Letting £200k house for £500 a month?

Legacy_user

I have the option of buying my parents house for £200k cash which I have. I would then let it to them for £500 a month (£6k a year) with them responsible for repairs/decorating. Rent would increase with inflation.

3% yield but guarantee of payment every month and long term let ( they will be here until the end of their life).



Is this a good investment for me or poor investment?

somethingcorporate

What's in it for your parents?

ali_hire

They get £200k in the bank and get to stay in a house quite cheaply by the sound of it.

On the face of it, it doesn't sound like a great investment. 3% as a yield is pretty poor.

I can point you in the direction of good safe investments which would return you around 6% and where the property value will likely increase above the national average.

However, there is always risk involved and this may be good low risk move for you.

System

ali_hire wrote: »

I can point you in the direction of good safe investments which would return you around 6% and where the property value will likely increase above the national average.

Yes please

purdyoaten

berbastrike wrote: »

I have the option of buying my parents house for £200k cash which I have. I would then let it to them for £500 a month (£6k a year) with them responsible for repairs/decorating. Rent would increase with inflation.

3% yield but guarantee of payment every month and long term let ( they will be here until the end of their life).



Is this a good investment for me or poor investment?

How much is the house actually worth? If at undervalue, it is the actual value that is used for IHT purposes. Similarly the actual value will be your base cost for Capital Gains tax.

theartfullodger

berbastrike wrote: »

I have the option of buying my parents house for £200k cash which I have. I would then let it to them for £500 a month (£6k a year)

HMRC may well decide there is a fiddle going on & assess you at the market rate: Don't do it: If you wish to subsidise parents rent, then let them rent somewhere else & give them £xyz/month instead...

with them responsible for repairs/decorating. Rent would increase with inflation.

You cannot get away from your responsibilities as landlord & that includes relevant repairs.. Even if tenancy said, e.g., tenant responsible for repairing holes in roof that clause would be invalid. See Shelter advice on repairs.
http://england.shelter.org.uk/get_advice/repairs_and_bad_conditions/repairs_in_private_lets
You should use a standard AST with normal responsibilities..

Is this a good investment for me or poor investment?

Never rent to friends or relatives: It usually ends in a falling out & tears....

G_M

As others have said, you'' be a landlord. You cannot legally pass on your LL obligations to your tenants (not even mum & dad!).

New Landlords (information for new or prospective landlords)

Linton

What happens if you die first? Or divorce/marry/go bankrupt? Parents kicked out? What happens if parents dont maintain the property to your satisfaction. Would you be prepared to evict them?

You will of course declare the rent as income for tax purposes in addition to the CGT you will have to pay.

Agree with artful - if you want to help them give them cash. If you want an investment go for funds & shares. With care you can avoid tax completely as well as getting a better return. The proposal is in my view bad for the parents and not great for you.

fairy_lights

It doesn't seem like a great deal for you to be honest. You'll own a house you can't live in, and the money your parents pay you in rent probably won't be enough for you to cover the rent or mortgage on another property.
You say it will be your parents responsibility to pay for repairs, but what if they can't afford this as they get older?
I don't know how old you or your parents are, but you could potentially have all your savings tied up in a house you can't touch for many years.

TBeckett100

I think this is a way of them spending your inheritance. Be careful.

somethingcorporate

ali_hire wrote: »

They get £200k in the bank and get to stay in a house quite cheaply by the sound of it.

On the face of it, it doesn't sound like a great investment. 3% as a yield is pretty poor.

I can point you in the direction of good safe investments which would return you around 6% and where the property value will likely increase above the national average.

However, there is always risk involved and this may be good low risk move for you.

Except they lose the security of owning their own house. If their offspring gets married/divorced/bankrupt whatever then the house may be sold etc.

I still don't understand what is in it for the parents. I'd rather own my own house than be at the mercy of a LL with rent to pay otherwise lots of people would be advocating selling and renting (and in reality that is a bit of a mugs game!).