Investing in a new small venture

paulypost

My son-in-law is a Risk Manager with a large finance company. He is planning to start a venture as a silent partner with an old friend (a local builder) which will buy, refurb and sell small properties. His plan was to take out a mortgage on my daughter's apartment of £60k. As I have that amount of money 'spare' earning next to no interest, I have offered it to them as a seed loan (no interest but a small share of any eventual profit)
My three questions are:
1. Should I do it? and
2. If I go ahead could I get any tax relief on that money?
3. What legal paperwork should I insist on?

All advice welcomed

martindow

The general advice you see if you read threads on here is that you need to be wary of mixing financial matters and family. If there are disagreements or it all goes wrong there is more than money at stake.

No one can predict the future. You might need this money at some point and be unable to retrieve it, your daughter and son-in-law may separate ...

This may be fine but it could cause family break ups that last decades.

antrobus

paulypost wrote: »

...My three questions are:
1. Should I do it? and ....

I am inclined to ask, if you are providing the £60k to finance this local builder's venture into property development, what exactly will your son-in-law be bringing to the party? I think you'd be better advised to cut out the middleman and deal directly with the builder.:)

paulypost wrote: »

...2. If I go ahead could I get any tax relief on that money?...

No.

paulypost wrote: »

....3. What legal paperwork should I insist on?

A properly documented loan and a legal charge on the apartment.

paulypost

Thanks Martin D for the prompt and insightful advice. We will be careful not to let 'feelings' intrude? We have done some joint investment in the past where I have provided the money and my son-in-law the expertise and market knowledge. So we should be OK.

paulypost

Thanks Antrobus.
Dealing direct not an option as the two guys are old friends and that's really how the alliance has come about.
And I will consider taking out a charge on the property on which I have already paid off the mortgage years ago, so maybe not?

WhyNot?

paulypost wrote: »

My son-in-law is a Risk Manager with a large finance company. He is planning to start a venture as a silent partner with an old friend (a local builder) which will buy, refurb and sell small properties. His plan was to take out a mortgage on my daughter's apartment of £60k. As I have that amount of money 'spare' earning next to no interest, I have offered it to them as a seed loan (no interest but a small share of any eventual profit)
My three questions are:
1. Should I do it? and

Why Not?

paulypost wrote: »

2. If I go ahead could I get any tax relief on that money?

No.

paulypost wrote: »

3. What legal paperwork should I insist on?

All advice welcomed

A gentleman's handshake should suffice.
Or if you want something in writing, an IOU including details of what percentage of profit you expect.

paddyrg

Hedge like crazy - if the money buys the property then make sure it's your property. Money affects friendships in surprising ways.

If it had started as a working relationship and become a friendship I'd be less anxious, but the other way round ends in tears often, just because they'll have different ideas about fit and finish, prices to ask for, what value they bring to the table and who should be paid how much, etc.

Instead of a percentage, maybe reconsider and offer a line of credit at cash flow rates, secured against the property at 75% or whatever. Then maybe 1%/month interest. It gives them an incentive to be fast, and a line of credit gives them short term working capital (ie what kills businesses more than anything else)

That way you're involved and helping and seeing a return and reducing your risk and so building a more stably based business.

paulypost

Thanks Paddyrg that's a very interesting take on it and well worth considering

paddyrg

It's just some thoughts, your mileage may vary, etc., just thinking how you can promote a healthy business base whilst reducing risk. Easy cash is easily spent, people will convince themselves that they need an office, need a 2 year mobile contact, etc., when what they really need is to turn over the money enough that an office, contact, whatever pays for itself. By lending the money with a real cost, it means being more focussed about what to spend and when, and that's a far healthier footing for a business than being cash-rich without having earned it yet.

The Apprentice (and ilk) teach people to prize superficiality over simple financial consideration. It's an entertainment format, not a business format. Limiting the access to free cash is like a tree growing stronger in the wind!

Just my burbling, whatever you choose, hope it all goes well