inheriting house, needs renovation

mamitetoastie

Hi, I'm looking for some advice about inheriting a run down house. The house is currently undervalued by a sitting tenant who is about to leave (she's in her 90s). I would get it at half it's real value if it is transferred from my mother to me, before the tenant leaves. It's in a very good area of london and currently valued at about £200,000 (with tenant). Double it as soon as she leaves. If I spent a £100,000 on it then I would have two flats and a potential monthly income of about £3,500 from them, the value would double again, easily making them worth a joint total of about £800,000.

There are a few more financial complications than this, but I won't go into them all. During the build I will need to cover my own expenses and a some other costs.

I would not be resident in the house, but I rent my home so I don't own any other property. I currently work part time and have 3 young children.

So I'm wondering what sort of mortgage would I apply for to pay for the renovation and cover some of my personal living costs during the time it takes to do the rennovation? If anyone has any advice on that aspect I'd really appreciate it so that I can see if I can afford to take this project on. As someone who has a total personal debt of about £2000 going into debt to the tune of £100,000 for years is quite daunting.

thanks,

westlondonbuyer

There are a lot of issues here, and whilst I appreciate that you're not telling us the full story to avoid complications, doing so also makes it hard for us to offer appropriate advice.

Based on the information you've given, the easiest way to fund this is to remortgage the property, or perhaps obtain a mortgage equity withdrawal. Are you on your own, or do you have a partner whose salary could support a mortgage of £150k? If you're in the latter position, things will be infinitely easier to arrange with the bank. If it's the former, it will be harder and they may try to persuade you down the route of staged payments or even a bank loan, which will make the numbers hard to stack up.

However, don't assume spending £100k on renovations will automatically increase your property's value by the same amount (or more, which I think is what you're hoping). It's also not always easy to get planning permission to turn a house into flats or vice versa - it all depends on your council's local housing plan.

If you still owe someone £2000, you need to pay that off before adding to your debt, even if that new debt is only in the form of a mortgage. Apart from anything else, it means your mortgage application is more likely to succeed.

McKneff

First things first, your parent cant just sign the house over to you. Its not as simple as that. Try googling 'deprivation of assets'

Are you really confident in getting a mortgage, how would yu fund it if you only work part time.
You havent mentioned an OH, so I presume that there isnt one.

You really should get proper advice from a solicitor

Jonbvn

£200k to £800k. That will be one hell of a renovation.

slummymummyof3

Are you sure on the figures????

mamitetoastie

Well the house can be divided into flats, it already is. The deal is being negotiated by my mother's accountant and her solicitor so there are some other costs they want me to cover.

What I'm wondering is how to get the finance to do the renovation. Single parent with 3 kids and part time work. Once the renovation is done I can pay the mortgage with the rental incomes.

Yes, from £200K to £850K, but you have to remember it's because a sitting tenant devalues it so much. The same property is for sale (not divided into 2 flats and it's a lease, not a freehold as I would have) for £850,000, so it is possible. That property isn't done up as London designer living either, it's just tidy and well maintained.

My point is where to start with financing it. Will I be able to borrow against the freehold, as I don't have much of a personal income. That's the sort of advice I'm asking for. Otherwise, if I can't fund the renovation, I'll have little choice but to sell it to a property developer. I'd rather not sell it at all.

DVardysShadow

McKneff wrote: »

First things first, your parent cant just sign the house over to you. Its not as simple as that. Try googling 'deprivation of assets'

If transferred with the tenant in place and paid for at the value while tenanted, deprivation of assets would not arise.

westlondonbuyer

mamitetoastie wrote: »

Otherwise, if I can't fund the renovation, I'll have little choice but to sell it to a property developer. I'd rather not sell it at all.

As I live in London I'm not as sceptical as some about the eventual value of your property.

Although you don't want to, selling to a property developer as soon as the sitting tenant leaves is a good idea - the really big profit opportunity is recovering the freehold. Based on your figures, you'd get £200k for doing and spending very little.

Whereas a £100k reno could be a year's very hard work, and as a beginner you'd be taking one hell of a risk. If you could raise the finance at all.

mamitetoastie

So my question is what options do I have for raising the finances?

westlondonbuyer

Don't make the mistake of thinking super-whizzy renovated flats automatically give the best rental yields. They don't - they just have fewer voids (which are unlikely if the location is as good as you say it is). You could let both flats at a reduced rent to reflect their unmodernised condition, and still be quids in. Then use the rental income to pay for the renovation work (very tax efficient) OR obtain a mortgage based on the rental income alone.

westlondonbuyer

mamitetoastie wrote: »

So my question is what options do I have for raising the finances?

As I said above, remortgage, mortgage equity withdrawal, a bank loan, or staged payments.

Lots of options, but not necessarily all of them easy.