Pitfalls of buying property from parents with siblings

olias

Leaving aside the deprivation of assets minefield. Why do the siblings have to get involved at all? Surely the FIL could sell his rental property and use the cash to fund the conversion and the house build overseas (living in rented whilst these are done). He will then be left with a property overseas and 3 flats in central London. No one else but him would be involved so he avoid all the pitfalls already mentioned, and would retain control over the whole thing himself. Assuming he had made a will by then(!) he would also be leaving a sizeable inheritence for all his children.

An additional bonus would be there would be no borrowing involved.

Olias

pozalina

olias wrote: »

Leaving aside the deprivation of assets minefield. Why do the siblings have to get involved at all? Surely the FIL could sell his rental property and use the cash to fund the conversion and the house build overseas (living in rented whilst these are done). He will then be left with a property overseas and 3 flats in central London. No one else but him would be involved so he avoid all the pitfalls already mentioned, and would retain control over the whole thing himself. Assuming he had made a will by then(!) he would also be leaving a sizeable inheritence for all his children.

An additional bonus would be there would be no borrowing involved.

Olias

Yes, I agree! FIl has ummed and ahhed about what to do with his properties for years. Various people have suggested he sell this, renovate that, all to no avail.

Today I went online to get price comparisons for similar properties. 1. there does not seem to be pots of money to be made in converting to 3 flats, as a 5 bed house went for 900k while flats were going for 300k max. 2. he could sell the rental property as-is and, after capital gains tax, have maybe 280k cash in his pocket to build home abroad and to give rest to wife towards bungalow in uk (maybe in northern town/ city so cheaper than Ldn). Even if he then leaves family home as-is, with planning permission for flats it may be of interest to someone at the half a mil mark or above (only going by rightmove.com - feel free to beg to differ). That wouldn't be too bad an inheritance for 9 people with not much to their names.

IMHO, he'll probably do none of the above and die intestate with 2 derelict properties, but time will tell!

Mojisola

If he does build another property abroad, he will need another will in that country.

gambit27

All I'll say is, my ex's Dad was in a similar position, bought his Dad's house with his 7 siblings, joint share each, Dad was ill, and changed his will to leave the house to 1 daughter, the whole family promptly fell out after his passing, this was 8 years ago and they still don't speak.

I would have thought the best option would be to sell the property, buy the properties MIL & FIL want, and split the rest between the siblings, or invest it, use it to go on a cruise, and leave whatevers left to their children. As far as decoration, could the siblings not pitch in and decorate it themselves? Split the cost of that between everyone knowing they'll get a share in the house?

pozalina

Update: a few more meetings have happened to discuss details (still not resolved who could borrow money), valuations have been done and initial discussions with financial advisor/architect. We've not been asked to submit any money so far. Just as well as the answer would be no! Planning permission has not yet been submitted but enquiries have been made.

Anyway, the reason I'm posting is because I've heard my BIL is suggesting the funds will now come from 'developers'. The idea is that they will fund the development work and get their money back once of of the three flats is sold. Has anyone heard of this happening before? How does it work?

Thanks.

JQ.

Yep - very common in the commercial property world, less so in residential. The Landowner (husband's family) and the developer enter into a Joint Venture Agreement (JV) - the developer does all the hard work and then when the units are sold there is a pre-agreed split of the profit, which would have been written into the initial contract.

Honestly, your family needs decent quality advice on this from a surveyor (a solicitor cannot give advice on the commercial aspects of such an agreement). I can assure you any developer who enters into such an agreement with a landowner who is not professionally represented will put everything in their favour and your family will end up with far less than is appropriate. These guys are developing everyday of the week and will know exactly what they are doing - your family will not. Ask the surveyor who did the valuation.

You also need to make sure you get a decent developer and not a cowboy - should they mess it up it could be your family who's faced with a massive liability.

Why not just sell it to a developer in the open market? There are so many people involved in this that it remains a receipe for disaster.

