones, you then assign your contract to Mrs Brixin-Mortar, who goes on to complete for you.
At this point (according to contract) you will receive your £10,000 (or more) finder’s fee. Nice work if you can get it (and you can!).
Alternatively, you get your £10,000 fee from the legal representative of Mrs Brixin-Mortar on completion, while the £200,000 goes to the seller Mrs Smith-Jones. It depends on how you set it up
One of the beautiful things about this method is that you do not have to pay stamp duty. Why not? Well, you did not actually buy the property.
It’s very important that you don’t forget to write your name wherever it appears on any legal documents as “[your name] and/or assigns”.
This will allow you to assign the contract to Mrs Brixin-Mortar, who will be completing the transaction for you.
The only slight disadvantage of back-to-back deals is that you are contractually obliged to complete on the property unless you assign it to somebody like Mrs Brixin-Mortar.
However, to find a way around this, you can do a condition exchange (check this out with your solicitor) which allows you to walk away from the deal unless certain conditions (which you specify) are met. Tread carefully here. This is where a good legal representative is worth his or her weight in gold.
You also need to keep the ability to assign in mind if you are in the business of buying and selling off-plan properties, although this is of more relevance to highly-experienced investors.
If that applies to you be aware that, if you are planning to sell the contract on before completion, you’ll have to ensure your contract with the developer is assignable. If not, you will be legally obliged to complete on the deal.
Also be aware that the developer may prevent you from assigning the contract but there is nothing to stop you reserving the property under the name of a new company (Newco Ltd) and then selling the company to somebody else as a way of selling the contract on.
The whole point of back-to-backs is to avoid the not inconsiderable costs associated with buying and selling property by taking an ‘interest’ in the property instead of outright purchasing it and then getting somebody else to carry the can, while you basically make your money for being the ‘middle man’ in the deal.
As previously stated, you won’t be eligible for stamp duty but you will also avoid mortgage costs, insurance costs and a whole heap of pricey legal bills.
But always make sure your contract is legally watertight before you proceed. Can’t stress this enough.
[Remember, to always consult your solicitor before drawing up contracts of this nature. We can’t offer legal device here and, remember, English and Welsh Law is distinct from Scottish Law. Don’t just assume that if something is legal in Liverpool it will also be kosher in Kilmarnock.]
