Buying parents rental property and transferring to residential mortgage?

krish123

Evening all,
I have been thinking if the following would be possible. 

My father owns a rental property with a business partner, house is roughly worth 220k.
Would it be possible to buy out my dads business partners share (50%), sort an agreement with my father for his share and turn the property into a residential mortgage for myself?
i would then lodger potential 2/3 rooms to cover my mortgage etc. 

How do you calculate exactly how much I need to buy out the business partner?
is this idea plausible? The house itself is very nice and I would not afford something similar in the area on affordability.

molerat

Anything is possible.  The business partner would be due £110K if he owns 50%.  Is there an existing mortgage on the property ?

krish123

molerat said:

Anything is possible.  The business partner would be due £110K if he owns 50%.  Is there an existing mortgage on the property ?

Yes, I think it’s between 120-140k. The business partner may be happy to sell as he needs cash, whereas I need a home/ long term investment. 

If I could turn the house into a residential mortgage I can have lodgers in the house as I understand it?

[Deleted User]

krish123 said:

molerat said:

Anything is possible.  The business partner would be due £110K if he owns 50%.  Is there an existing mortgage on the property ?

Yes, I think it’s between 120-140k. The business partner may be happy to sell as he needs cash, whereas I need a home/ long term investment. 

If I could turn the house into a residential mortgage I can have lodgers in the house as I understand it?

You can’t get a mortgage to buy half a property so whatever mortgage you get your dad will also need to be a party to it. There are, or were, mortgages where one person was responsible for paying the mortgage (but two people named on the mortgage) and two were named on the deeds but I have no idea if any lenders are currently offering those in the current climate. Alternatively your dad would need to jointly apply for a joint mortgage with you and some kind of deed of trust in place. 

Which is it you want, a home or a long term investment? What about your father’s investment? He’d have 50% of the equity but he’d be making no money from it. 

eddddy

So it sounds like...

• property is worth £220k, with a mortgage of £130k - so equity is £90k.

• 50% of the equity (£45K) will need to be paid to the business partner.

• Your father would have to give you the other £45k in equity as a gift.

• So you need to find £130k to pay off mortgage plus £45k to pay off business partner = £175k in total.

• Do you have any cash? If not, you'll need to get a mortgage for £175k

• Do you have sufficient income to get a £175k mortgage? You won't be able to count potential income from lodgers. Maybe ask a mortgage broker what your chances are of getting a £175k mortgage.

macman

To avoid any doubt, you intend to live in it yourself? If not, your lodgers become tenants, with all the legal and statutory responsibilities that being an LL entails. And of course for that you would need a BTL mortgage.

[Deleted User]

eddddy said:

So it sounds like...

• property is worth £220k, with a mortgage of £130k - so equity is £90k.

• 50% of the equity (£45K) will need to be paid to the business partner.

• Your father would have to give you the other £45k in equity as a gift.

• So you need to find £130k to pay off mortgage plus £45k to pay off business partner = £175k in total.

• Do you have any cash? If not, you'll need to get a mortgage for £175k

• Do you have sufficient income to get a £175k mortgage? You won't be able to count potential income from lodgers. Maybe ask a mortgage broker what your chances are of getting a £175k mortgage.

It doesn’t sound like the father wants to gift the equity as the op talks about setting up some arrangement with the father for his share of the equity. 

eddddy

Lover_of_Lycra said:

eddddy said:

So it sounds like...

• property is worth £220k, with a mortgage of £130k - so equity is £90k.

• 50% of the equity (£45K) will need to be paid to the business partner.

• Your father would have to give you the other £45k in equity as a gift.

• So you need to find £130k to pay off mortgage plus £45k to pay off business partner = £175k in total.

• Do you have any cash? If not, you'll need to get a mortgage for £175k

• Do you have sufficient income to get a £175k mortgage? You won't be able to count potential income from lodgers. Maybe ask a mortgage broker what your chances are of getting a £175k mortgage.

It doesn’t sound like the father wants to gift the equity as the op talks about setting up some arrangement with the father for his share of the equity. 

I know - but that's going to be difficult if the OP wants to occupy the property and get a residential mortgage, and the father already lives in his own property with his own residential mortgage.

So I was starting off with a simpler, more achievable example for the OP to consider.

(If I'm completely honest, my real question was "Do you have any chance of getting a £175k residential mortgage?" - because if you don't, the plan is probably a non-starter.)

getmore4less

If it currently has a tenant you will need to have them move out. 

krish123

Lover_of_Lycra said:

krish123 said:

molerat said:

Anything is possible.  The business partner would be due £110K if he owns 50%.  Is there an existing mortgage on the property ?

Yes, I think it’s between 120-140k. The business partner may be happy to sell as he needs cash, whereas I need a home/ long term investment. 

If I could turn the house into a residential mortgage I can have lodgers in the house as I understand it?

You can’t get a mortgage to buy half a property so whatever mortgage you get your dad will also need to be a party to it. There are, or were, mortgages where one person was responsible for paying the mortgage (but two people named on the mortgage) and two were named on the deeds but I have no idea if any lenders are currently offering those in the current climate. Alternatively your dad would need to jointly apply for a joint mortgage with you and some kind of deed of trust in place. 

Which is it you want, a home or a long term investment? What about your father’s investment? He’d have 50% of the equity but he’d be making no money from it. 

My father would gift me his share in order to get me on the property ladder. He also has other BTL houses where he gets income.

krish123

eddddy said:

So it sounds like...

• property is worth £220k, with a mortgage of £130k - so equity is £90k.

• 50% of the equity (£45K) will need to be paid to the business partner.

• Your father would have to give you the other £45k in equity as a gift.

• So you need to find £130k to pay off mortgage plus £45k to pay off business partner = £175k in total.

• Do you have any cash? If not, you'll need to get a mortgage for £175k

• Do you have sufficient income to get a £175k mortgage? You won't be able to count potential income from lodgers. Maybe ask a mortgage broker what your chances are of getting a £175k mortgage.

Well summarised. I can pay the 45k off to the business partner, so does that mean I need a 130k mortgage? This may be possible. 

If i live in one bedroom of the house I thought I’m then allowed to have lodgers in the other rooms?
this would then cover the mortgage and then some, so the idea is dual benefit of having somewhere to live and as an investment.