So….

My uncle passed away 2 weeks ago, in the will it states that me and my brother get 40% each and my mum gets 20% of his estate.
The house is worth roughly £100k, but is un-modernised, and needs gutting, but its a solid house, with a drive and decent sized garden in a nice area with a desirable primary school nearby.

I have seen 2 estate agents so far who valued it at £105k and £95k, but I’m thinking of keeping it to do it up to rent.
I think it might need £15k spending on it to sort it out and would be able to get about £450/month rent.

The thing is… by the time that rental income is split 3 ways is it really going to be worth the hassle?

I know it will be an asset in the long run, which we won’t have if we just sell it now and take the cash.

Thoughts? is it worth the effort or should I just take the £30-£40k that would be my share if we just sell it?

Do you live nearby and can you be bothered with the hassle of organising rentals? If not then sell.

Wahts the view of the others? do they prefer income or capital?

If thats all its worth as a rental I think I would rather have the cash now

keep it and rent it. should get between 6 and 7% of it’s value per annum in rent and it is a stable source of income and is a sound investment. it isn’t a massive earner in your case but is still worth it as banks are paying around half that value in interest

Don’t trust estate agents, they are lying perfidious bastards and will under-value the house in the hope of getting a quick sale. Hang on for a while, do your homework and then sell it as is for someone else to restore to their own spec.

That’s quite a low ROI so best to sell IMO – even if assuming easy to rent out and low maintenance costs.

Its a 5 minute drive away.

I had looked into getting a local agent to look after managing it, but they charge 10% + vat

My brother is a little unsure as he is concerned that the extra income may push him into another tax bracket and he may end up worse off.

EDIT: wow, lots of replies since I started typing

It sounds like renting would only be viable financially if one party bought out the other two and did it themselves.

If I was in your situation, I’d sell.

I think maybe you should ask the other two parties what they think? Any investment would also be split 3 ways, or taken out of their share? If you don’t need the money I would go for the rental income, no hassle if you have it managed, and you still have the option of selling it in the future..
Depends on your relationship with your brother and mother though. I would with my brother, not my mother.

Can’t field the question but just wanted to say, sorry for your loss.

As for your brother, you only pay higher rate tax on the extra income, not all your income, so he might get less than you in his pocket, bu not less than he has now surely?

Sell. You know how the relationship is with your mam and brother, will that change if your in business together?
20/40/40 split on the investment.
20/40/40 split on the income.
20/40/40 spilt on maintaining?
20/40/40 split when dealing with shitty tennants?
Etc.

Ah, and well said Cougar, well spotted…

Return is too low, I’d sell and lob the cash into some unit trusts.

@ Cougar – Thanks, its a bit weird really – he was my dad’s brother, and I think my dad got him to write the will in this way (my dad passed away 13 years ago, and my uncle didn’t have any other family – hence it coming to me and my brother and my mum)

I sold my folks house last year – 50:50 split with by brother.

He wanted the cash up front and, though I might have scraped together enough to buy out his half, I couldn’t really be bothered with the hassle and ongoing concern over another property. I think that’s the main thing. If you are going to split the rental income 40:40:20, are the others doing their share too, or are you going to be doing all the running around for what will be £150 a month?

It’s hard going being a landlord, remember you pay tax on any profits as well. Can’t imaging having three folk involved will make it any easier either!
Whilst holding onto it for a few years (5-10 plus?) would probably see its value increase it would prob be hard going at times. If you’re pretty handy and can manage ongoing maintenance etc it might not be so bad.
I use a letting agency connected to my wife’s office so get a discount on management fees and get to keep it at a fairly decent arms length but if something goes wrong it’s me that has to sort it out..
Out of interest, you mention that it would prob need £15k of work, where will that be coming from then? All three owners or just you? If its just you then you need to get something legal written down that you’ll get your money back from the profits sold- but you prob already know that!
Good luck whatever you decide!

spend that 15k on it and sell it. don’t underestimate the value of a house that buyers see as ‘needing a coat of paint’ rather than new kitchen, new bathroom, windows, plaster, electrics etc. It will be worth a lot more than the 15k you spend

don simon – good point

dont forget thar if you keep it and assuming property prices ever go up again you will pay cgt on your share – as it stands the gift under the will is tax free in your hands – sell up (as executors) and put your share of the cash into some tax efficient savings/investments

I’d sell – it’s better tax wise(no tax to pay at all I think) and you can then invest in tax efficient savings if you wish.Any income won’t be tax free and as has been said all the hassle of a 3 way unequal split.

if you’d been left 150 a month would you be disappointed? .. renovating to habitable and letting via an agent (10% a month provides for hassle free management its only 54 quid a month at 450pcm leaving 396 for expenses.. and you ll easily cover your costs leaving you with an annual income of just shy of 2k pa) is a simple way of securing a small but not insignificant inflation proof income, whilst largely maintaining your capital base.

