Buying a house with a friend

mneville

Hi,
myself and a friend are considering joining some of our ISA money ,earning poor interest, into a deposit for a flat in Oxford. Whilst she is in the area my friend would live there and pay the mortgage payments instead of renting elsewhere (could be years who knows). If she then moves away we would ideally keep the investment and rent out to a third party. We are thinking on the lines of a £160,000 apartment with an approximate £8000 investment each, therefore raising a 10% deposit. We would obviously get an agreement drawn up by a solicitor.

Does anyone have any opinion as to whether this is a good or bad idea and what the pitfalls may be??.

many thanks in advance

Matt

MegaMiniMouse

mneville wrote: »

Hi,
myself and a friend are considering joining some of our ISA money ,earning poor interest, into a deposit for a flat in Oxford. Whilst she is in the area my friend would live there and pay the mortgage payments instead of renting elsewhere (could be years who knows). If she then moves away we would ideally keep the investment and rent out to a third party. We are thinking on the lines of a £160,000 apartment with an approximate £8000 investment each, therefore raising a 10% deposit. We would obviously get an agreement drawn up by a solicitor.

Does anyone have any opinion as to whether this is a good or bad idea and what the pitfalls may be??.

many thanks in advance

Matt

The idea is ok, but you need to set it up as a legally binding business partnership, with a 50/50 investment, 50/50 liabilities, and 50/50 share in any profit.

You can then rent the place to any one you like, including one of yourselves, but the rent would go to the partnership as income for the partnership.

Don't even think about setting up an informal arrangement between two friends.

MMM

sharkie

good in theory. The problem is marriage and wanting to move out of the area due to job change/redundancy/illness/family. Often both end up loosing the house

mneville

many thanks for the replies,

As far as the business partnership part goes, do you mean that my friends payments go into the central pot rather than straight into the mortgage and if so wouldn't that money be taxable as a business income.

Sharkie, I certainly take your point, that is always a risk. The alternative is to keep our money in the bank earning interest way below inflation. The amount of money I have been able to save is no where near enough to get on the property ladder in Oxford (near london prices) by myself. I have had a mortgage before when I was married (wife got all the equity) so I am not eligable for any of those First time Buyer deals.

matt

sonastin

mneville wrote: »

As far as the business partnership part goes, do you mean that my friends payments go into the central pot rather than straight into the mortgage and if so wouldn't that money be taxable as a business income.

what you would lose as tax is peanuts compared to what could be lost if the friendship soured and you ended up disputing who owned what percentage.

If you keep this partnership entirely business-like, the chances of it getting in the way of you being friends is considerably lower and you'll have a better chance of it working out.

CLAPTON

just some thought

you contribute 8k
she contributes 8k
she lives there
you don't live there
you are both on the mortgage and on the deeds
she pays the mortgage
you dont pay the mortgage
who pays the other bills ..council tax, water
who pays for repairs
who furnishes the place

suppose she moves out after 6 months
-suppose the price of the property have fallen by say 20%
-suppose the price of the property has risen my 20%
if you sell then what share of the pain or gain will each 'enjoy

you as a non resident owner are liable to capital gains tax.

if you wanted to get a mortgage of your own with a spouse/OH what would your plans be
if you married and died your spouse would own half the property

if you, for any reason you wanted your money out but she didn't want to sell what would the arrangement be?

basically you need to agree an exit strategy for every possibility

Cannon_Fodder

At least interest on an ISA is positive.

Entering into this 'investment', could see a chunk of real money lost by negative house price movements.

When you meet someone new and want to buy a place - how does your friend afford to re-mortgage to give you your equity back? The fees/costs involved mean this is only going to dent your £8k for at least a couple of years.

Lenders will not like to give consent-to-let, or convert to buy-to-let, when your friend moves out, due to the low level of equity. Would you ignore their lack of permission or leave it empty ?

sharkie

mneville wrote: »

Sharkie, I certainly take your point, that is always a risk. The alternative is to keep our money in the bank earning interest way below inflation. The amount of money I have been able to save is no where near enough to get on the property ladder in Oxford (near london prices) by myself. I have had a mortgage before when I was married (wife got all the equity) so I am not eligable for any of those First time Buyer deals.

matt

This is only one part. For the first many (3?) years on selling, at best you may only make your money back, or more likely loose cash. The problem is all the EA, solicitor, etc fees especially selling then buying - so two lots. Secondly you are used to a better lifestyle that two people can afford, so want to move up, but now have less money than before and in a buoyant market the upper end increases more than the lower end. The other side is that partners may not get on with other flat person. However thing may go great.

I bought and had a friend move in that I knew from primary school - we were good mates and from the first week we did not get on, to the point I did not want to go home and ended up asking him to leave. His other friend I also knew from school we got on great.

Just look at divorced people, they both move out, but the one with the partner has greater options, because the money is pooled, while the other just has one chunk but just not enough to do things with.

hope it works out for you !

Running_Horse

You don't need to use the search button at the top of the page to realise this is a bad idea.

There is a quote in Great Expectations about investing with a friend being like throwing money off the nearest bridge into the Thames, which funnily enough flows through Oxford.

ET1976

mneville wrote: »

The alternative is to keep our money in the bank earning interest way below inflation.

You could put it in NS&I Index Linked certificates instead of ISA's - it's still tax free and you can invest £15000 per issue.

http://www.nsandi.com/products/ilsc

Less risky than buying a high LTV property with a friend!

mneville

Many thanks again for your replies they are very helpful.
It does seem thought that most put a negative spin on the idea. Yes, I agree we need a comprehensive legal document before we start. We are also aware that this sort of thing is a long term investment and unlikely to be profitable in the short term. Our £8K investment each is not huge in the overall scheme of things and my only reservation is that if we need to rent to a third party we, A) won't be able to change the mortgage to a buy-to-let mortgage and/or the rent generated no longer covers the mortgage payments. Other than that am I being naive?, I am not sure.