Equity Release

Razzmeister

Apologies if this is in the wrong section.

My parents own a large detached property which comprises one house converted into 2 flats. They have no mortgage but need to raise some cash.

They are considering selling the lower flat which I used to live in but is now empty. This flat is worth £250k however the property as a whole including the land is worth £600 – 800k and by selling the lower flat they will lose control of the property and thus reduce the value of what they have left.

I have wracked my brains but cannot think of any way out other than selling however they and I don’t want to do this. I can’t help myself as I am commited to my own property and have 2 young children.

My mother is a basic rate taxpayer and my father cannot work due to illness.

My thoughts are that if they could somehow release equity on the lower flat (£250K), put this in the bank and live of the interest, then let the flat at say £1k per month to pay off the equity repayments.

Is this viable?, the flat is 3 bedroom and with a bit of tlc would easily fetch £1k per month rent.

They need to release as much as possible to help my brother with some hefty debt and to renovate both properties – approx £200 – 250k.

Can this be done?, my folks are asset rich but have no cash. They don’t want to sell yet as it’s the family home and my father’s illness pretty rules out the stress of a sale at present but the financial situation is becoming precarious.

Your help / advice would be very much appreciated.

Razz

EdInvestor

Razzmeister wrote: »

My parents own a large detached property which comprises one house converted into 2 flats. They have no mortgage but need to raise some cash. They are considering selling the lower flat which I used to live in but is now empty. This flat is worth £250k however the property as a whole including the land is worth £600 – 800k and by selling the lower flat they will lose control of the property and thus reduce the value of what they have left.

Why would they lose control? In order to sell the lower flat, they will need to reorganise the ownership structure of the property, which I assume is currently a freehold house, into a freehold building (which they own) and two leasehold flats (one of which they own) and the other they plan to sell.

They would still own the main building and the land, and their own flat if they did this.Clearly they should have a surveyor look at the matter to see whther this is a sensible way to go and also get a proper valuation ( 600-800k is err,rather vague!) . If there is a lot of land, they might be better to sell the block for redevelopment.

They could well be better to just consider a straight downsizing arrangment, moving to a smaller home and releasing cash. AFAIK an equity release arrangement does not normally allow renting out parts of the property.

Scudlink

As hard as it may seem to break the sentimental barrier, downsizing is a sensible option to consider. Your parents could also treat themselves to a few extra luxuries with the extra spare cash generated.

Razzmeister

Each flat is worth £250k, there is a large garden area (easily 2 plots). My folks solicitor has suggested selling the property in its entirety for offers over £600k. It was surveyed 2 years ago at offers over £500k which was conservative to say the least.

I have also met with a development agency who have suggested that due to the size of garden area, this alone could be worth £250k to a developer, subject to planning. Therefore:

If sold in bits residentially (2 flats @ £250k each and a plot £100k) = £600k

If sold to a developer = £500 - £600 (house) + £240k (land based on 6 units @ £40k = £840k

If it goes commercially a developer would recoup 7 figures (the developer said that there is potential for 6 - 10 flats plus reconversion of the house from 2 (currently) to 4 flats.

The problem is sentiment and also that whilst in the early stages of my career in 5 -10 years time I could be making in excess of £100k p/a. My brother has also just served his time as a builder so in theory we could do something ourselves although I think this is a pipedream.

Potentially its a goldmine but we don't want to move however cash is becoming a problem.

Selling the ground floor flat would leave my folks flat and all of the land (this is the way it is currently conveyed). This is the preferred option after much deliberation.

I'm going grey with the stress - if there was no emotional attachment then it would be sold to a developer tomorrow.

I'm just trying to uncover all of the options.

epz_2

no offenc but if i was sitting on that level of equity the last thing i would want to become would be a top floor flat with randome neighbors, i bet they could get a really nice smaller house with a big chunk of change left over.

if they must stay then why not get an interest only morgage and use some of the borrowed money to pay it back, better than equity release and any quibles about income you can always say you plan on renting out the lower flat

EdInvestor

This flat is worth £250k however the property as a whole including the land is worth £600 – 800k and by selling the lower flat they will lose control of the property and thus reduce the value of what they have left.

By how much?This is the missing figure and it could be the one that makes the case for moving crystal clear.

Back to the development agency for a valuation of the property minus the sold-off leasehold flat methinks.