Part buy of inherited house - opinions please

huntersc

Catblue wrote: »

The reality is that this is a great deal for your friend.

It really isn't a win/win for both parties. It is a win/win for your friend. The majority of the financial risk is on your daughter.

Your friends get to have absolute security on their current home (your daughter's cash allows them to live mortgage-free in their own home), so if this deal goes wrong then THEY won't be homeless.
They have transferred the homeless risk onto your daughter. Great deal for them.
They get to release equity from the inherited house. Great deal for them.
They don't have to sell in a falling market. Great deal for them.
They get to decide IF and WHEN they want to sell to make more money for them. Great deal for them.

Your friend holds ALL the cards in this deal, and no offence but they sound like they would want to gain the maximum possible for the sale of the house on their terms. They already have decided that the housing market owes them more money than the house is currently worth. They may decide the same in 5 years time. If the market is not great in 5 years time, then your daughter will still be paying a mortgage for half a house. If the house has significantly increased in value in that time, then your friend might decided to hold off selling until it has gone up some more.

Really struggling to see what your daughter gets from this. It will be practically impossible for her to try to sell half a home.

The reason that no poster has replied with direct experience of this should tell you that that this is an unusal idea that most people wouldn't even consider.
mlz1413's mum was part of a proper shared ownership scheme, and not a private arrangement as you are suggesting.

I agree totally. Exactly the point I was trying to make. Even ignoring problems with a decreasing market etc etc etc this is just a bad deal for the daughter. The owner seems to be the one gaining from this in every single way. I'm sure he's delighted at the thought of this deal. I would be but I wouldn't go through with it if this was a friend's daughter. The dice are a bit too loaded for this to be a fair deal.

mlz1413

Hunter and Catblue I agree with you IF the owner isn't contracted (in some way) to sell at the 5 yr point.

If the daughter gets to buy at that point OR the owner has to buy her out then the deal can be stacked in the daughters favour. IE she gets to live in a home of her own for 5 years for half of what it should be costing her, also meaning she can be saving up to buy 100% of the home in 5 years time. Now that sounds like a good deal to deal to me with the current inflated property market.

But I completely agree that the arrangement so far is open to much assumption, it needs a falling market factoring into it. As catblue said the daughter will probably never be able to sell her half on the open market and that is the main problem.

Kafty could your daughter do something more 'normal' and buy the house now with your help and then rent out room(s) to lodgers to be able to pay you a rent on the half she can't afford for the next 5 years?

hethmar

Of course, one other point is, who values the house for the 50% share from the daughter?

Whilst, from the details you give you are obviously a successful man, it is surprising that you dont counsel your daughter into a more conventional challenge.

poppysarah

How is the 50% being valued? Is it half of an EA's estimate? Or half of what it'd actually go for right now?

Who's funding repairs? It's all well and good for her to say it'll be split or she'll do it all but either way will prove problematic.

Krafty

Problems, problems, problems....... which can all be fixed with the correct agreement in place.

Or as I like to look at it opportunity, opportunity, opportunity.

My daughter sold her flat to go travelling (SE Asia and Australia) 15 months ago.... got a good price.. enjoyed travelling for a year and now wants to re-establish herself with a place of her own.

She could buy a place of her own (100%) in a part of town that she has already lived in and doesn't really care to return to.

Or she can buy half a property in a part of the town that she does want to live in for the long term.

The two parties have written up an agreement to co-own the house for a minimum 5 year period at the end of which they will decide what to do.

Worse case scenario the house market is still down in the gutter and they sell the property and both make a loss on 50% of the property.

All possiblities have been thought through and catered for in the agreement.

Neither party is out to "get one over the other" and both are protected in case this should change (mental illness or whatever).

Over a 5 year period I would expect there to be mutual benefit... at least based on my 35 year history of home ownersship.

Yes it is unusual (which is why I asked for input from experienced people... I don't pretend to know all the answers) but sometimes by "thinking outside the box" one can bring immediate benefit to one party whilst gain a benefit oneself in the longer term.

Please be assured I would not advise my daughter to go ahead with this is if her future was at the hands of someone other than herself.

To the question...could I help my daughter financially...yes I could but that's not what she wants and I don't think it's the best way to help her.

She'll do much better without my financial help and it will be better for her to be totally independent in the long run.

huntersc

So this agreement, what does it specify in the following circumstances:

Value of house increases by 50%
Value of house decreases by 50%

If the agreement merely states that the house cannot be sold for 5 years and after that the position is open to negotiation then it's not what I would call a 'correct' agreement.

Maybe I'm missing something but it does seem to me that the one benefiting from all of this is your friend, not your daughter. It seems like the one realising the opportunity is your friend while you and your daughter can only dream of the opportunity.

You talk of short term and long term benefit. The short term is guaranteed, the longer term, that is the one your daughter is looking at is a gamble. To me that's not a 50/50 situation.

You talk about a worst case scenario yet you miss the point, it's not the worst case scenario. I can think of 50 scenarios that would make me worry much more.

Furthermore, lets sat the house is valued at £500k. Your daughter pays £250k to the friend. In 5 years time they sell the house for £450k. Obviously they are not sharing the drop in value by 50% are they? Their exposure levels are very different. So I would suggest that her initial payment is taken into account. This of course works both ways.

I think the agreement would also need to take into account...oh dear, I could go on and list about a million things but I get the feeling you won't take any notice so I won't bother I would suggest you both go and speak to an investment professional though, a solicitor cannot fully advise on all aspects.

Catblue

Krafty,

You say that "Please be assured I would not advise my daughter to go ahead with this is if her future was at the hands of someone other than herself."

But that's exactly what you are proposing. You say that after 5 years, both parties will decide what to do. Consequently, your friend may want to wait another 5 years to sell, and your daughter has no recourse at all. She cannot force a sale.

