Selling 1% of a home

[markgriffith]

Hello people! 

Rough straw poll here - how many of you would consider selling 1% (one per cent) of your home if you could do so? If there was a simple way to do it?

Imagine your tax is unchanged - your rights and duties remain unchanged. Assume you are in clear ownership (after debts and charges) of at least 80% of your home before you do this. 

All that happens is that when and if you sell or give away (or a relative inherits) the home, the holder of the 1% contract is entitled to one per cent to a cash payment equal to one hundredth of the house value at that time. 

Thanking folk in advance! 

[This time]

Why would you do that?

[spyguy]

Hello Mark.

Run out of turkeys on Malta?

[TheCountOfNowhere]

4 minutes ago, spyguy said:

Hello Mark.

Run out of turkeys on Malta?

[markgriffith]

34 minutes ago, This time said:

Why would you do that?

As a way of quickly raising some cash without 1) remortgaging or 2) selling.

[markgriffith]

9 minutes ago, TheCountOfNowhere said:

Sorry to be slow at the joke. We lose all sense of humour here in the East Bloc! 

[JDI]

Surely any fees (solicitors?) Wouldn't make this unfeasible.

Also, when you sell it, who would want 99% of a house?

[markgriffith]

6 minutes ago, Just_Do_It said:

Surely any fees (solicitors?) Wouldn't make this unfeasible.

Also, when you sell it, who would want 99% of a house?

Fees have to be streamlined as (effectively) a standard option contract. 

Buyer doesn't get 99% of a house. 

Buyer gets 100% of a house and seller buys out the option-holder with cash equalling 1% of what the home sold for. 

[markgriffith]

I'm envisaging a market where these options can be traded. Effectively they're tradeable charges. 

[JDI]

Okay, so to turn it around.  I buy 1% of a house, and the current owner (99%) sells it.

How do I protect my investment - and make a profit?  what if I refuse to sell, or demand a higher price?

[MARTINX9]

Don't housing associations do this already.

 

Sell a small percentage, get the mug to pay the service charge and 100 per cent of the maintenance and repairs and then when they miss their monthly rental  payment you charge them on the 99 per cent you own kick them out on the street.

Edited November 3, 2016 by MARTINX9

[markgriffith]

48 minutes ago, Just_Do_It said:

Okay, so to turn it around.  I buy 1% of a house, and the current owner (99%) sells it.

How do I protect my investment - and make a profit?  what if I refuse to sell, or demand a higher price?

No, the current owner owns 100% of the asset, not 99%. The buyer has merely bought the right to receive 1% of the amount paid when it's sold. 

You cannot protect it. It's hedging, like any other option. If house prices go down, you lose, as with any hedging instrument. 

If prices go up, you gain. You've profited from rising house prices without having to buy a whole house. 

[markgriffith]

48 minutes ago, MARTINX9 said:

Don't housing associations do this already.

 

Sell a small percentage, get the mug to pay the service charge and 100 per cent of the maintenance and repairs and then when they miss their monthly rental  payment you charge them on the 99 per cent you own kick them out on the street.

I think this is totally different and has a different investor base. I'm talking about a way for a small investor/speculator to take a punt on house prices without buying a whole house. 

Housing associations are something else entirely. 

[spyguy]

I would get alook up the laws regarding securities.

 

Once you get into joint ownership and trading assets you are in another world ofexpense.

 

[markgriffith]

Agreed, spyguy. I have been chatting about this with a property lawyer. 

It's not intended to be joint ownership, but I agree it needs to be positioned as a tradeable option. 

[Drummer]

Interesting idea but this does not generate a dividend/regular income for the investor.

A BTL gets you the gain and the regular income. Additionally, you can leverage up.

This idea might suit homeowners, but it's a poor relative to BTL. I accept that it could potentially be a more liquid investment than BTL.

[markgriffith]

45 minutes ago, Drummer said:

Interesting idea but this does not generate a dividend/regular income for the investor.

A BTL gets you the gain and the regular income. Additionally, you can leverage up.

This idea might suit homeowners, but it's a poor relative to BTL. I accept that it could potentially be a more liquid investment than BTL.

Reasonable points sir. 

On the other, potentially much cheaper and smaller-scale than buy-to-let, and something as simple as a return to the rates would pull the rug from under buy-to-let anyway. 

[Riedquat]

Dreadful idea, as is anything based purely on speculation of assets. I'm no "yay, economy above all else!" type but this is just a pointless misdirection of funds away from it. No-one is investing by doing this. Investing means someone else (tries to) do something useful with the money and the value of the investment (hopefully) rises as a result. I suppose that may be the case if the money gets spent on an extension or new kitchen etc., but generally it sounds like yet more divergment of effort away from anything either useful or desirable. Any such thing needs to be discouraged.

[markgriffith]

13 hours ago, hotairmail said:

igindex used to allow you to trade the Halifax index. Trouble was the costs - the wide spread and the overnight borrowing costs for such a slow moving index.

Better to use an etf constructed with swaps to track the Halifax index. Then let people buy and sell that etf on the LSE. You don't even have the costs of a house then.

True, though I'm looking at something both simpler and more focused than a sector-wide index. 

[markgriffith]

2 hours ago, Riedquat said:

Dreadful idea, as is anything based purely on speculation of assets. I'm no "yay, economy above all else!" type but this is just a pointless misdirection of funds away from it. No-one is investing by doing this. Investing means someone else (tries to) do something useful with the money and the value of the investment (hopefully) rises as a result. I suppose that may be the case if the money gets spent on an extension or new kitchen etc., but generally it sounds like yet more divergment of effort away from anything either useful or desirable. Any such thing needs to be discouraged.

Speculation is legitimate, particularly where it introduces liquidity and symmetry into a market governed by speculation already. The distinction between pure speculation and "investment" is artificial and doesn't reflect the needs of real traders, who have to speculate in assets all the time. 

The reason this idea should be vigorously _encouraged_ is that it enables people to withdraw cash from their own homes without reborrowing and it creates a natural way in which people can effectively go short of houses (or small pieces of houses). Right now the "investment"-based bias in house buying and selling means that traders can only go long in houses or hold zero positions (unless they are very large players indeed), and this creates the dangerous asymmetry we've seen in property price bubbles since the 1950s.  

I understand your point about effort being taken away from physical building or maintenance, but in many places (for example districts of historic housing) this is _undesirable_. Capitalising on an attractive area of historic houses by buying a space, knocking down an attractive old house and building a block of flats that benefits from the fact the surrounding buildings are still old and aesthetically appealing is the logical result of claiming that only development and reconstruction can be "useful or desirable". 

Whereas this approach will help to naturally deflate absurd localised bubbles. These exist where (for example) sections of central London housing are kept empty by investment funds or wealthy oligarchs. This partly occurs because no individual still living in those areas can generate debt-free cash and _stay living there_ if remortgaging or selling up are the only two options. 

Once there are cash short positions in housing as well as cash long positions, outside more elaborated types of derivatives, the apparent inevitability of continually rising future property prices will be exposed as an asymmetric market artefact and cease to be self-fulfilling.