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Investment

Our family is purchasing a house for our parents, they have 85k to invest a further 45k is being put together by other members of the family (those who can afford to). They are wanting a 5% return on their investment each so at 14k each over a 10 year period they are wanting a return of £22,804 each. Is this fair?
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  • Linton
    Linton Posts: 17,733 Forumite
    Part of the Furniture 10,000 Posts Name Dropper Hung up my suit!
    edited 30 December 2011 at 5:37PM
    janieeley wrote: »
    Our family is purchasing a house for our parents, they have 85k to invest a further 45k is being put together by other members of the family (those who can afford to). They are wanting a 5% return on their investment each so at 14k each over a 10 year period they are wanting a return of £22,804 each. Is this fair?


    I am not clear how the 5% return is being financed. Where does it come from?

    Have you worked out the tax implications? If the house is not owned by the parents then the actual owners will be taxed on any rent paid by parents and on the capital gains when the house is eventually sold.

    PS your calculation is correct £14K after 10 years is £22804.52.
  • Our parents will be the owners. 85k will be paid by our parents. Three of their children will each contribute 14k each to make up the shortfall. They have decided on a 5% interest rate, this is what I am uncertain about. The 5% will apply to each 14k so overall the will get over 60k out of their investment. I am not in a position to invest as don't have this sort of money. Just would be nice if the property increases in value for there to be a bit left. Thanks for your reply
  • xylophone
    xylophone Posts: 45,229 Forumite
    Part of the Furniture 10,000 Posts Name Dropper
    Each child is making the parents a loan of £14000 with interest rolling up at 5% compound - at the end of ten years, each child expects to be paid £22804 (capital of £14000 plus compound interest) - how are the parents to find the money to make these repayments - sell the house? Where are they then to live?
  • gozomark
    gozomark Posts: 2,069 Forumite
    janieeley wrote: »
    Our family is purchasing a house for our parents, they have 85k to invest a further 45k is being put together by other members of the family (those who can afford to). They are wanting a 5% return on their investment each so at 14k each over a 10 year period they are wanting a return of £22,804 each. Is this fair?

    Ignoring family issues, is it fair ? 5% pa for 10 years seems to be about right,assuming their have first security on the property
  • The return will only arise upon passing away of both parents - they are in their 80's.
  • gozomark
    gozomark Posts: 2,069 Forumite
    janieeley wrote: »
    The return will only arise upon passing away of both parents - they are in their 80's.

    so what happens after 10 years, or is it 5% pa until both have died ?
  • xylophone
    xylophone Posts: 45,229 Forumite
    Part of the Furniture 10,000 Posts Name Dropper
    Indeed - a friend's parents are both 92, another friend died only last year in her 99th year, we have one relative just about to celebrate 91st birthday and another just about to celebrate 90th......
  • jamesd
    jamesd Posts: 26,103 Forumite
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    It's not particularly fair as an investment decision, the rate is too low. As a partly financial and partly family rate it's reasonable enough. For the parents it's a good deal compared to any mortgage they might get on those terms - no capital or interest payment until death.
  • Thanks for all replies, yes it is 5% until both die then the investors take back their original investment plus 5% interest. Any increase in value will then be divided up between all children plus any personal monies etc.
  • gozomark
    gozomark Posts: 2,069 Forumite
    OK, that changes things a bit - so your parents dont really come into it, its between the children how to split up the future estate - the higher the interest rate, the more goes to those children helping to pay for the house. I reckon 5% is fair
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