I can't help but get the niggling feeling that you are so happy to have your daughter back, and that you are overjoyed at the idea that she will, in effect, be "locked in" to staying locally that you are failing to see the pitfalls in this arrangement.

Imagine that she is still working abroad and wants to settle there for 5 years. She calls you up and says that her friend's dad in Acapulco or somewhere wants her to buy 50% of his home so that he can release some equity, and the arrangement would be reviewed in 5 years time. What in all honesty would you say to her?

Sonofa

Krafty wrote: »

Thanks for your post... which I believe is the first one with some level of experience.

The sale is progressing well... mortgage funds have been secured...a "Heads of Agreement" has been fomulated to last a period of 5 years so that each party has equal profit/liability in the housing market.

My daughter has singular residence/access to the property as the other interested party resides abroad and has no interest in living in the property.

The "Heads of Agreement" stipulate who is responsible for what maintenance and who is responsible for monthly bills etc.

So far the deal looks likely to succeed... neither party is looking to take advantage of the other and both are in for the longer term not a quick win (which sadly seems to have been the norm these days!!).

Speaking as someone who is in his early 50's, retired on a pension substantially greater than the national average wage and owning my own mortgage free 5 bed/two bathroom property, I'm quite proud of the actions my daughter is taking.

I've read many of the other postings on this thread with interest (sometimes sympathy) as many seem to have been stung/influenced by what have perhaps been negative experiences or indeed the opinions of "victims" rather than "conquerors" of the world in which they live.

For my part I am comfortable that my daughter is taking a positive step in taking a (part) owning interest in a property, in an area that she has been brought up in.. with a view to purchasing the whole within the agreed 5 year period.

If the doom merchants are correct and the venture fails... then at least she has taken on the challenge and not shrunk away from it!!

Either way I'll be proud of her!

Thanks again for your post which is based on the experiences of your mother and I hope she is now comfortable in whatever arrangement she now has.

Krafty.

People seem to be taking your attitude with good grace, but I for one must say that I feel the tone of your replies is a little distasteful. People have provided their opinions, expressed concerns as to the potential pitfalls and you have dismissed these with a wave of your (higher than the national average) wad. Is it really too much effort to be courteous in your replies?

Civility costs nothing.

'I've read many of the other postings on this thread with interest (sometimes sympathy)' No, I don't believe sympathy, glibly, condescendingly perhaps but not with sympathy.

'I don't pretend to know all the answers' Well your arrogance suggests you do.

'Speaking as someone who is in his early 50's, retired on a pension substantially greater than the national average wage and owning my own mortgage free 5 bed/two bathroom property' What relevance does this statement have? You sound like the character Harry Enfield used to do "I have considerably more money than Yaw" (insert Brummy accent)

Good luck to your daughter, doubtless if she's a chip off the old block she will be "Daddy's little Conqueror".

Vent over, now back off to rejoin the "Victims" and "Doom merchants"

Krafty

To all, many thanks for your many posts... unfortunately only one (I believe from memory) met my initial request of "input from people with experience" many seem to want to find fault with what we are trying to do.

I appreciate people saying we should be cautious (and we should) but to answer a specific question.... if at the end of 5 years there is no agreement on what to do going forward then the house will be sold (as per the legal agreement) and the two parties will share equally any profit or loss.

Some seem to think that our friend who inheritted the property should not benefit to the same degree as my daughter... why is this?

At present this person is the 100% owner of the property and does not need to enter into any sort of agreement other than to rent or sell the property.. by entering into the agreement we have formulated he is affording my daughter the opportunity to (part) own a property where she would prefer to live.... heavens above... I'm grateful.

If that person ultimately makes a profit then good luck to them they deserve it!!

Wrt Sonofa's post...if I appear to be any of the things you accuse me of I apologise to you... perhaps you are a little sensitive... I in no way intended to offend and as you say most others seem to have taken my posts in the "good grace" that they were intended.

I wish all who responded to my thread success, happiness and contentment... after all that is all I seek for myself and my daughter.

I'll call it a day at that... I had hoped for contructive, helpful, knowledgeable feedback (even if it was counter to my thoughts) from people experienced in the area that we are entering into.

Unfortunately, I seem to have received ill informed guidance from a number (not all) of people who have completely mis-construde the situation to align to their prejudiced views.

Farewell.... Krafty!

huntersc

Goodness, it's not that people don't think the owner should benefit or that they don't deserve a profit, of course they do. However there's genuine concern because you seem to be very blinkered. I understand you want to be positive, to see this as a great deal for your daughter, you want to look at this as an opportunity, negativity only gets in the way etc etc. I get that.

The problem is that you're glossing over all the issues. For example, you say

"by entering into the agreement we have formulated he is affording my daughter the opportunity to (part) own a property where she would prefer to live"

That may well be the case but he is also generating revenue which enables him to pay off his own mortgage whilst maintaining a stake in the property AND meaning that he can potentially sell at a much higher price in 5 years time than he can now.

That's a situation stacked very very firmly in his favour. One question, why do this now? Why not wait until next year, in Feb or March for example? On one hand interest rates and mortgage rates may well be lower and on the other the valuation of the property will also be much lower therefore benefiting your daughter much more.

We don't want to pick holes in your plan, you're obviously determined to go through with it at any cost to yourself and your daughter's financial future, I think most are just concerned that you've not thought this through.

Alas I doubt anything will change your mind. I have my fingers crossed for your daughter, I believe she needs all the luck she can get.

As a last chance saloon, I would suggest you buy the other 50% of the property, that way at least the two shares remain in the family. That way she's doing it her own way with a little safety net and you're limiting potential risk.