Inherited property - buying out the other siblings

r8ash

Hi All,

I am very new to property and know very little as my parents don't own their own house...well, its on behalf of them that i am asking.

My grandad passed away recently, leaving his house to my dad and his 4 brothers. he also left some money which is to be shared equally between the 5 brothers.

I have encouraged my dad to put his inheritance towards starting up his own property development business.

I thought his first project could be his fathers house that he has just inherited a share of...obviously with the agreement of his brothers.

my question is can he get a mortgage buy out his brothers share of the house....does he still need to save a deposit or can his share be the deposit...in effect applying for an 80% mortgage.

and then use the share of the moeny he also inherited to fund the development of the property....

following this, is he better to try make a profit and sell the property to start a new project or keep it and rent it?

Thanks
Ashley

G_M

Who are the Executers of the will, and has Probate been granted?

What do the other brothers want to do with the property?

If Probate has been fgranted and the property is now in the joint names of all brothers, then any sale or development would need the agreement of all the brothers.

The Executers have a duty to execute the will fairly. They need to get a valuation done on the property (they'll need this for Probate and Inheritance Tax purposes). That then shows the value of each 'share' - the amount your dad would need to pay each of the others in order to buy the property from them.

How could he buy it? Yes, apply for a mortgage in the normal way, though his existing share could constitute the 'deposit' required by a lender. He would still need to show his income was enough to pay the mortgage monthly.

Fire_Fox

Welcome! Why are you encouraging your father to get into property development in the middle of a recession when he has never even been a homeowner? Most businesses are gambles in this market, more so when you have no experience. Plenty of property developers are not turning a profit. Does he have a business plan to show the lender assuming he is not going to live in the house and thus get a residential mortgage?

thelem

Is it even a good property to develop? To make the maximum revenue, you need to buy as cheaply as possible and sell for as much as possible. Are you going to be able to negioate a good price with your brothers? Will it cause any family tension if you then go on to make a tidy profit? Is the house in need or work that would raise its value by more than the cost of the work?

If he wants to develop the property, how about doing it on behalf of all brothers? You could get the house valued now, and then when you sell it he would take his share of the valuation, plus an agreed share any profit.

Say the house is currently worth £100k and he spends £20k on improvements, before selling it for £160k. Each brother then gets their original £20k share, and the £40k profit (after the development cost) then gets split £20k to your dad and £5k to each other brother?

Obviously you'd need to decide your own proportions, and what to do if a brother wanted the money now. Also bear in mind what would happen if the property sold for (using my figures) less than £100k or less than £120k. My figures were chosen for ease of maths rather than as an indication of what he might earn.

POPPYOSCAR

thelem wrote: »

Is it even a good property to develop? To make the maximum revenue, you need to buy as cheaply as possible and sell for as much as possible. Are you going to be able to negioate a good price with your brothers? Will it cause any family tension if you then go on to make a tidy profit? Is the house in need or work that would raise its value by more than the cost of the work?

If he wants to develop the property, how about doing it on behalf of all brothers? You could get the house valued now, and then when you sell it he would take his share of the valuation, plus an agreed share any profit.

Say the house is currently worth £100k and he spends £20k on improvements, before selling it for £160k. Each brother then gets their original £20k share, and the £40k profit (after the development cost) then gets split £20k to your dad and £5k to each other brother?

Obviously you'd need to decide your own proportions, and what to do if a brother wanted the money now. Also bear in mind what would happen if the property sold for (using my figures) less than £100k or less than £120k. My figures were chosen for ease of maths rather than as an indication of what he might earn.

I considered doing this with our mother's house but decided against it for this very reason.

r8ash

G_M and FireFox,

I very much appreciate your fast response, but as I said in the original post, neither myself or my father have owned a property and all the legal side is being taken care of by a solicitor. I don't know much about the progress of settling the will and how far away it is before the house can be put on the market. I am purely exploring some ideas of making the most of my fathers inheritance.

He is a very capable of carry out the renovations himself and it would be long term project as he has a full time job, but depending on the success of this first projecthe could take it up on a full time, money making basis.

it is a low risk, almost leisurely, recreational project, experimental if you like... for my dad to see if he can make a living from doing something he enjoys.

if the whole fails fair enough, but at least he tried and failed rather than not tried and regret not trying.

Some pointers for getting started would be helpful.

Thanks

Fire_Fox

Is he going to live in the place whilst doing it up on evenings and weekends? It is HELL living in a building site for months on end. If you don't intend to live there but need a mortgage you need to subtract all the mortgage payments from the profit, bearing in mind there will be many if he is developing part time. It's rarely financially viable to do this for anything but your forever home so most developers use trades. Tried and failed without thorough planning and budgeting could mean he doesn't have this nest egg for his retirement.

Property developing is a long way from low risk, if he injures himself he may not be able to pay the rent/ mortgage, or runs out of money part way through the house may not be in a saleable condition, if the market falls again he could end up in negative equity. Sorry but I have lived in a couple of such projects, you don't appear to have.

r8ash

Hi All,

thanks for your comments, they are are helping to put the idea into perspective. It sound like a nice idea at first but when you start to consider all eventualities it does make it much more complicated.

To summerise, the intentions would be to have the property valued as is. The house is structually sound, electrics are fine, but is in great need of a cosmetic renovation. its had the same decor ever since i can remeber and im now 25, just to put into perspective the state of the property.

The other brothers are looking for a quick sale regardless of the valuation. so I don't think they would care if my dad put his share and hard work work to either make a few quid.

Other properties in the area sold in a moderate condition on average of 115k.

The area has had lot of money put into and is a slowly building into a student town....so doing the house up to rent to students is another option.

Thrugelmir

r8ash wrote: »

it is a low risk, almost leisurely, recreational project, experimental if you like... for my dad to see if he can make a living from doing something he enjoys.

Borrowing 80% of the properties value changes the dynamic of profitability and increases the risk. As time is money. So hardly leisurely.

A developer would want the property refurbished in 3 months and back on the market. As may well take longer than this time again to conclude a sale.

CLAPTON

how much is the house worth?
how much cash was your father left?
how much other cash does he have?
what does he earn?

whay sort of rent would such a property command?

Annisele

Another way to look at this is to pretend your Dad had been left cash instead.

His share of a £115k house is worth (say) £23k. If he'd received £23k in cash, would he have used it as a deposit to buy this particular house and start a property business? Why or why not?

If he wouldn't have used the cash to buy this particular house, then he probably shouldn't go ahead with the project.