BUY, SELL or RENT (Dad's bungalow) DILEMMA

Incisor

studiollij

I think it's not far from do able. Try this:

Dad gifts Pat £10K. Pat sells flat, coming away with £70K proceeds, and buys house for £225K, taking out mortgage for £45K [I think she has a mortgage for £45K at the moment]. She pays Dad with the £125K she now has and an IOU for £100K, leaving Dad with £225K in cash and IOUs. Dad pays NU £45K and has £180K in cash and IOU's left. Dad dies, you take £80K cash, Pat takes back her IOU for £100K and gives you £10K from her husband's pension pot

The 2 problems with this are as mentioned, IHT, which I have ignored and residential care. As scheming daughters [:eek:], you are going to have to DIY this part.

neverdespairgirl

margaretclare wrote: »

The possibility exists for any parent to sell a house below its market value, if that's all a son or daughter can raise.

We (my late husband and me) did a similar thing back in 1990.

That's more difficult, though, in circumstances such as these when the father may not be competant legally.

SquatNow

Incisor wrote: »

Dad gifts Pat £10K. Pat sells flat, coming away with £70K proceeds, and buys house for £225K, taking out mortgage for £45K [I think she has a mortgage for £45K at the moment]. She pays Dad with the £125K she now has and an IOU for £100K, leaving Dad with £225K in cash and IOUs. Dad pays NU £45K and has £180K in cash and IOU's left. Dad dies, you take £80K cash, Pat takes back her IOU for £100K and gives you £10K from her husband's pension pot

!!!!!! (in legal terms) is an IOU? Something you just made up I take it.

If you are refering to an interest free loan then everything would have to be above board and contracts drawn up.

Even then you have the problem of what if the house is worth less in 2 years time. House prices are expected to HALVE. Sisters 2's "IOU" could end up being more than the value of the house.

I have to say, no matter what you do, with falling prices, at the end of it, someone will come out worse off... possibly everyone!

Should the father need to go into proper residential care where there are trained nurses, the 80k would be used to fund it. Once that was expired the IOU/loan would need to be repayed and there would be no way to do it.

Sister 1 may find that the 80k she was expecting has gone, with just an IOU for 80k to split between them and a house with less than 100k equity.

The only reasonable thing to do is flog the house now.

Incisor

SquatNow wrote: »

!!!!!! (in legal terms) is an IOU? Something you just made up I take it.

If you are refering to an interest free loan then everything would have to be above board and contracts drawn up.

Even then you have the problem of what if the house is worth less in 2 years time. House prices are expected to HALVE. Sisters 2's "IOU" could end up being more than the value of the house.

I have to say, no matter what you do, with falling prices, at the end of it, someone will come out worse off... possibly everyone!

Should the father need to go into proper residential care where there are trained nurses, the 80k would be used to fund it. Once that was expired the IOU/loan would need to be repayed and there would be no way to do it.

Sister 1 may find that the 80k she was expecting has gone, with just an IOU for 80k to split between them and a house with less than 100k equity.

The only reasonable thing to do is flog the house now.

You know exactly what an IOU is. At this point, I am just proposing something which leaves everyone with roughly what they should have, and I think it is not far off. Pat gets the house at today's price, Jill gets her share of the house when Dad dies, at todays price. How exactly they do the IOU is no concern of mine or yours and it is far from central to what they are trying to do.

Now, pay attention. The house is sold now, to Pat. Both sisters want it, this is the objective to be fulfilled. The relative value of the IOU and the house in 2 years is irrelevant. The house is sold now at todays values to a willing buyer.

The key sale which has to be made now is Pat's flat, in order to access its value now. You would sell the house Pat wants and keep the flat. But Pat wants the house.

As for father going into care, I did acknowledge that the daughters would have to DIY.

bing0

Sell the property,pay your taxes owed.

Dont get personal with the property,I know it was your dads but so what.

My Auntie did this and regretted selling her own property to move into her dads place.

She spent £10,000's putting it right and it still wasn't 100%.

Then there was all the extra money on bigger bills,higher council tax,heating costs and more.

She then regretted moving away from good neighbours she had at her old place.

She inheritted some old neighbours that were on her fathers doorstep,and they started expecting her to run round for them as her dad would have wanted it ! Yeh dead right......

Think long and hard about all the possibilities,and then think if you just sold it what the outcome could and would be.

Why not let your sister and her oh,move into the extension when dad has passed away.You could half alot of your bills and get them to pay rent on the place.

Dont read into this last comment,but it could 'kill two birds with one stone'.

Thanks

studiollij

Well, I must say thanks to all who have given us their 'much needed' advice. Much appreciated.
An update on the situation is that after trying to weigh up the pros and cons, Pat has decided that the risk of purchasing the bungalow at her time of life is not worth the big risk envolved.
So, it is back on the market with a viewing tomorrow ... fingers crossed!

Studiollij and Pat say thanks.

Lighteater

"...see a straight, flashing arrow pointing to a brilliant sollution that we have completely overlooked."

Well, maybe...

No one here is getting particularly creative. Here's what a creative investor (like me!) might be able to do using options.

(An option is the right, but not the obligation, to buy / sell something at a fixed price within a fixed time frame).

Investor buys the flat from Pat, structured as...

1. £46,000 in cash
2. £46,000 option (5 years)

The option means Pat gets another £46,000 within five years to complete the purchase of the flat. (I'm just playing with numbers here - they're all flexible).

The investor takes over the mortgage payments, too.

Pat gives the £46,000 in cash to Norwich Union, and moves into the bungalow. The bungalow is now unencumbered, and Pat is effectively mortgage-free.

Investor lets out the flat to cover costs, or assigns option to another investor to take on, refinancing whenever possible.

From here on in, it's up to the two of you to figure out how to play the bungalow. Does Pat pay 50% rent for the 50% that belongs to you? Or what?

I'm not sure if this is the exact solution, but there's definitely a way through using options.

studiollij

Hello ,
Just thought an update may be appropriate at this time.
My sister has decided that it is beyond her financial ability to buy Dad's bungalow. So we have let that wish go.
The price of the bungalow has now had to be reduced from £249k to offers around £215k ... painful! Still no movement.
Wondering now if Dad could take out a mortgage of £50k (to cover his increasing loan) and let the property out with the hope that the market recovers in a few years time.
Would his benefits be affected and could he actually get a loan anyway?
Happily, due to Zoladex injections his prostate cancer seems to have improved.
Any thoughts please?
Kind regards and thanks
Llij