Property deal offered to my mum - any thoughts?

They sell 1/32nd of the potential, rent for a year while the new flats are being built, then buy back 1/55th of something that has no potential?

This doesn't make sense, why don't they all sell their flats to a developer, make a profit instead of incurring a loss, and move elsewhere?

Perhaps it does make sense:

Let?s assume the flats are currently worth £75,000 and each of the 55 new flats would cost £75,000 to build and be worth £150,000 when built.

1) If the residents do as you have outlined they will be £75,000 better off because they have a more valuable flat, but they will have spent a year?s rent and two removal costs, say £7,500 = £67,500 better off.

2) Suppose on the other hand they sell to a developer. The 55 flats will make £75,000 profit each, and if they split that 50:50 with the developer each flat owner will be:

£75,000 / 2 x 55 / 32 = £64,453 better off.

Doesn't sem to be a lot in it.

collectively

experience of

How will the size of these flats compare, before and after?

>

£75,000 / 2 x (55 - 32) / 32 = £26,953

In message , Pat Beardmore writes

Firstly, I have never experienced a property which would not sell, at a price - and that is the market value. So I would suggest that the owners who cannot sell are choosing not to sell at whatever the market value is.

The deal sounds like a complicated form of joint venture between the flat owners and the developer, so the legal paperwork should be fairly straightforward. Each flat owner should have their own independent solicitor to represent their interests.

Whats to gain?

Sell for £50,000, rent or stay with friends/relatives, for a year or so, buy back for £50,000. It all depends on the final value of the particular flat each gets, in relation to the hassle and cost, and the risk of the development not being developed.

Will it get planning permission?

My experience in Manchester is that if you ask for 12 flats, you get 8, if you ask for 6 flats, you get 4, if you ask for 75 flats, you get 50.

So there is many a slip 'tween cup and lip.

In message , Richard Faulkner wrote

In some areas the number of flats depends on the number of off road parking spaces for cars - to get planning permission there may have to be a provision to double the amount of parking spaces on this site.

I wish Raygun or Ramage or another "proper" accountant were here to explain this, I can't get my head round it.

What's all this about "agreed market price"? If...

"Each owner then buys one of the new flats at the price they sold their property floor"...

?? floor ??

...then WTF is point of "agreeing a market price", it could be any amount, it's a contra.

"Troy Steadman" wrote

... but one (the developer) loses the interest on the money for a period, and the other (the current owners) gain the interest on the money for a period.

A higher "market price" will still benefit the (current) owners, while a lower "market price" will benefit the developer.

I think that's to be expected, deals such as these tend asymptotically towards that position. But there *should* be an incentive in there for the existing owners as compensation for being without housing for a year. Their possessions (valued in another thread at up to 100K) aren't likely to be in very good shape after they have been stored for a year.

One worry I'd have is that if there is a housing crash, the builder may demolish the flats and then not be able to rebuild them at a price that he could sell them for that would make the whole deal work. He could come back at that stage and say he has to have a variation on the deal (IE more money) or he will go bankrupt. I'm sure the lawyers can cover that base one way or another.

Without knowing the precise state of the existing flats, or the standard of the proposed new flats it's not really possible to make any assessment as to whether it represents good value for money.

But that aside, if it's a "no cash contribution required" deal, it looks like that's one of it's biggest advantages, because out of 32 current owners, most likely a few wouldn't have/couldn't raise a contribution of say £20k - £30k if that were required. If the flats are getting beyond their use by date, the question arises is it likely anybody else will come up with a better deal? What will the situation look like in 15 years if no deal happens? The existing tenants should press IMO for better accomodation than they have ATM, and first choice of the newly built flats. No matter what sum any devious arithmatician were to come up with, they could always console themselves that they got a brand new flat that was better than the one they had before, and in that respect are unequivocably better off.

DG

I was 5 miles down the road after doing that calculation when I realised I'd missed out the costs of the flats themselves :0)

There is a total that the new flats will be worth, less the cost of building them, less the cost of purchasing the old flats, which will deliver a profit to somebody, and I cannot see how that profit can be any greater by this convoluted arrangement than it would be if the developer simply bought the residents out.

What makes you think I'm an accountant, never mind "proper"?

It's not something you qualify at, it's something you are *born* with, the ability to look at the big picture. People like me can understand each of the bits of a puzzle but a "proper" accountant looks at the

*whole* puzzle first, then at the bits.

FWIW I think the scam in this scheme is:

1) Flats are bought at market value and demolished. 2) Problems beyond anyone's control prevent rebuilding work going ahead. 3) After a few year resident have died or given up or frittered away the cash.

I am not sure it's a "scam" - but the proposed deal does seem to be slanted towards the developer.

I would think it could be done without involving a developer (and his profit margin).

"Troy Steadman" wrote

How is that a "scam" ?

If you sold the flat to them at market value, that isn't too much of a risk

Well it could be if the vacant possession of the whole block is worth more than the sum of the individual parts. If the builder went bust it could happen that his brother somehow buys the site (from the liquiidator?) and completes the building himself without having to fulfil obligations to the current owners.

The builder should pay each current flat owner 1/32 of the "vacant possession" value of the block.

However (you'll laugh when you read this!) I have to say I made the assunmption in my earlier post that the builder would "buy" the flats at the outset, but not transfer the cash to the tenants, instead using the money to finance the new building.

To buy 32 flats at say £150k would cost him nigh on £5,000,000. He then would then face the cost of demolishing them and clearing the site and then the cost of building a block of 60 new flats (at "cost" price) lets say that's *another* 5 million pounds. Is that sort of funding for a project like that readily available in such a dodgy house price environment.

DG

His the agreement (that they can/will buy a new flat for the old price) actually worded. Is it actually an option to buy? or is it rather an option to _sell_ for the developer? i.e. can the developer force people to buy a new flat at that price?

Why would the developer offer the "extra" of former owners being about to buy the flats back if he is already offering the current market price? Is it in fact a veiled guarantee to _him_ that he can sell 32 of them at an agreed price even if the housing market crashes in the mean time?

Robert

"Oh no I didn't!!"