Best way to structure this deal

regulus

regulus

regulus

Soldato
Joined
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ChCh, NZ
Hoping for some sensible responses here.

Hypothetical situation as I'm still thinking it through.

Let's say you buy a house with someone, purely as an investment property. You go 50-50 on the deposit and carry the monthly repayments together (not a rental property at first). The house is quite severely damaged and need a lot of work doing to it. Your partner in this deal wants to live in the house while doing it up AND do it up himself. I don't need to do anything. Afterwards he may or may not have a choice in buying me out or us renting it out together as a rental income.

I don't need to do any work apart from whatever work I want to do on it. I do however have to chip in on whatever materials and inspections are needed.

So in essence, he's getting free accommodation and I'm getting labor done for free (but still pay 50-50 in materials needed).

Is this deal fair? Strangely enough, neither of us can figure it out and both want what's fair.

what say OCUK?
 
It is really impossible to say. What is your mates labour worth? What would be fair market rent for the property? How much more will you spend in interest because the renovation takes longer than someone doing it full time?

First advice. Do not go there. This is a majorly stressful idea that could cause you to fall out with your mate.

Second. If you absolutely must go there have a contract written out first with specific values attached to everything. so if you do fall out you are both protected.

Final. If you are both happy with what you put in then you are all good.

-edit- Smartphone... Idiotuser.
 
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I wouldn't call it 'majorly stressful'. It's just a house really.

The thing is, due to floor levels being screwed and re-piling needed, it can't be insured but the land value makes it worth the price. Once he does enough and we get insurance, the value with quadruple over night. Literally within a day. Which is why I'm inclined to give him the sweeter end of the deal until it's insured. He wouldn't mind as he won't get on the property ladder on his own and needs me. I can easily buy it on my own but then have to spend far far more on contractors fixing it up. This way I get it done for materials only.
 
As above, put a monetary value on each part (expected rental market value vs labour costs) and go from there.

The 50/50 on materials is fair imo.

KaHn
 
Is he capable of the work or will it result in him biting off more then he can chew followed by "hey I had to bring in a builder for xyz you need to pay half the cost" unexpectedly
 
Sounds fine the only thing i would worry about is what is going to happen with it after it is finished. Draw up a solid agreement that it will be sold/rented as stated. He might wanna stay in it for ever :P

Also as Tefal said is the guy good enough to do the job.. Everyone can be decent at DIY but structural work sounds advanced. Do you have the equipment? Does he have the skillz ?

It sounds massively in your favour if the rest is good. Who cares if he lives there when doing it up ??? It doesn't change anything regarding the costs for you. Was it his idea ? Did he come to you with the offer?

sounds like he just wants somewhere to live for 6 months.....
 
so you're paying for materials already - in that case what you need to consider is the rate a local builder would charge you for the work and the rate you'd have to pay in rent for the lowest price accommodation in that area (since your investment home is hardly going to be habitable) - it might well be that the rent would end up being more especially if your mate is only going to be renovating in his spare time

alternatively - since he's your mate and presumably this is only going to take a few months I'd just leave it as is and let him have free rent


(one thing you probably do need to make sure of though is that it doesn't drag on for ages - if it isn't ready by X months then you both get a builder in to finish it - also make a decision on what to do with it in advance - if it is an investment property then fine.... this whole your mate might buy you out thing is a potential recipe for disaster your profit then would come from your mate but is based on value he has added by working on them home... - just stick with the investment idea, if your mate wants a home to live in then he should buy one himself.)
 
Sounds like a good deal, whether he lives there or not is irrelevant.
The value of labour should be more than compensated for by the increase in market value.

It would be fairer if you shared the work as you will both be profiting from the outcome, and like Dowie says, agree on an end date or you will have just tied up your money in providing free accommodation.
 
If he's paying half the mortgage, and half the materials, then the his labour only needs to cover your half of the mortgage.

Presumably, you will sell at the end and split profits?

Looks to me that the potential downside is on you - will he put in enough labour to cover your mortgage payments (i.e. the free bit of his "rent").

Also - is he capable of doing the work. Is it realistic? What happens if one of you can't afford the mortgage, or materials?
 
regulus said:
Hoping for some sensible responses here.

Hypothetical situation as I'm still thinking it through.

