Buying property for son at University

dorset_nurse

ladymarmalade1970 wrote: »

Of course but paying even 40% tax on profit is better than giving all your money to someone else and having nothing to show for it at the end.
Should add if he is a student he won't be earning much anyway and with everything you can offset, the tax should be minimal.

I completely agree, I would probably do the same thing if I were you. Just pointing out that you may not be saving money on your monthly outgoings. (But then it should be him paying his rent/mortgage in that case?!)

If the house will be useful to you for a long period of letting afterwards or in a location your son wants to stay in then this could be worthwile. It is a lot of hassle though so you may need some time and patience on your hands unless you trust him to deal with it all. Remember you/he will have a responsibility towards the others living in the house, which you will have to make yourself clear on. (Plenty of posts on this forum).

Work out the costs and see if it works for you... or make him pay his way at uni like most of us did; I recon that was one of the best lessons I ever had.

charlie792

princeofpounds wrote: »

So the mortgage for a house with four bedrooms is the same price as the rent for a single room? Are you... sure?

You'd be surprised, student lets in my area totally cash in, average single room student let is £250 a month here. One of my old student houses with three beds was let at 1 x£250 2 x£280 per room = £810 a month.
The house next door was being let privately (and not for students) with the whole house up for £350.

k4kate

Hi, thanks for your answers (I think!) - feel a bit depressed now!!

Just to give you a bit more info (without giving too much away):

Student rents in the area (South coast) are £300 plus per month with large deposits required. We've found a 4 bed flat for £90k which we would put a 25% deposit on and depending on which mortgage we go for it would end up costing us £250 to £350 a month. Son would effectively be rent free and the mortgage would be covered by his 3 friends paying £200 each a month. This would also cover expenses, insurance etc.

Flat is not in main student area but is only 10 to 15 mins walk from the University. Son, friends and friends' parents are keen because they save on living costs.

Due to cost of the property there is no stamp duty to pay. Mortgage arrangement fee varies depending on whether we go for BTL or Dependants mortgage.

However, our main concern is the LEGAL STATUS. We know that property prices are unstable etc etc but this is not an investment and we can take some level of loss. What we need to know is whether the risks involved with having a live in landlord and lodgers outweigh the financial benefits.

We understand standard rental and tenancy agreements but we do not know the ins and outs of lodgers etc and would like some more guidance in this area. Can you have a formal contract with a lodger?? Thanks to everyone who has answered so far :beer:

princeofpounds

Student rents in the area (South coast) are £300 plus per month with large deposits required. We've found a 4 bed flat for £90k

You do realise that is a rental yield of 16%... maybe a bit less if there is a summer retainer. That sounds highly unrealistic. Somewhere you are not comparing like with like.

Of course but paying even 40% tax on profit is better than giving all your money to someone else and having nothing to show for it at the end.
Should add if he is a student he won't be earning much anyway and with everything you can offset, the tax should be minimal.

There is one pretty big assumption here... that there will be a profit. I think that's a far from a foregone conclusion in the current environment. If you had bought one year ago you would have lost 1% of your 'investment' (land registry avg). If you have 25% equity then that means you lost 4% of your equity. Repeat that modest fall for three years (plus one year for EA's comm on sale) and you are talking a significant loss.

Of course prices may go up.

Anyway, on to legal status...

If your son owns the place and his friends are lodgers then that puts you in a good position with respect to the friends. They have remarkably few rights. The complications come in the relationship between you and your son. If you are acting as a financial backstop through something like a dependents mortgage then you have to be prepared to pump as much money as the bank is owed into the property for no benefit to yourselves.

If your son becomes a drug addict, burns the place down, disowns you both, tough. OK so I'm being dramatic, but is to make a point.

When your son comes to sell then as it is his primary residence he won't have CGT which is good. He can also use the rent a room tax break and his personal allowance for any (typically modest) rental profits.

If you yourselves own the place then you will have a tenant relationship with all the friends and your son. That gives them more rights to security of tenure but is quite a normal situation. It will be more of an issue if they all fall out as your son can't just ask them to leave and neither can you. But on the other hand they can't just walk out and stop paying rent mid-year.

You will have to keep accounts and pay tax on any profits under your own personal arrangement. You may be liable to CGT when you sell as it is not your primary residence.

Annisele

I don't know the ins and outs of the HMO regs, but on the face of it a property with four students in it sounds as though it could well be an HMO. Worth checking at least.

princeofpounds

Good point, also gas safety, deposit protection is relevant for LL/T relationship.

dorset_nurse

I'm impressed you found a 4 bed flad for that price on the south coast!
It all sounds workable to me but you need to research into letting before you jump.

chewmylegoff

If you have more than 2 lodgers, then it will be an HMO.

scottishblondie

dopester wrote: »

Past performance is not necessarily indicative of future results.

I wasn't saying it's not a bad idea financially, as I said in my post the idea has many drawbacks. Even now I'd probably just break even if I sold. But it depends why they are doing it. My flat is not an investment it is my home, it has been for nearly 8 years and it will be for the forseable future. So if, for example, their son plans to stay there long term it could be worthwhile. But if he's going to leave after he graduates, I don't think it wold be worth all the hassle.

The HMO thing is a good point - I know that here if you have more than 2 lodgers the property becomes an HMO, and the licensing fees are very prohibitive. Best check that out before you move forward OP.

k4kate

Thanks Prince of Pounds for clarifying the lodger situation a little. It sounds as if it is swings and roundabouts so we will sit down and look carefully at the pros and cons before we proceed.

I know the deal sounds a little too good to be true but the flat is not in the best area (but it seems ok) and we would be using the lounge as a bedroom so it is strictly a 3 bed flat that we would be using as a 4 bed. The kitchen is very large and could easily accommodate a table.

Thanks for the tip off on HMOs Annisele, a point we hadn't considered. I've had a quick look at the rules and regs which are quite confusing (will have a proper look later) but it looks as if we would be classified as an HMO but wouldn't have to register as there are less than 5 occupants. Also I am a little confused as it seems to exempt properties that are less than 3 stories but I'm not sure whether that just refers to the property you are buying or the whole block of flats! The block actually has 4 or 5 floors in total but in reality it is one less floor than this because the top floor is made up of duplex style flats with the accomodation on 2 floors - the flat we are looking at is one of these.

I think the safest thing is to call the council to clarify the potential HMO status but if anyone is an expert in this area please shout!