House unsold in 2 years, Thinking of dividing into 2 units, Am I Crazy?

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rory22

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I have been trying to sell my home for 2 years, it was sale agreed when we purchased our new one but if fell through and has remained unsold since. We have it rented out for a year to help cover the mortgage. Most of the feed back from viewers is that the location beside an old corporation estate is off putting,especially given that it is a large family home 2500sqft. We are considering dividing it into 2 units to try to sell to the lower end of the market for ftb etc. This would price it at around the same value as similar sized houses in the estate, but they would be far better positioned. I would be interested to know if anybody has experience of this type of procedure in terms of planning, cost and tax implications.
Here are the rough figures-

House is now on the market at €590K (reduced from €675K)
We are thinking of spending €80-100K to divide and improve.
This would leave 2 units priced at €370K x 2 = €740k (depending on further falls)

As you can see the margins are tight enough and the reason for doing all the work is more to make them sell-able rather than make profit. I really would appreciate any thoughts on the subject i.e. Am I Mental?!?
 
Re: House unsole in 2 years, Thinking of dividing into 2 units, Am I Mental?

rory22 said:
I have been trying to sell my home for 2 years, it was sale agreed when we purchased our new one but if fell through and has remained unsold since. We have it rented out for a year to help cover the mortgage. Most of the feed back from viewers is that the location beside an old corporation estate is off putting,especially given that it is a large family home 2500sqft. We are considering dividing it into 2 units to try to sell to the lower end of the market for ftb etc. This would price it at around the same value as similar sized houses in the estate, but they would be far better positioned. I would be interested to know if anybody has experience of this type of procedure in terms of planning, cost and tax implications.
Here are the rough figures-

House is now on the market at €590K (reduced from €675K)
We are thinking of spending €80-100K to divide and improve.
This would leave 2 units priced at €370K x 2 = €740k (depending on further falls)

As you can see the margins are tight enough and the reason for doing all the work is more to make them sell-able rather than make profit. I really would appreciate any thoughts on the subject i.e. Am I Mental?!?
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How realistic is the €370K x 2 = €740k - your figures suggest that by doing this you are increasing the value by 150k, and that's assuming 590 is a realistic valuation.

How long will the renovations take? Has the expected price factored that in - prices are going one way at the moment...

Without any further details 370 sounds too much, by your own admission the location isn't ideal.

The other thing is as a buyer I'd be fairly weary of this situation - are you splitting into top and bottom, adding extensions etc? Which will have the garden or will this be split in half or paved over for parking? What about issues of maintenance of roof or other 'common areas' - who 'owns' it?

All of above suggests you have overestimated the value of the 2 units, particularly if the price is comparable to 'similar sized' houses.

Final point - is the 'similar sized' price what they are on the market for, or what they are selling for?
 
Thanks for the feedback rmelly, in terms of layout it would suit a divide i.e both would have a good sized garden, it's a bungalow so it could also be divided quit seamlessly and there would be no common areas as such. The main worry I have is the following 2 points you make-

Has the expected price factored that in - prices are going one way at the moment...
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Final point - is the 'similar sized' price what they are on the market for, or what they are selling for?
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It does seem like a long, and possibly treacherous road for many reasons - planning permission, ongoing housing market etc. I am really trying to weigh up my options. It is a risky strategy as I could end up with 2 houses I can shift and also I don't know the CGT implications. I suppose what i would hope is that by the time I have done the work the tide may have turned a bit in relation to the housing market. My other option is to sit on my hands for a couple of years till things pick up and try to sell as is.....its just hard to know what to do.
 
why not just reduce your selling price to a level where you generate some interest?

maybe try 500k
 
I have thought about that too Kemo_Sabe and may end up doing just that, I am aware that it's only worth what someone is willing to pay. I am just investigating all my options at the moment.
 
rory22 said:
I have thought about that too Kemo_Sabe and may end up doing just that, I am aware that it's only worth what someone is willing to pay. I am just investigating all my options at the moment.
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understood, I just don't like the idea (in the current and projected future market) of sinking another 100k into this property. I think it'd be the equivalent of burning money tbh.

Personally, I'd be doing all I could to offload it (assuming there is a mortgage secured against it - is there?)
 
