Investing in a property

spakkle

Ive been on this forum so many time for advice but never actually posted till now and i can't think of better people to ask....

My mum has come into a little money (early paid pensions of around 12k). We want to do something with this money to make it count rather than waste it (the money came from my dads pensions he passed away in June).

We have thought about investing it in a *cheap* property (meaning an ex-council house selling for around 50k) as her 12k will be a good 20-25% deposit (as i am aware most lenders only lend at 75% LTV for a decent rate)

The property may have to go in my name, and we want my brother (and his little family) to live there. I know this embarks on a great number of issues and questions. The suggested intensions are....

My mum puts up the deposit for the property, and i take a mortgage for the remainder, it will have to be an additional mortgage as i current have on on my own home. I have read a little on Capital Gains tax, i assume i will be subject to that?? We don't intend to make profits etc on the rental, as long as the rent meets the mortgage payments, we are happy, we are not doing this for immediate gain, its more for the future with ongoing two year 'get-out' clauses for all parties involved etc.

Me and my mum will obviously draw up a contract between for our own security to ensure both parties are covered should anything go wrong.

I have read on here that most lenders will not grant a buy-to-let mortgage when family members are to be living in the property... is this true? if this is the case, can we let the property to his girlfriend? (they are not married so different surnames)

Obviously we just just in discussion at the moment and are open to any other ideas of what this money could be invested in,

any comments and advice would be greatly appreciated. and thank you in advance for taking time to read this.

jeec_2

It shouldnt be a problem, but a lot of people will say that even though you are not technically making money, you will still have to pay tax. I dont think they will allow you to let your house if family members live there.

Be prepared for a load of inapropriate / insulting responses.

poppysarah

Read up plenty on the responsibilities of becoming a landlord.

Could you mum invest the money in a better quality of life for herself? New car, new furniture, insulation, redec house etc?

Your biggest risk is "not making a profit" and rent covering mortgage. Unless you fix for the whole term of the mortgage and can guarantee your tenants, AND cover the cost of repairs which will be needed etc. And bear in mind if they split up you'd have a different situation on your hands.

Your mum could look at spreading the risk of investing her small pot of money. ISA, bonds etc.

For your setting up deal, discuss how shortfalls in repair money, rent, etc would be dealt with and if she needed her money back quickly how would she get it, and how you could split any equity/negative if you sold. etc.

Pigmy

I think its a fine idea. Good way to put the money to work - even if you don't make a return, you help your family out.

I would speak to a mortgage provider or IFA for advice on how best to finance the house. You will get a much better rate if you take the mortgage directly in your name as a Buy-to-Let mortgage tends to be 1 - 2 % more expensive. However there may be a problem with you not living there.

One possibility would be to buy the house jointly between all of you and support this by a mortgage, again in joint names. This would give your mother the opportunity to put up the deposit and you the opportunity to pay for the mortgage. It would need your brother on the deeds/mortgage as well so that one of the joint applicants is living there. This does mean it is a bit more complex deal but if you speak to the provider they should be able to steer you through setting this up. I'm not certain this gets you round all the pit falls or if its actually possible but its worth a phone call to one of the big mortgage suppliers for some advice - they can only say "no"!

poppysarah

The return on your mother's "investment" needs to be calculated in comparison to other forms of more standard investment.

Taking into account % returns and liquidity.

ManAtHome

Dunno about BTL mortgage rates, but how would it stack up against mum funding bro's deposit (say 15%), he gets normal mortgage and pays mum back difference between normal and BTL rates, and mum has a few quid capital left to put in savings account (and possibly a charge on the house for the deposit)?

real1314

jeec wrote: »

It shouldnt be a problem, but a lot of people will say that even though you are not technically making money, you will still have to pay tax. I dont think they will allow you to let your house if family members live there.

Be prepared for a load of inapropriate / insulting responses.

You pay tax on the profit, after the interest part of the mortgage (but not the capital repayment), and any other costs (gas checks, insurance etc).

Most BTLs exclude family lets, although it may be worth checking what they count as family - it might be that their list is loose enough to do it - your wife could take the BTL in her nameand rent to her B-in-law maybe?

Would your bro be looking at claiming HB? if so, there can be complications, but few that are insurmountable.

trumpton

I can see why you might think this is a way of helping out both your mum and brother, but I can see a few problems if things don't go smoothly.

What if houses prices go down and in say, 2 years time your mum needs the money or you can't afford the monthly repayments? Will you share the loss on the property when it is sold?

