Pitfalls of buying property from parents with siblings

pozalina

Hi, hope someone can help. My father- and mother-in-law (both 80ish) own a property (it is currently their family home) in a popular part of south london. It is a large house on 3 floors, with 7 bedrooms, in need of serious redecoration. My husband and his (8)sibings are in the process of working out, with their father, what they should do with the property, bearing in mind his increasing age. Their proposed plan at present is for some of them to take out a mortgage/unsecured loan to raise funds for renovating it into 3 flats, then rent/sell.

The problem as I see it is that most of them are not in a position to take out loans (only 1 of them has actually bothered to check this out!). They are either low paid (like my OH), have a ccj or are not working. I also worry about all 8 agreeing on things or someone waltzing off with the money/not managing funds properly. I think they haven't got a clue what they are trying to do. I appreciate that it is a property with a lot of potential but what is the best way to go about the project? Am I right in thinking that my FIL cannot get equity release as he is too old for a mortgage? MY FIL also owns another smaller property in a commutable part of zone 2 that is in the equation, but we are aware of capital gains tax for that as it is not his home at present (he has tenants in). Neither my FIL or MIL have a will.

It feels like a minefield and I am worried because my OH and I are being asked to contribute money at this stage for architects plans/solicitors when they haven't funds in place for the work. I am very reluctant to part with money that will go into a bottomless pit!

Help!

Thank you for reading,

P.

tanith

Can I just ask what the elderly couple who live/own in this house do during and after this plan is actioned?

Jenniefour

I would be very concerned about all this as well, if I were in your shoes.

If some are able to raise funds and others not in effect it puts some in a position of having a financial interest in the property, and some not - which could cause terrific disharmony later on if this is not accounted for in a will. And have they already investigated whether it would be possible anyway vis a vis planning laws?


Could you say what the aim of this plan is? To raise money for your parents in law? To try and increase the value of the property? To give your parents in law a more manageable place to live and release some money?

So you are right to question what is going on. Please post more info.

I would be disinclined to put forward any funds at all until everyone is clear why this proposal is being considered and what the aims are - which are not clear at present. There may well be other ways of meeting these aims anyway.

At present this sounds, worryingly, like an attempt to become property developers in an extremely difficult market anyway - flats are very hard to shift these days, and that includes London - and one which could well backfire, and not only financially.

princeofpounds

Multiple siblings on low wages. Very expensive London house.

Recipe for all sorts of problems, I bet they are seeing their meal-ticket for life aka inheritance here.

The first priority needs to be the parents. What do THEY need? Based on that there are all sorts of potential courses of action.

They might need to stay on, or downsize, or legally dispose of assets to avoid care home fees, or whatever. There are really important tax and legal structure considerations here that we can't even begin to answer (and probably could do with a professional anyway).

Once that is settled the question of what to do with the property could be addressed. But that is almost a business decision. The most sensible thing would most likely be to sell 'as-is' and split the money. Less complicated. Unless the place is semi-derelict the various siblings are not going to be adding much value by renovating it; such works typically add only the value spent on them, and that if you are lucky. They might want to apply for planning permission to extend or convert and sell on that basis, as that could apply a bit more upside.

Hard to know, sorry.

pozalina

Thanks for the quick replies. To answer questions:

1. Inlaws intend to move into their other property while work is being done (but I'm guessing that will affect capital gains tax?)

2. FIL wants to sell the property, possibly to the siblings (who probably can't get a mortgage?) and build a house on some land he has abroad. MIL would like to remain in UK (yes, separately from her husband), possibly in small bungalow or something. I think these 2 purchases could well be more than the house is currently worth. The current idea is that 4 people who think they could get a loan (I query 2 of them) would borrow in their names and others would contribute equally to repayments.

3. Planning laws have not been considered yet, that is what they want the initial cash from us all for. The property next door was converted into 3 flats (don't know if that's relevant).

4. My dh would say the aim of the property is the provide something for our children; I would like to think it is so my inlaws can live comfortably in their old age; most siblings probably see it as a meal ticket, yes.

5. I too am concerned about the possible ramifications for family harmony should anything go wrong. They are a very disorganised family most of the time anyway, so I am not full of confidence. My dh thinks I am being negative! I have raised issues like what if one person cannot raise the funds, what happens if inlaws die intestate during the process and some siblings have invested more than others? etc etc. My oh thinks they will be able to resolve all issues.

6. My preferred option is same as prince of pounds i.e. selling both properties as-is because it is less risky, money could be equally shared and inlaws could take what they need first. Hadn't thought about possible care home fees as an additional cost either. My inlaws should also work out what kind of savings they want to retain before giving anything away too.

Luckily I manage the purse strings in our house so oh won't be able to hand over big amounts without my agreement (he can be stubborn so wouldn't necessarily listen to me!)

tanith

It sounds like a nightmare scenario and you are right to be concerned , I would make damn sure that none of this impacts on your own family and home before anything is decided... It sounds like they are not in any mood to listen to you anyway so just make sure your OH understands he is not to put you and your family home at risk..

Jowo_2

pozalina wrote: »

... My inlaws should also work out what kind of savings they want to retain before giving anything away too.

You should google 'deprivation of capital' to understand the ramifications of the parents giving away their savings or transferring property to their children as there can be a significant impact if they later require means tested care or a care home at a later date.

If they require means tested services or benefits in the future, then they can be treated as if they still have their capital, even though they've given it away (known as notional capital).

So if any of this venture involves a desire of their children to get some kind of inheritance before their parents pass away, this can backfire on the parents.

Mojisola

pozalina wrote: »

5. I too am concerned about the possible ramifications for family harmony should anything go wrong. They are a very disorganised family most of the time anyway, so I am not full of confidence. My dh thinks I am being negative! I have raised issues like what if one person cannot raise the funds, what happens if inlaws die intestate during the process and some siblings have invested more than others? etc etc. My oh thinks they will be able to resolve all issues.

He's either the ultimate optimist or so far from understanding the situation that he's not on this planet.

Why won't his parents make a will? That's got to be the first step.

I do feel for you but you are on the right track and need to stay strong to keep your family out of a potential massive headache.

Jowo_2

It does sound like a total disaster - too many chiefs, too much optimism (which means no real appreciation of the risks and issues) and some huge lack of realism (FIL expecting to be able to sell his properties to his kids who can't get mortgages and the kids are probably expecting or prefering the properties to be gifted to them).

I have project management (therefore planning and budgeting experience) and even with full funds in place at the outset, have found refurbishing and renovating three residential properties very tough and frustrating (and these are not full scale conversions that require planning permission, just overhauls and modernisation). My head is boggling at the complexity and constraints faced in this scenario by financially insecure amateurs, made even worse by the fact that their family relationships could be shattered by development and financial issues - business and family do not mix.

Jowo_2

BTW, are any of these siblings expecting a windfall from the parents on means tested benefits? The reason I ask is that capital over 6k start to affect their benefits and capital over 16k will stop their benefits, therefore will any of his siblings find that their lumpsum will simply make their benefits get withdrawn?

SuzieSue

You need to persuade your DH not to even start this project - it is a recipe for disaster and will cause a lot of heartache and bad feeling within the family.

However, the most important issue that needs to be addressed is that your F and MIL need to ensure they get wills drawn up immediately. Everybody should have a will especially if they are in their 80s. It will cost the whole family hundreds, if not thousands of pounds to sort out their estates if they die intestate.