buy to let with my dad and brother....good idea?

adrian_bond

Hi all,

its been a long time since i posted so hi again!
:money:
My sceario is this. My dad wants to invest in a buy to let property for approx £40000 deposit (expected value of the house in norwich of £155 - £170000). The house would be jointly owned by myself and my brother only.

It is expected that the house will be rented to my brother for the forseable, and the payments are of an interest only type to cover the interst only mortgage costs. (interest only mortgage)

My dad doesnt want any return on this as he sees it as our inheritance (very lucky guys hey!!!).

So my questions are thus;

What should we be looking for regarding mortgage offers, interest rates and term, and with any particular secialist brokers?

What potential problems could be forseen in this situation

Is our proposal a legal method

What is the issue with inheritance taxation?

Do both myself and my brother, upon owning the house, have to submit detailed tax returns each year (especialy beaing in mind that my brother is effectivly renting the house from himself)

Im a little confused so dont want to make any fundamental mistakes. its stil early days so im doing reasearch ready to report back to the family!

thanks everyone

Ade

BigAunty

Interest only mortgage? What type of investment do you plan to pay back the capital?!

Where will you live? What happens when you want to start a family and have your own place and your brother isn't keen to sell or move out?

What happens if you lose your job in the future and want to claim benefits but that property is classed as capital and rules you out of means tested benefits?

What happens if your dad needs to have means tested care or benefits but the authorities find out he gave away his capital?

Why doesn't your dad just give you 20k each so you can save towards a deposit on your own places? How do you benefit if your brother stays in the property - it can't be sold without his permission.

ognum

How much rent will your brother pay you? Are you prepared to be a landlord and declare your rental income to HMRC?

G_M

And don't let to friends or family - only to people you will be willing to evict if you have to, and losing whose friendship you are not concerned about.

(Always assuming your BTL lender even permits letting to family...)

Read more here.

Bear in mind Inheritance Tax if dad dies within 7 years (in addition to normal BTL taxes).

Bear in mind 'deprivation of assets' if dad ever needs to apply for care costs in the future.

Kynthia

Would it even be a 'buy to let' if one of the property owners lives in the property?

kidmugsy

So the plan is that your father funds you and your brother to buy a house. Your brother will live there: will he take a lodger? How will he compensate you for your not living in the house?

In which case it's not much different, is it, from an ordinary residential mortgage for a house where the owners intend to have an ad hoc lodger?

If your brother doesn't take a lodger, then it's just two brothers buying a house to live in, then one of them moving out for an indefinite period. I still don't see what any of this has to do with "buy to let".

You and your brother will have to agree a financial deal to cover the outgoings (and, if relevant, income) - it would be best to write it down and sign it.

Your bank/BS will need confirmation from your father than the money he is giving you is a gift not a loan.

kidmugsy

And another thing: you'll need to agree what happens when either of you wants to sell up. You might be very wise to go to a lawyer to get your total deal with each other sorted out.

princeofpounds

The whole enterprise is a somewhat pointless complication. A stated above, it will be much neater simply to give you both some money.

You have already seen the awkwardness in a) being a landlord and b) being a landlord to your relation. These are not insurmountable, but you need a good reason to do it.

In addition to this, I can tell you that the infusion of the deposit aside this is not an investment for you and is likely a subsidy for your brother.

You will have the duty to pay half of any maintenance and insurance. But if he simply pays the interest on a mortgage you will have no income to support this, let alone a profit.

The only way you would make money is by the value of the house rising. Coming off an unprecedented property boom, that is not straightforward and you could even lose your whole deposit in a worst case scenario (pound crumbles, inflation soars as a result, interest rates spike, houses devalue).

Finally I would add that If your brother is simply paying interest then there is a good chance it will be below market rent; so he will be doing ok out of the situation. At least as long as rates stay low.

Now I don't doubt this is being for with good intentions. And in the very long term you would still make money but quite possibly not as much as in a real investment.

The effect of all this is that you capital is being tied up to support your brother, something that may not be apparent immediately but could express itself in a number of different ways.

Personally, I would only consider it on an 'arm's length' basis; I.e. he pays full market rent on your share. But then I would not want to ask my brother for a yearly jack-up in the rate.

getmore4less

adrian_bond wrote: »

It is expected that the house will be rented to my brother for the forseable
....

My dad doesnt want any return on this as he sees it as our inheritance

Forget the complications.

Brother buys a house, if needed uses the gifted deposit.



There will be no(99.9%) IHT issues for either of you brothers( as long as there have been no previous gifts) gifts use up the nillrate band first.

adrian_bond

thnak you everyone for your help and opinions. Some very interesting reading to present back to my bro and dad.

I should have said already that both myself, and my brother all own our own proteries (well mortgaged anyway). I live in mine, and my brother rents his out privately, and is currently living with his fiance in her rented flat.

i think the buiness model is to buy into a slowly rising housing market as it is deemed a very long term investment. with the comments about rental costs and subsidised living, i think thats fair to say that he is getting a good deal! i wouldnt like to deprive him of this, and my dad would like it to benefit us both.

It may be worth looking into a different type of mortage product to better suit our needs. As far a rent is concerned, i guess if the mortgae were to be paid either as a buy to let or repayment type - would set the rental limits. provided we both get something then i thinkwe can strike a deal where everyone wins!

princeofpounds

If you are still keen to progress a version on this idea, I would suggest you think very strongly about using a long term fixed rate repayment mortgage, and get your brother to at least pay THAT for rent.

It's likely to be considerably more expensive, but that's because it actually represents your funding risk (fixed rates) and loss of profit opportunity (repayment) over the long term.