Let's say you buy a house with someone, purely as an investment property. You go 50-50 on the deposit and carry the monthly repayments together (not a rental property at first). The house is quite severely damaged and need a lot of work doing to it. Your partner in this deal wants to live in the house while doing it up AND do it up himself. I don't need to do anything. Afterwards he may or may not have a choice in buying me out or us renting it out together as a rental income.

I don't need to do any work apart from whatever work I want to do on it. I do however have to chip in on whatever materials and inspections are needed.

So in essence, he's getting free accommodation and I'm getting labor done for free (but still pay 50-50 in materials needed).

Is this deal fair? Strangely enough, neither of us can figure it out and both want what's fair.

what say OCUK?
Click to expand...

This is damage from the quake, right? Is he qualified to repair an earthquake damaged property on shaky land to an acceptable standard?

I was under the impression that the (small) money to be made in Christchurch was in selling (semi) valuable land with broken houses on it to people who would then try and do something with it. Which part of this sentence applies to you?
 
When he buys you out I take it you would be getting the property revalued?

E.g. you buy the house for £100K

He does "£50K" work in labor for free (you've gone halfers on materials but he's also lived there) and then the house is now valued at £400K.

To buy you out he'd need to pay you half the value minus your initial investment, so:

New value (£400K) divided by 2 = £200K
Minus your original investment of half the purchase price = £50K
200 - 50 = £150K he has to pay you to buy you out.

1) That number is almost unattainable to buy you out if he's having to do this to start with

2) It's probably fair to assume some of the £50K of work he did in labor should offset this value. I'd imagine half is probably about right, so £125K to buy you out - which is still almost unattainable unless he remortgages.
 
Not sure what the rules are in New Zealand but a couple of things that don't seem to be mentioned here.

1. You won't be able to buy this property using a mortgage as its a development investment. If you both have the funds to buy then fair enough but i would have thought NZ Banks would see this as a business loan not a mortgage.

2. Not sure whether NZ has an equivalent of Building Control, but from what you have said it sounds like an earthquake damaged property requiring significant structure work (Piling). If that's the case in the UK building control would not let anyone 'live' in it until suitable for occupation, which is likely when the building in structurally sound, safe and has statutory services.

3. If you can make it work, make sure you employ a structural engineer to design or at least consult on the repairs. You may also need a Party Wall Surveyor if its not a detached property as if your work causes damage to neighboring property you are liable and make sure you have the appropriate insurances in place.
 
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I didnt see the ChCh bit on my first read. Absolutely make sure you know the zoning of the property and what regulations you need to meet around building strength moving forward.

Please make sure an engineer does your piling and structural beam calculations!

Good luck. If you can help rebuild then I take back my earlier statement. Just make sure you are definitely doing it right!
 
RoyMi6 said:
To buy you out he'd need to pay you half the value minus your initial investment, so:

New value (£400K) divided by 2 = £200K
Minus your original investment of half the purchase price = £50K
200 - 50 = £150K he has to pay you to buy you out.
Click to expand...

You mean it would cost £200k to buy out. Why would you deduct the initial investment? Each owns half the house. House is worth £400k, so each owns £200k as you said. Buy out would cost £200k to buy the other partners 50% share.
 
[FnG]magnolia;28180363 said:
This is damage from the quake, right? Is he qualified to repair an earthquake damaged property on shaky land to an acceptable standard?

I was under the impression that the (small) money to be made in Christchurch was in selling (semi) valuable land with broken houses on it to people who would then try and do something with it. Which part of this sentence applies to you?
Click to expand...

That you're under the wrong impression as usual?
 
Sorry for late reply. Time differences and all that.

Yes, obviously all structural and piling works will be undertaken by professionals. It is also true that you can't technically borrow on a development property but you can borrow up to 80% of Land Value (LV). He is also a LBP (licensed building practitioner) and holds all relevant experience. That's not the issue here. We're both in the industry and that's the least of our worries. The issue is whether the proposed deal is fair.

I can see some very complicated calculations on this thread. I guess the way I need to look at it is not what the other guy makes, but what my ROI will be.

Interesting responses though
 
dowie said:
if he buys out the OP then he is a complete chump for not simply buying the house by himself in the first place
Click to expand...

He can't. Because it's uninsured the deposit is higher. He can only come up with 50% of what's required. And that's pushing it for him
 
You're getting a far better deal .
The free "rent" is neither here nore there, as you can't rent it out in current state.
So you've lost nothing and gained free labor.

Just take it, why try making it more complicated than it is.
 
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