Using inheritance to invest

Bettythecat

My brothers and I have recently inherited some money (around £50k each)

My little brother is working a zero hours job at the moment and can't get a mortgage (even with the big deposit) he is currently living in a council flat which he hates. He doesn't want to rent privately.

I was thinking about pairing up with my brother to buy a small renovation project house (houses are cheap where we live) in my head it would work like this:

* My brother and I each put xx amount forward into a shared 'pot'
* My partner and I secure a mortgage (we already have a mortgage on our house (80k outstanding) and pay a deposit from the shared pot
* Brother gives up his council flat and lives in the renovation house (he'd have no qualms about that) whilst we do it up, using funds from the shared pot
* Brother pays the amount of rent he currently pays the council each month into the shared pot
* We sell the renovation once complete and repeat until brother is able to secure a better job and buy somewhere

My parents think that there'll be loads of red tape and that it's barmy! I have complete trust in my brother and know that he'd pull his weight.
Do you think it's bonkers or could it work??

Pixie5740

What sort of mortgage do you think you would secure? If letting to family then it might a regulated BTL you'd require and the fact that some of the deposit will be coming from the tenant may cause an issue. On the other hand since you are planning or purchasing a property to do up and sell on it might actually be commercial lending you require.

Do you have any experience of property development? How much money does your business plan estimate you will make from this venture?

PasturesNew

It's too wishy washy and without a specific end point, to really be a winner.

So much could go wrong between now and the phantom future date when he gets his own place. In the meantime he won't feel settled as he'll be living in building sites.

It could take years to get to the endpoint.

What if he never gets a better job?
What if you and your OH lose jobs, or get fed up waiting, or you split up?

While it's possible, if you've an actual plan, with dates and budgets set out .... it's all a bit airy fairy right now.

Bettythecat

I honestly have no idea about it all - it's just the only thing I can think of to help my brother out. Property always seems a sensible place to invest money.

We've done up our own house (fairly extensive building work) and we have trade contacts. No business plan at all - it's just jumbled thoughts at the moment!

Pixie5740

Is property always a sensible place to invest money?

Your brother has just received £50k and has a relatively secure tenancy so he's not doing that badly. It's admirable that you want to help him but family and money can be a dangerous combination.

xylophone

Would you (and the other sibling if necessary) be willing to lend your brother your £50,000 and if you did, would this be enough to buy him a house outright?

You would have a formal loan agreement drawn up by your solicitor and have a first charge registered at the Land Registry.

In effect you would be the mortgagee. You could opt for repayment of capital only or a mixture of capital and interest.

Interest would be taxable in the normal way so you would declare to HMRC.

You could incorporate a clause that would increase repayments as his income increases/allow him to repay/ remortgage when his situation improves etc.

Bettythecat

No, my other brother and I both have mortgages so we'd not lend youngest brother the 50k each... I know that may sound selfish.

We're in the North East so property is really cheap though.

It's all really confusing, I need to do some research and possibly make an appointment with the mortgage advisor at the bank.

Bettythecat

How about if he didn't live in it and just stayed in his flat? Would that make it less of a legal minefield?

foxy-stoat

A better strategy would be to put the £50K into your own mortgage and continue paying at your current level - you will be mortgage free a lot quicker.

Tell your brother to put his £50K into premium bonds and look to secure a more mortgage friendly contract, once he has he can take out his £50 large and buy his own place...his money is his, your money is yours - its the simpliest/safest way forward.

scottishblondie

Aside from any other concerns, each time you did this (and from your OP I understand you intend to buy/renovate/sell repeatedly) you would have to pay the 3% stamp duty surcharge as you and your partner already have a property. That alone makes the plan barmy to me.

Cakeguts

Much simpler would be for the brother in the council property to save a bigger deposit and then use that and the inheritance to buy a house.