If your brothers girlfriend rents the house, what will happen if they split? What if the rent goes unpaid? I think it's great that you are looking to help your mum make the most of her money but this could be a complicated way of doing it.

spakkle

hiya, and thank you for all of your reponses and for taking time to post on here, i have tried to answer alot of the comments below. thanks again you guys xxxxx

poppysarah wrote: »

Could you mum invest the money in a better quality of life for herself? New car, new furniture, insulation, redec house etc?

I had thought about the above, but i dont want the money to disappear, as its important money (is what my father left behind), she currently lives in a council house herself, so dont think id want to spend the money on her property as such, and by getting a new car or something does sound good but the car will get old, and will depreciate, so in a few years time the money will almost not exist anymore.

"...and if she needed her money back quickly how would she get it, and how you could split any equity/negative if you sold. etc."
the property we were looking at was a steal, it was a 4 bed semi ex-council at £49k (which has gone now, snooze you loose, but i didnt want to make any rash decisions) with her £12k deposit it would only leave a £38k mortgage which i could afford to cover should anything go wrong...and i don't think getting her money back would be too hard as i could just remortgage the property (as i think it would be hard for it to be worth much less than £49k even if the worst happens)


"One possibility would be to buy the house jointly between all of you and support this by a mortgage, again in joint names..."
i didn't know this was possible for a 3 way mortgage, and does sound messy but worth looking into, the only reason i though of getting it in my name was for convenience, as my mum is disabled, and my brother is not long self employed and figured he would struggle more than most to get even a 38k mortgage. but if my brothers name is on the mortgage and he will be living there, it does seem a better and less complicated option.

"but how would it stack up against mum funding bro's deposit (say 15%), he gets normal mortgage and pays mum back difference between normal and BTL rates, and mum has a few quid capital left to put in savings account (and possibly a charge on the house for the deposit)?...."
in my head, i i'd planned it as this.... mum put up the deposit, and my bro pays the mortgage (we're discussing overpayments too as i am a firm believer in them), therefore they both have a % share in the property. then in 2 years time, they can agree to either carry on, him (me) buys her out by remortgaging, or they sell it and split any profits appropriately, invest both profits in the next property they live in, or go separate ways after this. this way i hope my mum comes away with her original investment and some extra, and it gets my bro on his first rung of this impossible property ladder. seems win win but i know things are never this simple

"your wife could take the BTL in her nameand rent to her B-in-law maybe?..."
I am not married, and am female and this is an idea, but i have only been seeing my current partner since the beginning of this year and have done 'money' deals with partners in the past and know they are not normally a good idea (unless you are at least engaged or married of course). Even if the property is in my name, me and mums name etc my brother is not married so his girlfriend does have a different surname so am wondering if the 'BTL family' thing would be an issue. we would probably have the rental agreement in her name anyway as they have a child together and should they split, she and the child would remain in the property and my brother wants this also.

"What if houses prices go down and in say, 2 years time your mum needs the money or you can't afford the monthly repayments? Will you share the loss on the property when it is sold?...."
You raise some good questions here, as mentioned i am looking for something specific house wise, as mentioned above i was looking at a 4bed semi ex-council that was going for 49k (of course its gone now) but i am in no rush and would be very careful about the property i selected to (try) to ensure the risk of it falling further in price is minimal, or if it does to ensure i can cover the mortgage until prices rise again (as they always do...she says! ha)

If your brothers girlfriend rents the house, what will happen if they split?
the rent agreement would be in his girlfriends name, as they have a daughter together, (they are living in council at the moment and the tenancy is in her name and always has been) i am 10000% sure my brother would not see his 4 yr old daughter out on the streets so this is a minimal issue, so should they split, who ever has the daughter; has the house. (makes her sound like a piece of furniture lol but you know what i mean!)

Bufger

spakkle wrote: »

I had thought about the above, but i dont want the money to disappear, as its important money (is what my father left behind), she currently lives in a council house herself, so dont think id want to spend the money on her property as such, and by getting a new car or something does sound good but the car will get old, and will depreciate, so in a few years time the money will almost not exist anymore.

This concerns me. How about just letting your mother have the money she was left and letting her do what she wants with it? after all she was married to the man.

When it gets too complicated it gets messy. Different people have different deeds and rights and one ends up holding it against the other. Unless your family is completely watertight i can tell you this will all end in tears.

Your mother is best choosing what she wants to do with it.

Lotus-eater

I think this is a disaster waiting to happen, no back up plan if (and probably when) it goes wrong, with family is often/always a problem, when you have it split 3 ways, money from all over the place, I'm sure this sounds like it's going to go wrong from what I have heard.
Obviously I don't know your family, but if it was my Mum I would first go for ISA's then go for things where she could actually get her hands on the money if she so wanted.

I do question the ethical standing of renting a council house, yet investing in another house, but ethics seem to be in short supply.