Personally, I'd be doing all I could to offload it (assuming there is a mortgage secured against it - is there?)
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Thats just the problem, we bought our new house at 2006 prices, when this house sale fell through we dropped the price pretty quickly and had plenty of interest (it actually went sale agreed again but fell through). We were never stubborn about the price as we realised the market dictates, the problem is the market has disappeared, especially for the type of property it is in this particular location. If I cut and run drastically now I will have heavy negative equity for a long time, so really this 2 unit idea could save me that burden but as I said I am wary of it..
 
rory22 said:
Thats just the problem, we bought our new house at 2006 prices, when this house sale fell through we dropped the price pretty quickly and had plenty of interest (it actually went sale agreed again but fell through). We were never stubborn about the price as we realised the market dictates, the problem is the market has disappeared, especially for the type of property it is in this particular location. If I cut and run drastically now I will have heavy negative equity for a long time, so really this 2 unit idea could save me that burden but as I said I am wary of it..
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ouch! sorry to hear that, sounds like you are stuck in an uncomfortable position. I wouldn't worry about the neg equity on your current abode (assuming you plan to stay there long term and you have no problem metting the mortgage repayments)

a couple more questions if you don't mind:

what is the outstanding mortgage on the property you are trying to sell? i.e. what (if any) equity have you got in it

how much can you rent it for p/m?

how would you fund your 100k cost of splitting the house?
 
No Problem, there is a mortgage of 250k on the property so even at a valuation of €500K it is 50% LTV, I would have to release equity to do the works- obviously bank manager permitting! I would possibly be able to raise 50K for redevelopment and get the remainder from the bank if they were proving difficult (which of course I would expect in the current climate)

The rent achievable is €1250 pm, so if the works took 6 months i would have to factor in an extra €7500 in lost revenue through rental while the work was ongoing.

To be honest even writing the numbers down here it does seem my best bet may be to forget selling it and treat it as an investment given the low LTV, but I'm still kind of in the selling mind set as I have been trying to for so long, it's hard to get your head around a different option. Also I never wanted to be a landlord and the longer I keep it as an investment the more tax I'll be liable for, so I guess its now just make my mind up time.
 
thanks, that's exactly what I was looking for

knowing that, I'd still sell it (you say yourself you don't want to be a landlord) - ask 500k and accept anything up to 400k. Do not be stubborn or emotional about the price.

use the proceeds after repaying mortgage to reduce the mortgage on your PPR
 
Thanks for your input Kemo_sabe, it's all food for thought, my fear is just that nothing is selling at the moment. Suppose I'll have a chat with the EA, they have advised against further price drops, but like everything else they say I do take it with a pinch of salt!!
 
rory22 said:
Thanks for your input Kemo_sabe, it's all food for thought, my fear is just that nothing is selling at the moment. Suppose I'll have a chat with the EA, they have advised against further price drops, but like everything else they say I do take it with a pinch of salt!!
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here's some more input: fire your EA!

(on the market for 2 years and they tell you not to reduce price :rolleyes:)
 
I don't really know the logic, the price has been dropped from €675 to €590 and they have advised that the property is at the correct price based on the fact that there are other similar type properties near by that are priced at €700K+. They are of the opinion that if somebody were to come in and 10% less than €590 its a lot better that 10% less than €550K or €500K!
 
Your estate agent sounds like they are clueless.

You have dropped the price from €675k to €590k around 13%. That doesn't sound like nearly enough to me.

The main reason houses don't sell is that they are priced too high. If your property has been on the market for over 2 years I would guess that it is priced to high.
 
I really cannot understand why with only a 50% mortgage you would not drop your asking price to sell. Where did you get your 675K and 590K value from and when and at what price did you purchase the property. Your 370 value per unit of the divided house is based on similar properties in the estate. Are they asking 370K and more importantly are they selling for 370K? What if they drop 100K where would you be then? Your strategy is high risk in my opinion.
 
why not get a two or three estate agents around (not the one you're with) and ask them what they think of your idea and stress, and I mean stress, that you want their honest opinion and that you are a realistic seller. We practically begged the EA to give us an honest valuation. He told us to market it at "excess €x" and we put in on the market as "region €x" and sold for that.
The important question is are houses in your area selling? Never mind what they are asking.
 
you're looking at a 3% rental return based on €1250 rental against €500k purchase price. That is extremely low.

Hypotetically if you wanted to live in this house would you rather pay €1250 rent or approx €2065 mortgage repayments. Asking price is way too high.

Also I think splitting it is a non-runner. If you extrapolate your logic you could split it 10 ways and make even more money but its not going to happen.
 
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