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Buying my parents house UNDER market value.

56cheffy
56cheffy Posts: 485 Forumite
First Post First Anniversary Combo Breaker
in House buying, renting & selling
My parents need the cash, don't want to move, the house is valued at £350000, the most I can afford is £250000.....

What are the comebacks on this if I buy at a greatly reduced price?
This post was created in an area that may contain nuts!
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Comments

  • Mutton_Geoff
    Mutton_Geoff Posts: 3,817 Forumite
    Name Dropper Photogenic First Post First Anniversary
    Interest from the HMRC regarding their shortage of stamp duty?

    Eventual falling out with parents over low price paid?

    How about a % shared ownership arrangement instead? Also make sure your valuation is accurate in the current market. 3 agents "valued" my flat at £250k but after 6 months on the market, the best offer I could get was £200k.
    Signature on holiday for two weeks
  • abaxas
    abaxas Posts: 4,141 Forumite
    There is no such thing as 'Under market value'.

    The market defines something's value once the transaction is completed, everthing before then is mearly a valuation.
  • 56cheffy
    56cheffy Posts: 485 Forumite
    First Post First Anniversary Combo Breaker
    margaretclare wrote: »

    Not sure how you can buy parents' house when they don't want to move! We only sold at below market value because we DID want to move and that was what they could afford.

    Margaret

    They will continue to live there and pay a 'reasonable' amount of rent.
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  • takoo
    takoo Posts: 260 Forumite
    Hi 56nCheffy

    Other points to consider:

    1 Would equity release under a safe SHIP scheme suit your parents circumstance?

    2 If your parents need care home support in the near or distant futures will they be able to afford it and would you be in a position to help out?

    3 Years ago my wife and I and my parents sold our houses and bought a larger one to live in with our young children. Could this be a viable proposition for you and yours?

    All the best to you all in 2008

    Takoo
  • 56cheffy
    56cheffy Posts: 485 Forumite
    First Post First Anniversary Combo Breaker
    Mutton_Geoff wrote: »
    Interest from the HMRC regarding their shortage of stamp duty?

    Eventual falling out with parents over low price paid?

    How about a % shared ownership arrangement instead? Also make sure your valuation is accurate in the current market. 3 agents "valued" my flat at £250k but after 6 months on the market, the best offer I could get was £200k.


    If I paid over the £250000 stamp duty threshold might that be OK?
    This post was created in an area that may contain nuts!
  • 56cheffy
    56cheffy Posts: 485 Forumite
    First Post First Anniversary Combo Breaker
    They are wanting to have some cash themselves and divvy some out to the 3 children and grandchildren who can make more use of it now rather than in xxx amount of years.

    The idea is to sell to me for £250000, give £50000 each to the children and keep £100000 for themselves which would go towards rent, this rent would hopefully pay MY mortgage on the house.

    I believe that you cannot let parents live rent free in a property and that they have to pay a market rate. Is that correct?

    BTW...my brother and sister are in agreement with the price that I am willing/able to pay.
    This post was created in an area that may contain nuts!
  • Biggles
    Biggles Posts: 8,209 Forumite
    Combo Breaker First Post
    I'd be inclined towards Mutton's original suggestion.

    Buy (say) 2/3rds of the house, you pay your mortgage, parents continue to own the other 1/3rd and pay you 2/3rds of the full rent.

    Brother & sister may not be objecting now, but a few years down the line they may realise how much out of pocket they are over the arrangement. And I wouldn't blame them, they'd effectively be making you a present of £100,000 plus the increase in the house value to the time your parents die. Why would they be happy with that?

    And this way, there'd probably be a lot less CGT for you when the house is sold.
  • Andy_L
    Andy_L Posts: 12,785 Forumite
    Name Dropper First Post First Anniversary
    If they die wihin 7 years the amount under market value will be liable for IHT
  • hopeless_case_2
    hopeless_case_2 Posts: 546 Forumite
    Gosh work it out the house is only valued at £350000 no one says they will get that they may have it in the market for years and then get no where near that. Also this means if he buys it they can stay there. If sold to someone else they could not. All the kids could chip in to buy if they wanted ,does not sound as if they will though does it. Go for it if you can i cannot see any reason for you not to be able to buy it cheaply but could you afford it if your parents coud not afford the rent? just something to consider?Good luck!
    Make £11,000 in 2011 / ebay £600
  • btloptingout
    btloptingout Posts: 141 Forumite
    FWIW I think buying ones parents place and letting it back to them is a good idea and intend to do the same myself, for no other reason than to let them have a life to enjoy their money.

    But do your figures add up?

    Using very rudementary calculations:
    - A market rent for this house would be of the order of £1300 pcm.
    - To cover your £250K mortgage you'll need around £1200 pcm on an IO basis.
    - The £100K your parents retain would give an index linked return of around £250 pcm.
    - Drawing down on the £100K (+growth) to cover rent would mean the £100K pot would be fully exhausted in year 8.

    Apart from the figures you also need to consider the consequences of falling out with parents/siblings if perception further down the line is that you have done/better worse out of the original deal.

    Personaly I wouldn't touch the deal as it currently stands
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