Capital investor in family members property - how should it work?

surfer91919

Hi all,
I'm considering investing in a family members house for 5 years (declaration of trust to secure it). After this time they will sell and get a mortgage or downsize/ move to a cheaper post code area.
I won't be on the title deed and couldn't live there anyway as it's hundreds of miles away.
How should this work?
I assume the fairest way is for my investment to be also acknowledged as a percentage of the purchase price and then when the property sells, I get that percentage of the sale price?

There is some suggestion that I should meet half the fees associated with the eventual sale of the property.
This doesn't sit right with me as I won't be living there, they will be living there and benefiting from an essentially interest free loan for 5 years- when the house is sold it appears that it is the market which will pay my return (or take it away depending what happens with property prices), not the family member.
I'm curious as to how other people have done similar investments, any helpful tips, advice or sources to read would be much appreciated.

masonic

Personally I wouldn't consider entering into such an arrangement with a family member. Too much risk of each party feeling the other has the better deal, and that breeding resentment. For example, shouldn't you contribute to the maintenance of the property while invested in it? What if home improvements made by the occupant lead to an uplift in value - should you renegotiate your stake? But each to their own.

surfer91919

masonic said:

Personally I wouldn't consider entering into such an arrangement with a family member. Too much risk of each party feeling the other has the better deal, and that breeding resentment. For example, shouldn't you contribute to the maintenance of the property while invested in it? What if home improvements made by the occupant lead to an uplift in value - should you renegotiate your stake? But each to their own.

Good point. I thought it might be a better use of my money (vs being in a bank account) during a time when I don't have a need for it and they did have a need to not have a mortgage with the associated monthly payments and rigid time frame/ terms is all.

I think contributions to maintenance would be reasonable if I was on the title deed as per the law.
For example if there needs to redecorating or new flooring due to normal wear and tear associated with them living there then it doesn't seem reasonable that a silent investor living hundreds of miles away should meet any of those maintenance costs.

You raise a quandary with the improvement side of things though - maybe anything they spend should be added to the their initial purchase sum, as such their percentage of ownership would then increase against mine and they would get back a higher overall percentage than me?

Or I suppose the house price index could be used to calculate value at time of sale had it not had any improvements (seeing as the index uses the purchase price/ non improved price for the baseline and assumes no significant value adding improvements).

Linton

Why will the loan only be for 5 years?
What if the family member decides they would like to stay longer?
What if they or you die, divorce or go bankrupt?

I suggest you do not provide this loan.  Money and families can be a toxic mixture as exemplified by some of the posts on the Deaths Funerals and Probate forum.  However, if you do go ahead I suggest it is done formally through a solicitor so there is no later confusion as to the exact terms.

PRAISETHESUN

I would also recommend against it. Even if you do formally document some sort of arrangement, unless you are prepared to follow through and enforce the agreement if one party changes their mind, then it's just a piece of paper. Too many stories of money and family mixing and ending up with a bad outcome.

mebu60

What %s are we talking about?

If it is 50/50 would be easier to have you pay no maintenance / they pay no rent arrangement.

I would suggest any capital improvement spend has to be agreed by both parties and paid in proportion. Ditto costs of purchase and sale. 

Are they allowed pets? Can they allow others to live there? Will you have an annual inspection? What if you die? What if they die? Do they have to supply proof of buildings insurance each year? Etc! 

Sea_Shell

I agree with the posts above.  It's a bad idea.

Ask yourself one question.

Will you prepared to drag your relative through the courts, to enforce any documented agreement that is broken?


Stick to mainstream savings and investments.

If you want to dabble in property investment, with greater risk attached, look at P2P.

Keep money and family separate.

gelato_cat

surfer91919 said:

Hi all,
I'm considering investing in a family members house for 5 years (declaration of trust to secure it). After this time they will sell and get a mortgage or downsize/ move to a cheaper post code area.
I won't be on the title deed and couldn't live there anyway as it's hundreds of miles away.
How should this work?
I assume the fairest way is for my investment to be also acknowledged as a percentage of the purchase price and then when the property sells, I get that percentage of the sale price?

There is some suggestion that I should meet half the fees associated with the eventual sale of the property.
This doesn't sit right with me as I won't be living there, they will be living there and benefiting from an essentially interest free loan for 5 years- when the house is sold it appears that it is the market which will pay my return (or take it away depending what happens with property prices), not the family member.
I'm curious as to how other people have done similar investments, any helpful tips, advice or sources to read would be much appreciated.

If you're already disagreeing about what will happen when you come to sell, then that's not a good sign.

My advice would be to run a mile from this whole idea.

Eyeful

1. Why is your name not going to be on the title deed?
2. Was this your idea of theirs.

Families have split up due to money disputes.

Even if you love and trust someone, no one can foretell the future.
For example that relative may be involved is a serious road accident which results in personality and behaviour changes. Result, getting your money back becomes difficult. Even with your declaration of trust to secure it.

jimjames

surfer91919 said:

masonic said:

Personally I wouldn't consider entering into such an arrangement with a family member. Too much risk of each party feeling the other has the better deal, and that breeding resentment. For example, shouldn't you contribute to the maintenance of the property while invested in it? What if home improvements made by the occupant lead to an uplift in value - should you renegotiate your stake? But each to their own.

Good point. I thought it might be a better use of my money (vs being in a bank account) during a time when I don't have a need for it and they did have a need to not have a mortgage with the associated monthly payments and rigid time frame/ terms is all.

I can't see how earning nothing from a property (you say no interest being paid) would compare favourably to earning 5% in a bank account? Why would you do that unless they are unable to get a mortgage? But that then leads to the issue of getting your money back or not, what would you do if the property sells for less than you paid?

mebu60

Eyeful said:

1. Why is your name not going to be on the title deed?
2. Was this your idea of theirs.

Families have split up due to money disputes.

Even if you love and trust someone, no one can foretell the future.
For example that relative may be involved is a serious road accident which results in personality and behaviour changes. Result, getting your money back becomes difficult. Even with your declaration of trust to secure it.

Yes, I meant to include that too in my list of things above as well as the need to decide whether to be joint tenants or tenants in common. The latter was my first thought but even with that the other party could sell their share and you're left owning a property with someone else entirely. But if you're not on the deeds at all the other party could sell the property and has all the cash. 

So many negatives outlined in the posts but @sea_shell hits the nail on the head with the question about whether you would be prepared to take the relative to court.