Mystic MNers Meg - should I develop, sit tight or play safe?

[another20]

We live in a dilapidated detached in wonderful large private plot with rural views in a v sought after commuter village (15 mins walk to train station and 18 mins to central London) - brilliant schools etc.

Dilapidated because we are "JAM".... but have come into inheritance which we could use to:

1. clear outstanding mortgage totally.
2. reduce mortgage and tart up house (not extend) for our benefit, which would not add any real value.
3. develop the property by major extension/facelift/refurb with the aim of adding significant equity when we sell on (could choose to sell in two years or eight years) - this would use up all the inheritance.

House currently worth £1m, mortgage and inheritance are £200K. Developing it would involve adding another floor to achieve 4000 sq ft, 5 bed, 3 baths upstairs (currently we are single storey) - and current local post Brexit exchanges / sales suggest £1.4 - £1.5 could be achievable.....

BUT ... worried that this is a once in a life time financial opportunity and we need to get it right. Worst case is that we start the development spend our £200K and prices collapse...

However have lived in this area for 30 years - and it has to date been relatively recession proof - have seen prices flatten at worst times in bad years, as v family area and people tend to stay a long time and hang on to their properties.....but this time could be different as Brexit is unknown and we always get the ripples from London market which is looking flat?

WWYD?

I develop properties (flats not large houses, sadly) in London and I am sitting tight. I think 2017 is looking like it is going to be very unstable economically and politically and house prices in the capital are already falling. I'd probably make the house nicer for my own benefit if you intend to stay there and pay down the mortgage as much as possible to make you not the house recession-proof .

From what you've written the house is dilapidated because you don't have the money to spend on it. I would say that if you go for a big renovation and don't then have the money for upkeep you're just going to end up with a bigger dilapidated house in a few years! I would suggest tarting up the house to make it nice for you - which although it won't necessarily add masses of profit would certainly broaden its appeal if you sold. By paying some off the mortgage hopefully you will then have a bit more cash for treats and not have to worry if interest rates rise.

Really good points. Recession proofing us is an important consideration at this time - hence my dilemma. And yes an even larger house that becomes a money pit and shabby would be even worse......

I think that if we did develop we should be thinking that we should sell it immediately in in the pristine refurbished state - we personally don't need the extra sq footage.

But I have always dreamed of developing and realising the potential of this property.....an itch I really want to scratch - but looks like the timing is against me right now.....

If you want to refurbish and sell straight away I guess you need to talk to estate agents and builders and price it up properly with a contingency. I have no knowledge of the local markets to know whether a dip is likely in the timescale you're looking at.

To redevelop and make money I would suggest you need to know quite a bit more about developing and have trade contacts and experience. Did you never watch the Sarah beanie shows - over budget, over time - saved by rising house prices.... rising house prices can not be guaranteed right now.

I would do some work to the house to bring it up to scratch. Spend some money on a nice family holiday or two. Save the rest as a buffer / nest egg.

Although I am LOLing at the idea you are a JAM in a £1m house... you don't sound disposable income-rich and I think it would be foolish to spend all your cash on a redevelopment project.

Does it need to be so enormous? How many are you? Is it possible to remove dilapidation , get the mortgage down and then carry on from there?

Bungalows on large plots are good, and rare because everyone seems to want to live on pocket handkerchief plots.

I would say get planning permission to do the work and then sell it on as a development project. Everyone loves a project these days and often pay over the odds for the 'bonus' of being able to do a house to their spec.

A local agent is going to know the area a lot better than a group of internet people who can only take a wild guess at where you are.

Present options 2 and 3 to them and ask for their values.

In London, the sale price would probably be worked out at price per sq ft, but it might not be in your area. Also in London, a house that size would have to be ultra high spec to be sold as 'done'. Anything without the requisite number of bathrooms (which is probably 1:1 now for most places) would still be seen as 'development potential' for a lot of buyers.

Without knowing where you are and what the local market dynamic is, it's impossible to say.

It might be worth getting a few agent opinions, including one with London Branches - Savills, Hamptons, Knight Frank sort of place, as they would have some insight into whether London buyers are heading your way with London expectations, or whether you could develop it yourself for a local market

I would go for option 2. 3 is risky for the reasons you mentioned and also because you have no fall back if the cost of extending the house escalates as the work is done and £200k becomes £250k or more - you'd likely end up increasing your debt, when you're stretched and have no contingency, already.

What's your plan in 2-8 years? Why are you moving? I'm not sure I would spend any money on a house already worth 1million if I was planning on moving in 2 years time.