Should I invest in this?

Conrad

I'd really value some thoughts.

Clients of mine age 68, want to release about £50,000 as an equity release loan where no payments are due until the die.

Doubtful any lender will lend as the property is Rema concrete. All prime lenders have thus far declined it as there are long term issues about concrete and UK damp weather - potentially. If the property were to come to market, Halifax and Santander may lend (to non investment buyers), but as I say the issue for any incommer now would be concrete rot or similar long term trials.

Value is £180,000. It would let for £900 pm.



I can offer to pay them £250 pm, index linked for life. They get to remain for life. I would own the property from outset.



DOWNSIDES;

He is very fit looking and could easily live 20 - 25 years - sorry to sound so calous - but pension annuity provider make exactly the same calculations - tis just business.

I would no doubt have to fully refit and refurb when they pass away.
Potential risk the concrete may need major works when they pass on. Concrete is uncertain in UK weather heance why lenders avoid it now.

Property has a swimming pool - even though this is an ex council ordinary house. I'm thinking that if they pass on in 20 years, that will need to be removed - at presumably high cost.

I will have to pay the buildings insurance.

My total outlay (assuming no major concrete overhaul or remedies) over 20 years, say £90,000.

UPSIDE

I own the asset with no debt from day one, albeit with no rent incomming.


What to do?

Graham_Devon

Sounds like that needs to seriously locked down contract. Owning outright from the outset!? So if he dies after 12 months you have paid £3,000 for something worth £180k? If the man has any sensible family, they would be quite right to hound you through the courts.

Personally, the whole thing sounds very dodgy, where only one person stands to win. You.

As you say, tis just business. And I say this in this sense. I hope the bloke has someone to protect him and any family he has. Cus this is basically called preying on someone in need. Not even the equity release schemes are this calous.

The honourable thing for you to do would be to buy a percentage of the house. You still stand to win in the end, and everyone knows where they stand, and your client get's a fair deal.

Conrad

Graham_Devon wrote: »

Sounds like that needs to seriously locked down contract. Owning outright from the outset!? So if he dies after 12 months you have paid £3,000 for something worth £180k? If the man has any sensible family, they would be quite right to hound you through the courts.

Personally, the whole thing sounds very dodgy, where only one person stands to win. You.

As you say, tis just business. And I say this in this sense. I hope the bloke has someone to protect him and any family he has. Cus this is basically called preying on someone in need. Not even the equity release schemes are this calous.

The honourable thing for you to do would be to buy a percentage of the house. You still stand to win in the end, and everyone knows where they stand, and your client get's a fair deal.

Our freinds Dad died into his first year of retirment - the pension provider kept his £500k.

I would of course insist they have thier own legal representation and thier daughter is involved now anyway. I suggested she give them £50k or £250 per mkonth instead - she declined.

It's a risk for both parties - what if one of them live 25 years and as with older people the place falls into bad disrepair? I certainly wont be winning then.

Harry_Powell

Graham_Devon wrote: »

Sounds like that needs to seriously locked down contract. Owning outright from the outset!? So if he dies after 12 months you have paid £3,000 for something worth £180k? If the man has any sensible family, they would be quite right to hound you through the courts.

Personally, the whole thing sounds very dodgy, where only one person stands to win. You.

As you say, tis just business. And I say this in this sense. I hope the bloke has someone to protect him and any family he has. Cus this is basically called preying on someone in need. Not even the equity release schemes are this calous.

The honourable thing for you to do would be to buy a percentage of the house. You still stand to win in the end, and everyone knows where they stand, and your client get's a fair deal.

<- Graham, AKA Mr. Muddle.

Generali

It's a pretty normal sort of a deal in France, Notaires often do this as a sideline.

On the face of it, it looks like a good deal for you. Of course it needs to be due to the extra risk of the type of property. Presumably you could knock the place down and rebuild (either with their permission or after they've gone).

CLAPTON

excluding the risk

the return on investment if he lives for 20 years is about 10% (reasonable) but if he lives for 30 years is about 4% (ignoring inflation)

unless you have a lot of investments then it's too risky for that sort of return plus the other practical difficulties ..say you died who would pay the 250 per month etc

Harry_Powell

CLAPTON wrote: »

excluding the risk

the return on investment if he lives for 20 years is about 10% (reasonable) but if he lives for 30 years is about 4% (ignoring inflation)

unless you have a lot of investments then it's too risky for that sort of return plus the other practical difficulties ..say you died who would pay the 250 per month etc

That could be covered cheaply by life assurance. The other main worry would be how you'd cover the loan repayments if you lost your job - again covered by insurance. Many of the fears that ScareBearBunch have is covered by a small amount of emergency money and a broad range of insurance policies. If you set this up within a business framework, these insurances would be tax deductable and if there were any financial issues, the company could simply fold.

zappahey

Generali wrote: »

It's a pretty normal sort of a deal in France, Notaires often do this as a sideline.

Very true http://anson.ucdavis.edu/~wang/calment.html

In later years, Calment lived mostly off the income from her apartment, which she sold cheaply to a lawyer when she was 90. Andre-Francois Raffray, who apparently relied on the actuarial table, signed a contingency contract with Calment and agreed to pay a life annuity of 2,500 francs ($500) a month under a deal to make him the owner of Calment's flat when she dies. Yet, he died at 77 and his family was still paying for more than a year unitl she died. Altogether, they paid more than 900,000 francs ($180,000), three times the value of the house.

ess0two

Rema concrete?got visions of an art deco type property here?right or wrong?

Thrugelmir

Conrad wrote: »

What to do?

Take professional tax advice. In a simplyfied form, effectively they would be gifting you the property in exchange for free life time accomodation. Your purchase cost would be zero so you would be liable for CGT on the entire net selling value of the property. In addition the house would still be subject to IHT on their estate, at the value at the date of transfer to you, when they eventually pass away.

Conrad

ess0two - no no, a standard ex local block terraced house - and not something you could knock down and rebuild.

I have written a rough pre legal contract which has a clause whereby the current owners would regain ownership in the event of my defaulting. I own my own business and even in hard times have at least £40,000 tucked away in ready cash. My life cover would provide them an income if I die.

I'm fairly cool on this tbh. If they live 20 years I could have invested the £90,000 into ISA's and probably ended up with a fair amount of capital growth without any hassle. If they live 5 years.........

Graham is only seeing this from one side - it's by no means a guaranteed pot of gold - how would you feel if I said your family will have to go without potentialy £90k in the next 20 years - money that couldbe spent on your children?