I know this will sound terrible, but also make sure that the BiL who is negotiating directly with the developer is not going to receive a brown envelope stuffed full of £50 notes from the developer for his troubles, ie. agreeing a soft deal. This still goes on and another reason why you should independent advice form a surveyor acting in the best interests of the whole family. A surveyor will tell you exactly what % of profits or £'s you should be receiving for the JV agreement. The surveyor can negotiate the deal on your behalf to make sure you get the best deal.

Things that spring to mind :
what happens if the developer artificially increases the build costs to make the profit split lower?
what happens if the developer sells the completed units to an associated party at a significant discount, then sells them on taking a profit or lets them out?
what happens if the developer goes bust, would their bank than have an interest in your property thereby frustrating any future plans?

This is a minefield and one to be entered very cautiously, even the most experienced property investors have had their fingers burned when entering into JV's.

My advice remains - sell it on the open market. It removes any of the above issues and will be so much less stressfull in the long term, and hopefully mean the whole family don't fall out over it.

Good luck with it all, I don't envy being in your shoes trying to get it all sorted.

pozalina

JQ. wrote: »

Yep - very common in the commercial property world, less so in residential. The Landowner (husband's family) and the developer enter into a Joint Venture Agreement (JV) - the developer does all the hard work and then when the units are sold there is a pre-agreed split of the profit, which would have been written into the initial contract.

Honestly, your family needs decent quality advice on this from a surveyor (a solicitor cannot give advice on the commercial aspects of such an agreement). I can assure you any developer who enters into such an agreement with a landowner who is not professionally represented will put everything in their favour and your family will end up with far less than is appropriate. These guys are developing everyday of the week and will know exactly what they are doing - your family will not. Ask the surveyor who did the valuation.

You also need to make sure you get a decent developer and not a cowboy - should they mess it up it could be your family who's faced with a massive liability.

Why not just sell it to a developer in the open market? There are so many people involved in this that it remains a receipe for disaster.

I know this will sound terrible, but also make sure that the BiL who is negotiating directly with the developer is not going to receive a brown envelope stuffed full of £50 notes from the developer for his troubles, ie. agreeing a soft deal. This still goes on and another reason why you should independent advice form a surveyor acting in the best interests of the whole family. A surveyor will tell you exactly what % of profits or £'s you should be receiving for the JV agreement. The surveyor can negotiate the deal on your behalf to make sure you get the best deal.

Things that spring to mind :
what happens if the developer artificially increases the build costs to make the profit split lower?
what happens if the developer sells the completed units to an associated party at a significant discount, then sells them on taking a profit or lets them out?
what happens if the developer goes bust, would their bank than have an interest in your property thereby frustrating any future plans?

This is a minefield and one to be entered very cautiously, even the most experienced property investors have had their fingers burned when entering into JV's.

My advice remains - sell it on the open market. It removes any of the above issues and will be so much less stressfull in the long term, and hopefully mean the whole family don't fall out over it.

Good luck with it all, I don't envy being in your shoes trying to get it all sorted.

Thanks so much for your reply. My (sensible) SIL is taking your points, paraphrasing them and e-mailing the siblings concerned about it. They are in way over their heads and haven't even considered most of the things I've already (through my dh) pointed out to them. I'm assuming it's partly because they are emotionally involved in the property and it's their siblings who would be business partners that they are not thinking straight (actually, I'm probably being too generous in most cases...). As a member of the family who is married-in and not blood I can be a little more impartial (even though all spouses have officially been excluded from involvement!)

I have suggested several times, following advice earlier on in this thread, that they should just sell up as is or with planning permission for flats. So far no-one is listening, but it is becoming clear there are several people with concerns who are not (yet) voicing them. Ultimately the house belongs to FIL so he will veto anything he's unhappy with. I just think it's a shame that several months down the line we are no closer to getting FIL or MIL into a home they would like to live the rest of their days out in.