Buy a house for a friend?

ViolaLass

sleepyjones wrote: »

I think maybe signing the house over to them is a bad idea, now I've got images of them selling it a day after it's signed over and making £60k (which I guess is fine, but I'd be pretty bummed if that were to happen)

??

Why would you be bothered if they sold the house (they then wouldn't have somewhere to live).

If they don't sell it, they'd be just as well off.

beecher2

sleepyjones wrote: »

I think maybe signing the house over to them is a bad idea, now I've got images of them selling it a day after it's signed over and making £60k (which I guess is fine, but I'd be pretty bummed if that were to happen)

I thought the whole point of this was to allow them to own a property? This has alarm bells written all over it, what happens in a couple of years if you suddenly realise you'd rather have the money for a cruise, or if they have twins and need somewhere bigger?

tlc678910

sleepyjones wrote: »

It's more of a friends agreement than a legal agreement, as far as any legal entity would be concerned, they are just renting the property from us.

I think maybe signing the house over to them is a bad idea, now I've got images of them selling it a day after it's signed over and making £60k (which I guess is fine, but I'd be pretty bummed if that were to happen)
Possibly a better way to handle it would be to let them stay for a nominal rent payment (ie £50 a month) to cover any ongoing costs (after everything has been paid off).

I'm made a decision writing this that we won't mention signing it over to them at all, they're just renting as far as they're concerned and then once everythings paid off we can look at dropping the rent right down and updating any wills to gift the house to them / their children.

Thanks for all the replies folks, given me a lot of food for thought and I think we're heading in the right direction now.

Hi,
I agree you are now on the right path.
Say nothing at all. You mention either giving them the house or not giving it to them but only charging £50 rent at some point. To this family they are monumentally different outcomes and if you say anything they will be trying to earn the house all the time. Not nice.

I agree with your staged plan
1) Rent the house to them. Favourable rent / Christmas break (kind of you). You could choose to leave it at that.
2) If it feels right in the future you could choose to drop the rent amount. Bear in mind that at £50 (£600 a year) you might be subsidising the house after landlord insurance, gas safety cert and repairs/maintenance. Perhaps the rent level would need to be open to review if major repairs or maintenance were needed - but that's for the future.
3) If it feels right in the future you could choose to gift them the house. I would only do this if and when you feel comfortable that it would actually be their house and they could sell it to sail round the world if they chose (or to pay off debts/help kids onto the housing ladder whatever they want).
4) If it feels right at some point you could choose to leave them the house in your will, or part of the house, or a specific sum.

They will be helped by renting from you but much better to make no promises at all than promise things you may not keep to.

You are also looking at quite a long time period - they may turn their credit around and want to buy in this time, or have an inheritance. They may want to move to a bigger better property. If you play your cards close to your chest you can be flexible and perhaps choose to give them a cash gift to help them on their way if they move after being with you for quite some time, you could then rent your property out closer to market rates or sell up of course.

Good luck OP, hope it works out

Pixie5740

If you require a BTL mortgage for this then lenders require the rent to be 125% of the mortgage payments, some lenders are even asking for 145%. Do those figures stack up for you?

This plan is already getting confusing. Is this an investment or are you trying to help your friends out? Trying to do both will probably lead to it not being a very good investment and you all falling out.

beecher2

If the property is £60,000 and better than one charging £600/month in rent then I'm amazed it hasn't already been snapped up.

sleepyjones

ViolaLass ... I would be more concerned if they stayed the duration, we signed it over to them and then they immediately sell and make a £50k profit or whatever, when we've put all the risk in, that's why I would be a bit miffed, if they were upscaling to a new house or something then that would be fine, but if they sell the house and walk away with £100k in their back pocket and move back into rented, I wouldn't be happy.

beecher2 ... that kinda was the point (for them to own a property) at the start, but I think that might be getting a bit too complex, it kinda seems like a lot more things could go wrong that right. Probably somewhere down the line, this will happen and in a worst case scenario the house will be left to them / their kids in a will if it's not signed over before then, the issue is more about them having somewhere nice to live, with a garden that the (soon to be, baby) can enjoy while growing up. Basically just get settled and not have to worry about having to move when the landlord decides to sell up ... a house for life. We don't currently have a mortgage, so if we wanted to go on a cruise or whatever then we probably could just do it anyway, I'm not, in any way, saying we're well off, but we've paid off our mortgage so have a bit of "disposable" income. If they choose to move, then that's fine, we can just rent to someone else, at the moment the premise is that we're just gonna buy them a house they like that they'll rent off us.

tlc67 ... thanks, that's pretty much exactly what the plan is / what I'm trying to say!
As far as the £50 per month, that was just an estimate, a nominal amount would be whatever the costs are, as long as it covers costs it's all good, there'd probably need to be some kind of arrangement that at that point they'll need to fix their own Washing Machine if it breaks, that kind of thing but we'll cross that bridge when we come to it as far as the legal responsibility is concerned as a "landlord".

Pixie ... we've still to go into specifics in regards to the rent and stuff,we're waiting to hear back from the IFA to see if this is even financially viable, £500 a month is just a rough estimate based on what they are currently paying (currently £625 a month), part of the plan is that it's cheaper for them.
It's not meant as an investment, at least not for us. The plan would be that they pay the bare minimum to cover the costs ... if they decide to move, then it would become more of an investment as we'll be renting / selling at the market rate (tlc's post above explains it well).

beecher2 ... pt2 ... Well, at the moment they're living in the city, it's a small flat in a tenement building with a shared garden. The "new" house is a bit further out in a small town, hence it's a lot cheaper. They're stuck in Gumtree renting limbo at the moment 'cause letting agents won't approve them so there's not a lot to choose from that's suitable.

Pixie5740

Tenement? Is this in Scotland?

sleepyjones

Yeah, It's in Glasgow, the current flat is a first floor tenement in the East End of Glasgow (the Gorbals).

beecher2

Just be aware you'll have to pay 3% Additional Dwelling Supplement on the £60,000.

Is the £60,000 property definitely still available? Have you put in a note of interest?

Pixie5740

Are you aware of all the legal obligations landlords in Scotland have (more than their counterparts in the rest of the UK.)

Information for landlords

There's also the Private Housing (Tenancies) (Scotland) Act 2016 to consider.

I don't know how much research you've done in being a landlord in Scotland but there's a lot of legislation to comply with and when letting to friends or family (you've broken the golden rule which is never let to friends or family) it's even more important to ensure you've dotted every i and crossed every t.