Take On Mortgage Repayment

Mathar123

Hi,

I have a middle-aged, single friend who is looking to live a less stressful life.

He currently has a mortgage balance on his property of £70,000. I am hoping to help him out by carrying out the following.

A. Take over his mortgage repayments every month
B. Have him move out into a cheaper property (to give him more disposable income every month
C. Place a tenant into his property to cover my monthly mortgage repayment costs
D. Give him 10% of the rental income profit every month as some Extra money.
E. Take 26% of the property equity. Why? Because the mortgage balance I am hoping to take over is for £70,000 and the property is worth £270,000 (I.e. 26%)
F. Sell the property after the mortgage balance is paid off hope we've both made a profit

IS THIS POSSIBLE? If so, how would we go about structuring it?

Thanks.

AllyMac

I'm sorry if this is being proposed with good intentions, but it actually sounds like you're taking advantage.

I would suggest that he:
- carries on with his own mortgage payments
- gets a tenant in to cover them plus profit (mortgage on £70K not going to be that high?)
- rents a cheaper place for more disposable income
- keep his own equity
- sell when he wants to for all the profit

I do not understand what is in this for him. I see a hell of a lot in it for you. He has all the risk - the mortgage is still in his name. You get a big chunk of equity without ever having to find a big chunk of money.

I suspect there are several ways for your friend to be in a better financial position - none of which involve giving away his equity when he doesn't even get to stay in his own home.

AllyMac

With only £70K to go on the mortgage, I'd be interested to see the maths that show that paying dead money to a new landlord is a long term (even mid term) good decision for him.

Mathar123

Essentially it is giving him the option to not need to work to pay off his mortgage balance.

He wants to move abroad. So by me paying off a lump sum of the mortgage balance (say £10,000) and then paying his mortgage every month - but then offsetting my mortgage contributions with rental income - he has capital to (a) put aside or invest for his life abroad (b) allow him to keep equity in a rental property (c) enjoy a simpler life and (d) still hold equity in his property.

Am I missing your point?

Is this not just a purchase lease option?

I look forward to hearing your reply.

Mathar123

Plus all of this would allow him to realise his dream of moving abroad sooner. (which is essentially what a 'simpler life' means to him)

Mathar123

If you have any other ways for him to not have to work anymore to pay off his mortgage then please explain.

He is definitely open to ideas.

Caz3121

Mathar123 wrote: »

If you have any other ways for him to not have to work anymore to pay off his mortgage then please explain.

Not sure why you need to be involved to take over the mortgage payments whilst you say the payments will be made from the tenants rent

Would it not be best to keep you out the loop, ask for consent to let from the lender, get a tenant, have the rental income pay the mortgage and keep 100% of the rental profit (less a % for an agent in the UK and tax)
Then he has 100% of the profit on selling his property

I may be missing something in the posts but I cannot see what benefit there is for him to have another person involved when he could do this himself without losing rental income or equity

This plan looks like a win-win for you and a lose-lose for him
You get some document drawn up to give you 26% of the property but plan to make the mortgage payments with the tenants rent and keep 90% of the rental profit

FBaby

What happens when the tenant stops paying? What happens when the tenant destroys the place and you have to fork £20K to renovate? What happens if you experience a change of circumstances and you can't pay the mortgage any longer?

You don't say what your relationship to the person is, but I think they would be absolutely bonkers to agree to it. Too little to gain and way too much to lose if things go wrong.

Thrugelmir

The first problem you face is that isn't your mortgage.

Why does your friend only receive 10% of any rental profits?

Why do receive 26% of the property's equity. At the point of taking on the debt you have no equity in the property.

davidmcn

Mathar123 wrote: »

Is this not just a purchase lease option?

No, it sounds like a purchase of a share in his ownership - which would mean the two of you would have to take out a new BTL mortgage.

AllyMac

If your friend wants a simpler cheaper life and to travel, I would suggest this:

You stay out of it, because anything you do will deplete his asset. He finds a cheaper property with the £200K equity that he has. Preferably buy outright - definitely possible if he's not tied to a location. Something that is an easy let, but also that he is happy to live in himself after travelling. Sell up and buy that: no additional BTL stamp duty. Then get permission to let from lender. Fund travels with leftover money from house sale. Use a letting agent for a full service letting out his new place. Yes, he'll pay more than self managing - but as he owns outright he can afford to lose some profit for a less stressful time. Save the rental income as money to return from travelling to, and against repairs. Void periods not such an issue as no mortgage to pay. He stays on the housing ladder.

Result: travel is funded, he still has a house, the next stage of his stress free life is waiting for him (mortgage free) and he's making money. And... he doesn't have a friend creaming off any of his assets!