I assume you have no mortgage otherwise it should be a no brainer to sell and pay off some of yours
Personally if you have the time and the inclination do it up to sell if the other parties are happy to, if not maybe keep garden tidy to keep kerb appeal and then flog it

Are you a professional developer with trade contacts to get the work done cheaply, time to do a lot of the work yourself, and the knowledge to accurately estimate renovation costs?

if not, your 15k is probably 30k once you find out what actually needs doing. It’d also be a complete waste of money – unless you are in the trade and doing much of the work yourself, you very rarely increase value by the amount works cost, particularly when the cost is 15% of the value of the house. Financially, doing up houses is for suckers unless. it is for you aand you watn a particular house to live in yourself for some reason, or you can’t afford a mortgage on a house in good enough condition in the area you want to live in.

Also, even if your figures are right, you wouldn’t even break even and get your 15k for 3-4 years, even if you we’re super lucky and had no major repair bills, no gaps in tenancy etc. If you found anything bad while renovating or had bad luck with tenants or repairs, you’d potentially be looking at 8-10 years before you even got your initial investment back.

I have been told (pre-craash) that proprties in need of doing up were no cheaper than those done up be developers as there were few about, everyong having watched and acted upon Property Ladder etc.

If it were me I’d be buying out the mum and brother.

you mention that it would prob need £15k of work, where will that be coming from then?

It could come from the house itself, of course – take out a 15k mortgage secured against the new house, repayments to be paid out of the rent.

Equally, you could buy out one or both of the other parties in the same way – your mum might prefer to have the cash up front whereas maybe you and your brother would be happy to wait (or maybe your mum might quite like an additional income every month after mortgage/management whereas you and your brother want to be more active investors). Of course, at that point you’re almost buying to let, which is a tricky proposition.

Sorry about your uncle.

thanks for all the replies – lots to consider.

Like any other investment the question you should be asking is:

“if I didn’t own it would I go out and buy it in today’s market conditions with the risk/reward associated? If not, sell”.

Asking myself that question has resulted in some very good sell decisions.

So would you have gone out and invested in property if you hadn’t inherited.

Cougar, my uncle left his large, self-made fortune to the RNLI, nobody in the family has ever talked about a loss in sentimentla terms. I laughed, I’m sure others will be spitting on his grave.

Bloke next door to me inherited a property split between three brothers – they initially had a offer for £305K but decided it wasn’t enough. After a year, many arguments and spending £15K on doing the place up they sold it for £325K. So my advice is save yourself a year, a load of arguments, £15K and sell now for whatever you can get.

@totalshell – that was the kind of train of thought I was thinking of.

I do have my own mortgage, but I thought that keeping it as an asset and earning an income would be better long term.

If we sell and split I may get £40k? What could I do with £40k? Pay off a bit of the mortgage, invest a bit, put some towards a new car, keep a bit for home improvements and then its all gone.

As some have said the better way would be if I could buy up another share then it would make more sense, but I haven’t got the cash – but its borderline whether its worth it at the moment and if my brother decides he doesn’t need the hassle, then I guess we could end up selling.
(sorry, rambling a bit now)

If you need to borrow for refurb make sure that you borrow against the property by releasing equity and try to set your repayments to match the rental income, that way the rental income (profit) will not attract tax.

So, you borrow £nK for a term of x years that gives you a loan repayment of £450/month. The rental income of £450/month matches the loan repayment and cancels out any profit, therefore no tax to pay.

20/40/40 split on the investment.
20/40/40 split on the income.
20/40/40 spilt on maintaining?
20/40/40 split when dealing with shitty tennants?
Etc.

If the OP goes down this route then I’d say the best way to deal with the split would be to set up a separate bank account that is just for the rental house. All rent goes into that account. All money for maintenance, fees etc comes out of it. “Dividends” only paid out when there is enough spare cash.

Keeps it a bit simpler.

And yes, if I was OP I’d probably be renting it out. Housing market is still in a slump. Prices will go up eventually.

I’d agree with Graham. This is absolutely the worst time to sell a house.

If it was me and I had the money. I’d offer to buy my mum and brother out, spend some time of my own doing it up and if by the time I finished that prices were still low, I’d rent and wait till they pick up.

That said, when my dad died, his house was a bit of a mess and prices weren’t great but my sister needed the money so we ended up selling. I wish I’d have bought her out now, done it up and moved in. I loved that house. Obviously you have an emotional attachment to any house you grow up in but it was reasonably sized, was on the edge of the peak district in a great area and had a view to die for.

Buy up the other share and rent it out 🙂

You’ll always own the land 🙂

Sell it. The housing market is still in bubble territory by any historic measure, and all of the fundamentals point towards further falls in prices. Don’t spend 15k (or more likely 30k as has been pointed out above), on something which is only going to depreciate over the next few years. Sell up, take the money, and avoid the stress!

This is absolutely the worst time to sell a house.

Well when is it going to get better? Could be a while….

Looking at it the other way, taking 40k off your mortgage would probably save you at least £150/month, plus improve your ltv when/if you come to renew your mortgage deal. With mortgage rates on the up, it would be best to minimise any existing liabilities that you have.

Well when is it going to get better? Could be a while….

I’m sure it will, hence the advice to rent.
Look at it as a retireman plan.