Some advice needed pls

mcgee

Hello all.

Let me explain my current situation.

Almost 2 years ago I bought a property with a friend as we both wanted to get onto the ladder and neither could afford to do it on our own. We found a house for £120k and put a deposit of £12k down, thus taking a joint mortgage for £108k. The deposit was lent to us by my housemate's father on the condition that we would repay it once we sold (planned for 38 months due to the fixed period on the mortgage) along with a 10% share of the equity in the house. So myself and my housemate would get 45% each of the total equity and he would get 10%. This was agreed as fair and a contract was drawn up to that effect.

Now ... things have gone bad and the house is now on the market. Its been up for a few months with very little interest in it (possibly the estate agents fault ???) and I have been thinking about the best way forward.

My GF and I have been talking about in the future buying a property to let out, near to a hospital/airport or in a student area. The house I currently co-own is around a 10 minute walk from a hospital and many of the houses near by have rooms rented to nurses, so this seems like an ideal oportunity.

How do I go about working out what it would cost to buy the housemate out? Do I take the current value, take 45% (its been valued now at £140k) of £20k, and add on the half of the deposit I owe for the deposit plus 5% of the equity (as my housemate owes half the deposit plus half of the 10% increase)?

Or do i take the current total value of the house and take 45% as the amount to buy her out plus half of the deposit plus my half of the 10% we owe her father?

If you could offer some advice then that woul be great as I am at a loss as to what it will cost.

I should add that the plan is that I will continue to live here for now and only rent one room, until such time that I buy a second property and rent this one out as a whole.

Thanks
James

Doozergirl

This website! :wall: It used to always keep your post if there was a problem, now it just deletes it. I typed a massive reply.

I think you need to pay your friend £77,000. £14,000 of that is her dads. Effectively you own 45%, she owns 45%, her dad owns 10%.

You would need to buy her out and remortgage to the tune of £131,000. There will be legal fees etc. Is there a penalty to pay on redeeming the mortgage now? The fact that your fixed rate is not up would suggest to me that you may well have a hefty bill coming your way.

Have you looked at rental yields? Where will you live? How much will that cost?

Overwhelmingly though, my thoughts are that the house probably isn't worth £140,000 if the place has been on the market for a few months. Do you have a rightmove or EA link at all to show us?

CLAPTON

Firstly what do you mean by the equity...its a technical word but what did you all mean... did you have a worked example to show everyone what you meant.

so I would then work out the situation if you sell as this is a good basis for everyone to agree upon as it was your original plan. So you could argue that that is 'fair' to your friend and the Dad.

a. what is the realisitc selling price? I am going to assume 140k but that probably too high as you have had so little interest.

b. lets assume 3k selling costs

c. what is the settlement cost of the mortrgage.. presumably you have paid a bit off but then again there may be early termination fees.... lets say 107k

d. so net cash after selling 140-107-3 = 28k

e. dad gets his 12k back leaving 16k

f. dad gets a further 10% of this (which i assume you mean by equity) = 1.6k

g. you and your friend get 7.4k each

so thats the position if you sold it. Maybe they will accept this calculation as fair.
so that is what i would suggest you discuss with them.

mcgee

Hi Doozergirl

Here is the link http://www.rightmove.co.uk/viewdetails-8135346.rsp?pa_n=1&tr_t=buy

I am currently waiting on the estate agents getting back to me with figures for the rental income for the area.

So You worked that out by taking the full figure of £140k and breaking it into 3 parts.

So 2 of 45% is £63k each for me and her and 10% is £14k to her dad.

I'm confused though because we owe him £6k each for the deposit plus 5% of the equity each so to buy it all out wouldn't I need to put in £63k (to cover her 45%, plus £6k (to cover my half of the deposit) plus £1k for the rise in equity. Then she owes her dad £6k to repay the deposit plus her share of the rise in equity. Meaning that its £70k not £77k. Or have I got my maths completely wrong?

Also I know what the minimum would be to pay everything off (with the HEFTY charge on the mortgage :mad:) so am I right in thinking that I wouldn't meed to offer the full asking price? Say someone was to offer £135k?

That would mean that all the original lenders would be payed off but there would be less to be divided up between us from equity.

Now if I was to make that offer how would that work? Would that then be that I would pay her £60,750 to buy her half then her dad the £6k (as that is a constant) plus 5% of the equity, which is £750 (she pays the other 5%) so I would need to borrow a further £67,500.

I think that my head is going to explode with all of this math. lol

Also .... sorry for the rambling nature of my posts.

Thanks
James

mcgee

CLAPTON wrote: »

Firstly what do you mean by the equity...its a technical word but what did you all mean... did you have a worked example to show everyone what you meant.

so I would then work out the situation if you sell as this is a good basis for everyone to agree upon as it was your original plan. So you could argue that that is 'fair' to your friend and the Dad.

a. what is the realisitc selling price? I am going to assume 140k but that probably too high as you have had so little interest.

b. lets assume 3k selling costs

c. what is the settlement cost of the mortrgage.. presumably you have paid a bit off but then again there may be early termination fees.... lets say 107k

d. so net cash after selling 140-107-3 = 28k

e. dad gets his 12k back leaving 16k

f. dad gets a further 10% of this (which i assume you mean by equity) = 1.6k

g. you and your friend get 7.4k each

so thats the position if you sold it. Maybe they will accept this calculation as fair.
so that is what i would suggest you discuss with them.

Hi Clapton - I was composing the reply to Doozer girl as you replied.

I mean equity as in the left over money after we payed off the lenders and any fees.

To be honest when it all initially went wrong I suggested that one of her friends would like to buy me out and your breakdown was exactly as I had in my mind. Unfortunately at that point she was unwilling to discuss so I actually never gae her the breakdown (but that story is for an entirely different forum :rotfl:).

In your scenario here are you meaning that I would end up (if she accepted it) paying her the £7.4k that she would have got if we sold up and moved out?

Thanks
James

CLAPTON

Yes I am saying that her share is cash of 7.4k after you 'take over' her share of the mortgage.
This is fair as you will have extra costs of remortgaging and changing he deeds etc and she is in exactly the position she would be if the house was sold.

Your calculation anyway doesn't work as you dont own 45%, 45% and 10% of 140k because dad 12k comes off first.

So you could argue you have 45% of 128k (140-12) but the mortgage has to be paid off and costs etc. so it very complicated looking at it like that. Thats why I asked what YOU meant by equity....

If things aren't on a good footing between the two of you however then you may be best to actually sell as she may never agree to whatever you suggest.

Doozergirl

You've got a lot of competition. there are countelss houses that look almost the same as yours, admittedly in the same price bracket - lower and higher. Not a lot sold though.

If it is not selling, then no you shouldn't be offering her any more than £135,000. If people were liking it, I'd be surprised that you hadn't had an offer around there anyway - it's not exactly way off the mark is it?!

By the by; I think you should sell up. Unless you have other savings or more in the way of deposit, you're not going to get a BTL mortgage with a £9000 deposit and even if you could you're going to be paying out quite a reasonable sum each month to subsidise your tenants.

I'd consider investing for the long term only after I was quite comfortable in my own home first. I think you're reasonably young and need to be looking to the future - providing a home for your future wife/children, not really sticking the small amount you do have in a PITA BTL which is not going to rise in value in the short/medium term, by which point I think you'd be wanting to pull the money anyway.