Building a house in my garden.....

ellives

Hi

Not sure if this is the correct forum on here for my questions, but I know there are some experts about so let's see...

I have a house with a large garden - about 2/3 of an acre. I've received a number of speculative letters from so-say developers who have suggested building in the garden.

A pal of mine who is a builder has suggested that he build a 4 bed house. He reckons that he'd cover the build cost (circa £150k to him) and this would match the value of the plot (no idea whether this is reasonable estimate of the value or not)?

He suggests that on the sale of the property, we'd both draw down £150k (to cover the build cost and the plot value) and split the remaining profit, after sales costs etc.

Now, before you think that's ridiculous....and this is the key issue, I don't have any spare money or credit whatsoever. Due to personal circumstances, I don't have equity I can use; nor a large deposit account full of money. Quite seriously, I'm stretched as it is and could not afford ANY significant spend right now, or for the next two years.

I have a family member that could, at a push, lend me £25k, but right now that's it.

So, options and questions....

- if I did nothing for three years I could possibly afford to do it myself - via equity and personal funds. BUT, the money I'd receive from building and selling (circa £250k) would be well received now and allow my family to enjoy a better quality of life, a small mortgage, necessary house improvements etc now not in three years time.

If I do it, as above, then it's costing me £100k (i.e. sell for £500k, minus £300k, then split the £200k profit).

As I write the above I can see how daft it sounds if you've funds or sense there's no rush, but my thinking was I'd get some advise and see if my questions below are on the right track.....

What is the value of the plot?
How might I get this determined?
How much will it actually cost him to build the house - a bit of searching suggests that the typical build costs for a 4 bed house finished to a high standard is around £200k so perhaps he will spend £150k?
His opening pitch was a 50/50 split - of course I could attempt to reduce that considerably, possibly?
Do builders ever build and cover the costs themselves (so the profit could stay with me)?

Any other thoughts? This brain dump has been quite useful I think!

Thanks, in advance, for your thoughts.
Ellives

I_have_spoken

Several issues to consider

1) Your mortgage lender may regards this as decreasing your current property's value and could change the terms of the loan, depends how much equity you have in the place.

2) All speculative until you get planning, your local planning officer may not favour 'garden grabs'

3) Noise and disruption for your family while the build takes place

4) >A pal of mine who is a builder< 99% certain to be ex-pal at the end of this.

5) An auction would determine the market value of the plot. Nothing to stop you spending a few £100s to draw up an plan and push it to the Council, then auction the plot with PP agreed in principle.

ellives

I_have_spoken wrote: »

Several issues to consider

1) Your mortgage lender may regards this as decreasing your current property's value and could change the terms of the loan, depends how much equity you have in the place.

2) All speculative until you get planning, your local planning officer may not favour 'garden grabs'

3) Noise and disruption for your family while the build takes place

4) >A pal of mine who is a builder< 99% certain to be ex-pal at the end of this.

5) An auction would determine the market value of the plot. Nothing to stop you spending a few £100s to draw up an plan and push it to the Council, then auction the plot with PP agreed in principle.

Hey thanks for the swift reply.

Must admit I hadn't thought through the mortgage lender angle. I guess that's a further potential hurdle.

How does it work? Do they value the property pre change and ensure their LTV is still being met?

phill99

Your scenario is not uncommon. It was used quite a lot in speculative commercial developments in the 1980s. It's effectively a 'development partnership'.

You need to get this drawn up by a solicitor. The value of the plot if land needs to be agreed at the start. The plot is then conveyed to a separate partnership(normally a Limited Company of which you and the builder each own 50% of the shares). The property is then built. An independent auditor then confirms the cost of construction ( it may well exceed £150k). The property is thn sold. Both parties then receive their costs out of the sale proceeds (you for the land value and the builder for the construction costs including labour and profit on labour). The remainder is then split between each party.

It's that last bit which you can negotiate on. In commercial developments it normally favoured the land owner.

Just make sure you get it drawn up by a Solicitor or you will come unstuck.

macman

Without PP, this is just pie in the sky. Are you likely to get it? What's the access going to be?

ellives

macman wrote: »

Without PP, this is just pie in the sky. Are you likely to get it? What's the access going to be?

I've looked at the basics, like access and so on and and see no obvious snags - BUT I am inexperienced here. I guess it is encouraging that the developers see something there?

I've not revealed my plans to anyone yet and will seek professional advise and order my ducks etc in readiness for when I do. I suspect neighbours will be edgey, perhaps even uncomfortable enough to appeal as it'll be at the bottom of their garden, although set back some 10m from the border - but my instinct is it is viable.

My post was my first articulation of my thoughts pretty much and my experience is that this site often attracts people with insight, experience, a critical eye and good sense....seems I was right!

I_have_spoken

If you did sell, I'd be thinking about a covenant to stop the developer tearing up your plans and sticking a block of flats on the plot.

ellives

Here's a plan view of the property and the immediate area - names removed!

The idea is to build to the left of the existing property. You'll also see that on my left is a property built 15 years ago (?) in existing gardens.

sammiell

What about tax??

ellives

sammiell wrote: »

What about tax??

Good point, well made!

CGT - perhaps I should sell the plot prior to any development taking place?

ed110220

Another thing to think about is that you may fall out with the neighbours over this. I remember my parents and other neighbours fought a long and bitter battle through planning etc against a neighbour who built not one but two new houses in his smallish garden.