A slightly complex house buying question

gaspoweredcat

yesterday i read about several schemes where you can use your parents help to buy a house if they are mortgage free (which mine will be in a few months) however personally i have a terrible credit score so would never get a mortgage (ill freely admit im not great with my personal finances but ive never missed a rent payment in my life) however my younger sister doesnt have this issue, her credit score is pretty good and currently she still lives at my parents house where she is comfortable.

as such i had the idea that she could buy a project house here at around £40k with monthly payments landing somewhere in the 200-250/month range on a 25 year mortgage. im pretty handy myself and a great many of my friends are tradesmen so i can get work done very cheaply to modernise the house.

The plan would be that i then rent the house from my sister initially at a reasonably low rate, say 325 a month while i do some of the work, once suitable get a lodger in for the second room allowing me to spend more on the renovation and when complete rental value should be in the 400-450 range which should net her a tidy profit and a house paid for

however im not massively aufait with the house buying/renting out process and details and wonder if im missing something. the price of the house means there will be no stamp duty and i have taken mortgage, survey and legal costs into account, also her needing life insurance, with the property earning when complete a profit for her of around 2300/year (before tax)

however i fear im missing some sort of detail that would make this an unfeasible prospect, on the surface it seems like a win-win situation, i get a cheap place to live and she gets both a house paid for and some profit, but nothing is ever as easy as all that so i fear there must be a catch, something that would make this untenable, does anyone have any advice they could give me about this sort of situation?

John-K_3

What happens when in a year or so she decides that she!!!8217;d like to buy a house to live in?

Are you assuming she!!!8217;ll live with your parents for another 25 years?

Cakeguts

If you want to buy a house then it is up to you to sort out your finances so that you can buy it.

gaspoweredcat

Yes we have already agreed that this house will be left to my sister (my brother already owns a house and i dont intend to own one) she is happy to continue living here (this house is paid off) my idea is that once the new house is refurbished the equity in it can be used to buy another giving her a the start of a solid portfolio of properties with minimal effort as is be handling the rentals and repairs etc

it just seems like a good situation for everyone but i still cant help but think theres a catch

@cakeguts

thats easier said than done, unless of course you have a magic recipe for sorting out my debt situation. itd take me over a decade to sort my finances given the salary i can earn in my job (given the field i work in) i have to pay rent, eat, and pay bills, that takes up all my cash so how im supposed to find around 10 grand im not exactly sure. life isnt as easy for all of us, i fell on hard times and got lumbered with incredibly high interest loans. if i could just "sort my finances" like that i would. also i have no intention of owning property as i want to move abroad in a few years (theres little point in buying in the country im moving to, it makes more sense to rent there)

Red-Squirrel_2

How old is your sister? Most adults who are able bodied and minded don't want to live with their parents forever.

Does she actually want to be a landlord? All the responsibility and costs will be on her. What if your circumstances change and you can't pay the rent, will you be ok with her evicting you? Will you be expecting anything in return for the time and money you spend renovating?

Cakeguts

Not only that but the rule is that money and family shouldn't mix. Landlords are advised not to let to family members because it doesn't end well.

sheramber

Your sister will need to comply with landlords regulations. She cannot just buy a house and let it out.

She will need to pay income tax on her profit from renting.

She will need a buy to let mortgage. have you checked that she can get one?

Interest rates on buy to let mortgages are higher. Have you factored that in?

She will need to provide a deposit of at least 25%

Can she afford to pay for the supplies to renovate the property.

mangog

With respect, gaspoweredcat, you did freely admit that you're "not great with personal finance" in your original post, so it's a bit unfair to jump on those suggesting you sort out your own affairs rather than relying on someone else's credit score. I'm sympathetic to your situation because I'm also in the position of not earning enough each month to cover rent and bills AND save a full deposit because of the type of work I do. I'm very lucky to have had financial help from my family to make up my deposit to buy my first house, so I completely feel where you're coming from. But I am also aware that this is a huge privilege - we really have no right to expect this from anyone.

It strikes me though that if you're not planning to stay in the country OR buy in your own right (so you're not trying to save a deposit), I'm not sure what the point of getting your sister to buy on your behalf would be? Why not just rent privately until you go abroad? If it's just for the sake of you getting cheaper rent, honestly it doesn't sound like a great deal for your sister...

Owain_Moneysaver

The things you are missing are:
1. It may be very difficult for your sister to get a buy-to-let mortgage if she's not already a homeowner.
2. As it's not her main residence there won't be a Capital Gains Tax exemption so she will probably have to pay CGT when she gets to selling the house.
3. You will need capital to pay for the renovations even doing a lot of it yourself.
4. Your parents may have to sell their house to pay for care, meaning your sister may have urgent need of money or somewhere to live. I suppose she could then move in to the property and you be her lodger.
5. Your circumstances may change, meaning you're unable to complete the expected renovation work and unable to get a lodger to pay a realistic rent.

This sort of scheme can work very well, but it's important that everyone is in full understanding and agreement about the possible consequences.

A project house buy at £40k with a likely return of £400 pm rent after renovation at mates' rates is what many people would consider a good little earner. Your problem is you have no capital.

Do your parents have sufficient assets (other than their own house which they should not put at risk to finance this scheme) to finance the project with you buying the house in your name and them lending to you on a mortgage?

jonnygee2

yesterday i read about several schemes where you can use your parents help to buy a house if they are mortgage free (which mine will be in a few months)

I don't want to sound judgemental, but you are proposing putting your parents house at risk. This is the house they have worked their whole lives to pay off.

Your ability to follow through with the renovations and rent payments, and to find a lodger, would be necessary to keep your parents in their house. It's additionally very worrying that you say you are 'not great with finance'. There's a reason lenders won't lend to you - your history must show you are not great at paying debts back.

Rather than a hairbrained scheme, it might be worth considering just repairing your credit rating, saving some money, and buying your own house. It might take 5 years, but it would be worth it.

franklee

Does your sister want to be a landlord?

Will she be happy letting the house on the open market once you have moved abroad?

Can she get a mortgage that allows letting to close family members, many do not allow this as landlords may not treat family in a businesslike manner. Honestly if you were a stranger with shot credit and a low wage would she want to let the house to you? You already expect cheap rent so will the rent you propose to pay be enough to satisfy the mortgage lender. If you are set on this plan suggest you and sister go to see a mortgage broker as if no loan presumably no house.

That's before you get to the issue of who pays for the renovation materials, who pays for repairs? etc. etc.