Residential Investment Property Dilemma

Anon4tax

I’ve bought a property to renovate, sell and live in. I’ve partnered with a friend who brings finance and lives in their own separate property. We have a simple verbal agreement that:

• I manage the process. 
• We keep track of who’s paid for what 
• Each person takes back their financial contribution and 50% of the profit. 

Our current property deal is as follows:

• Purchase price £320k 
• Additional cost of approximately £10k (fees, renovation, mortgage repayments, etc.) 
• Sale price £375k
• Expected profit £375k - £330k = £45k (approx) 
• Capital required £60k

The capital required has been split 50/50 except for the mortgage repayments which I have been paying as I felt this was fair as i’ve been living in the property. 

My finance partner has requested that we change the arrangement as they feel I should be paying something to them for the benefit of living in the property / their ‘missed out rent’, their current suggestion is 25% of the monthly mortgage payment. 

On the other hand, I consider the deal to be fair and don’t want it changed. I think if they want the deal changed to collect rent/ a monthly payment from me then this should be balanced against the difference between the cost of a cheaper residential arrangement and the cost of a more expensive commercial buy to let arrangement including; additional property stamp duty, capital gains, higher arrangement fees, higher exit fees, etc which would in effect put them in a less favourable financial position. 

Our current deal is in month 5 and expected completion of our sale is month 5/6.

What do you think is fair? and what do you think we should do? 

wilfred30

Anon4tax said:

I’ve bought a property to renovate, sell and live in. I’ve partnered with a friend who brings finance and lives in their own separate property. We have a simple verbal agreement that:

• I manage the process. 
• We keep track of who’s paid for what 
• Each person takes back their financial contribution and 50% of the profit. 

You're kidding, right?

lincroft1710

My opinion
1. Sit down with friend and calmly and politely discuss the matter and come to a mutually acceptable compromise

2. Never, ever enter into a VERBAL agreement about finance and property again

Anon4tax

wilfred30 said:

Anon4tax said:

I’ve bought a property to renovate, sell and live in. I’ve partnered with a friend who brings finance and lives in their own separate property. We have a simple verbal agreement that:

• I manage the process. 
• We keep track of who’s paid for what 
• Each person takes back their financial contribution and 50% of the profit. 

You're kidding, right?

Wish i was!

greatcrested

Anon4tax said:

....and what do you think we should do? 

Sit down in chair, wait for stability to be re-established and then prepare, agree ad draw up your business plan.

Anon4tax

Everything’s still amicable to be honest getting opinions from this forum is part of us finding a solution! 

MovingForwards

What renovations are required that will cost hundreds of pounds, when the mortgage, EA fees and legal fees will cost thousands and you've a £10k budget and expecting to make a £45k profit?

dimbo61

Flipping houses is not the great money making idea it used to be.
Too many Homes under the Hammer repeats about the good old days.
With buying and selling costs and surveyors who can see how much you paid 6 months ago and the before and  after photos you need to do amazing things with little money to make £45K profit.
Maybe your a builder or experienced DIY person with all the tools.
Is your friend going to pay Income Tax on his/her share of any profits as they don't live in the house?
Ask them to move in and help with the refurbishment.
Try living on a building site for 6 months

Mutton_Geoff

Why not offer to pay normal rent for the property less say, 20% for the downgraded appearance/facilities during renovation? If your friend is at arms length, will you be doing any of the work? If so, will you get paid for that? Is this your first property? If so, is the loss of your first time buyer status taken into the account in the divvy up?

Sounds like an idea in the pub that hasn't been properly thought through.

numbercruncher8

Either you have not budgeted enough for the expenses, or the property needs barely any renovation, which you are doing yourself whilst living there.

The most amicable solution I think would be to insist that if you're paying for living there, you should also invoice for your time spent. It sounds like the partner is doing nothing apart from putting up the money and getting half of the profit.

It may be the case that you simply revert to what it was beforehand.

Anon4tax

Thank you for your responses. It may sound too good to be true but this is an actual deal i’ve partly done! The figures aren’t the actual question. The question is about changing the agreement and whether or not it’s fair to do so? Also i’ve learnt my lesson about getting agreements in writing but that’s also not the dispute my partner wants to change the arrangement!

I've spent a considerable amount of time sourcing the deal. If you’re interested ive put more figures at the end the sale was supposed to be completed before Christmas but we’ve had to delay completion and that’s why the cost are above £10k. I can source similar deals!

purchase price: £320k
refurb & decorating: £1,250
legal fees: £2,462.95
5 months rent: £4,850
council tax: £444
estate agent fees : £3,750