Advice on helping a friend with property investment

Thefrenchman123

First time poster, long time lurker. Seeking the collective wisdom of people on here! I have a friend who has been trying to get on the housing ladder through a shared ownership purchase, but these are really hard to come buy and seem to get snapped up whenever they're released. She's currently paying £1,300 a month on rental. So my question is - and I realise this might not be the best way of investing in property for me, but if it gets me an OK return while helping her out then I'm happy with that - is it a not stupid idea to co-invest in a property with her and operate my own quasi shared ownership scheme? She would pay say 25-30% of a property and I would pay the rest, so we would be tenants in common. As far as I can tell, one difficulty would be that she would need a mortgage for some of her share, and I think I would then need to be named on the mortgage (so jointly liable in the event of default). I would then charge 3% on my proportion, as per the shared ownership, but wouldn't look to increase that as the SO schemes seem to do annually. I realise that my investment would be tied up unless/until she sold which could be decades away, so it would be a way of getting a modest return on the investment, plus having an investment that might well benefit my children and not me when the house is eventually sold. 

So, stupid idea? Just trying to help out a friend in a way which is not idiotic for me but which also doesn't make her feel like it's charity.

I'm thick skinned so feel free to call me an idiot 

Albermarle

I think the answer you will get is that mixing business/money and friends, is a good way to lose friends.

El_Torro

I agree with Albermarle, if you want to lose your friend and get into a big financial mess then this is a good way to go about it. 

Why doesn't your friend look at official shared ownership schemes? They get a bad press but probably a better option than what you're considering.

elsien

The friend is looking at official shared ownership schemes if you read the original post, but is failing to find anything.

Thefrenchman123

I should perhaps add to stop people piling in on the whole 'friend/money/business bad idea' theme. It's my call whether to help a friend out knowing the risks of that - the question is very much about doing it as tenants in common, charging rent (at a reasonable rate) to mitigate against things going south. I'm not proposing to just lend a chunk of money with the vague promise of a return which I realise would be inviting a disaster. So looking for practical responses - perhaps ignore the fact that it's for a friend and just tell me whether it's a terrible idea for reasons I haven't considered 

user1977

Leaving aside whether it's wise from your point of view, I think the need for a mortgage may scupper it as lenders prefer to deal either with owner-occupiers or landlords, not a joint-owned mixture of an occupier and an "investor".

Thefrenchman123

user1977 said:

Leaving aside whether it's wise from your point of view, I think the need for a mortgage may scupper it as lenders prefer to deal either with owner-occupiers or landlords, not a joint-owned mixture of an occupier and an "investor".

Thanks user1977 - that's the kind of practical response I'm looking for

RAS

You'd both also face higher SDLT charges, assuming you are a householder, and a substantial CGT liability for you when you sold the house.

Section62

Thefrenchman123 said:

So, stupid idea? Just trying to help out a friend in a way which is not idiotic for me but which also doesn't make her feel like it's charity.

Have a read of the comments on this thread -
https://forums.moneysavingexpert.com/discussion/6597082/should-my-partner-be-charging-me-rent/p1

If your first though is "my situation is completely different to this", then you'll know the idea you've had is not a good one.

The situation is different in the sense you aren't proposing to live together, and presumably won't have the 'fringe benefits' either.  But the core of that situation is similar to yours - one person who can afford to provide cheap/subsidised housing to another person with whom they have a friendship/relationship.

If you make a profit from the deal then you are doing so on the back of a friend. If you adjust things so your only profit is from uplift in the value of the property then your profit will be at the expense of her ever being able to own her home outright.  Essentially anything other than 'charity' - providing her housing at zero gain to yourself - has the potential to put a strain on your relationship, and jointly owning a property you have a strained relationship with is not fun.

You also need to consider all the scenarios.  If you were to die, would your children want to continue the investment in this property - or would they want to cash in to use the money for their own needs?  If you protect your friend's position then you potentially disadvantage your own children.

The main reason for linking to the thread above is not for the detail of the situation, but rather the kind of responses given by other forum members to the situation.  Think about the responses you might get if you post back here in a year or two saying the deal has gone bad and you want to either charge your friend more, or you want to get her out of the house to sell it.  As an investment it is possibly one of the worst things you could do.

FreeBear

RAS said:

You'd both also face higher SDLT charges, assuming you are a householder, and a substantial CGT liability for you when you sold the house.

I suspect there may also be some FCA regulations that you might fall foul of too. Before diving in, you need some solid legal advice from a solicitor and possibly an accountant. There would also be income tax to pay on your 3% return, so factor that in to your calculations.

FlorayG

I have a friend in a "I'll help you out" mess.
She had a big mortgage so when she sold to move areas she couldn't afford to buy outright and couldn't get any mortgage due to age and employment status, so she and a friend of hers bought the current house between them. Because he mortgaged his share, only his name could go on the deeds and mortgage so effectively he owns the house even though she paid for half of it. She pays no rent. What is her legal situation? Nobody is quite sure...don't end up in that sort of mess.  I think you won't be able to get a joint mortgage on that property nor two separate ones