Parents buying somewhere for DD - is it a good idea

[ctownsie]

Hi, mainly looking to see if this a good idea or not as I'm clueless.
DD is 18, in her first year of med school in London - 6 year course.
My parents recently sold their London home the area went through a lot of gentrification in the time they lived there (over 50 years) so the house ended up selling for over 2 mil.
They relocated, downsized and have a lot left to play with. They've topped up their already pretty good pensions.
I have 2 kids and im an only child. DD18 and DS15.
My parents are now wanting to buy DD a flat in London that she can share with friends. They've found a 4 bed they and DD like near uni and friends, for a little over a million.
They are planning to put down a deposit of £500,000 or so, this will be all of DDs inheritance. Then she can rent the other 3 rooms for roughly £1250-£1350. My parents said they will deal with all the landlord related tasks. They are 74 and 75 so I'm not sure that's the best idea but ok.
DD says she already has 2 friends who would be able to stay there.
My parents think this is a much better alternative to DD looking for somewhere to live for the next 5 years.
AIBU to be worried this might not be the best idea? Are there any flaws they might not have considered?
They'd still have money left should DS want the same though DS hates London and would never go to London again if he would so I doubt he would need somewhere so expensive.

How does your DD feel about this, does she want to live in London long-term beyond her years in uni? It’s a generous offer but it sounds like her grandparents have chosen where they want your DD to live rather than her? I’d also worry about her letting rooms to friends, involving money in friendships isn’t always a good idea and I’d feel iffy about kind of forcing my daughter into being a landlord, even if her grandparents are saying they’ll be in charge of that part of things. It reads like a lot of this is the grandparents’ decisions rather than DDs. Maybe I’m reading it wrong though!

The only thing longer term I’d think of is the “fairness” between the grandkids. Would daughter be fine getting a lump sum in a flat (and is it in her name or theirs) while her brother may get a whole house bought elsewhere and then have several hundred thousand left over to play with too?

If they’re giving one half a million then I assume they’re giving the same to the other? Of course it’s very generous of them but they also maybe need to formalise it and put something in trust?

Am I missing something? If they're putting down half as deposit, how’s the other half being funded?

Mortgage to be covered by renting the other rooms out.

So are they buying the flat for her to live in as a tenant or as a gift (which could cause IHT issues)? It sounds very generous but would worry about her friends remaining so and not abusing the situation.

Far better than spending a fortune on rent and much better than sitting on the money until they die tbh.
As pp said, the only issue is fairness between siblings. They should get proper financial advice and estate planning advice.
Could they put the property in both names?

Who’s taking out the mortgage?

Wow - tbh I'd suggest buying something cheaper if at all possible but wow what an amazing offer, they want to help their GD, you just nod and say thank you surely as it's their decision.

Raise issue of fairness with your son but there's nothing to suggest they've not considered him.

This would be a great investment for your parents/DD but there are things to think about.

I would consider who will pay for maintenance (plumbing, electrics etc), whose name will be on the deeds, will DDs friends sign contracts and what will happen if they don’t pay their rent, what if the rooms can’t be filled etc.

Sorry, posted to soon. The rental income could be split between both siblings and the younger one's share could be saved for university or invested.

When it's sold could some of the money be split with her brother?

Where do they live? How would any repairs get sorted if they're elderly, and your daughter is working long hours? I don't think it's a great idea (and not sure how legal it is) for them to deal with all landlord related tasks when they are not the landlords.

I think I'd be worried about the disparity between your son and daughter. I think any financial help should be equal in terms of money (rather than buying a house near uni) as if your daughter sells in a few years she could end up with substantially more than your son. What if they need a load of expensive care before your son is in a position to want to buy a property and there isn't as much left to him?

If they’re going to buy your son a £500k house in another part of the country then I can’t see the problem! Student accommodation is crazy and often shit and taking away that stress is fine. She’ll always have people wanting to live with her/her friendship group will change. I’ve lived in a house that a friends parent owned. It was fine!

She won't get a mortgage if she's a student, never mind a mortgage for £500k.

I had the same question.

They’re very unlikely to get a £500k mortgage in their mid-70s.

Could they consider perhaps buying your DD somewhere smaller (e.g. 2 bed) which would potentially avoid the need for your DD to rent out rooms? That is a very generous offer from your parents though - very kind of them.

Wouldn't it be better to buy a flat for her outright at £500k? A million pound 4 bed flat sounds like a lot to take on.

Obviously it wouldn't have 4 bedrooms but would probably allow a tenant and then she wouldn't be dependent on rent for the mortgage.

Lovely position to be in though. Lucky girl.

The mortgage wouldn't be in DDs name - ideally they'd like DH or I to take on the mortgage but we are only just mortgage free so that's another deterrent.

crossed post @Acapulco12 !

500k mortgage is a massive mortgage. Whose name will that be in?

I’d be a little wary about the friends paying rent on time. What happens if one misses a few months rent? Could be quite risky if they think that it just a “loaded” mate rather than professional landlord.

but the rent from the rooms sounds more than high enough to cover the mortgage

whos name will the mortgage be in? Whose name will the flag be in? And if it’s in your parents names what will happen if they die in the next few years?

They'd be better buying her a one bed of her own outright.

I think this is an excellent way for DD to fall out with her 3 friends.
It will be very awkward for her to be living there for free while they are paying her over a grand a month each. The friendship will start to feel unbalanced and resentments will build.
Few 18 year olds can handle the responsibility of being a landlord on top of studying and, as you say, the GP are elderly and might also struggle with that side of things.
I understand the desire to sort out DDs housing. But every student-landlord arrangement I've seen has ended in acrimony.
Either buy a one bed for DD. Or have DD and all the friends be tenants of the GP. Perhaps for reduced rent.

Why do they need to buy such a big flat? Surely buying a 1 or 2 bed outright would make more sense?

I would query whether a bank is going to lend £500k to your dd on the promise of the rent, but maybe they will who knows? Seems extravagant and uneccessary though even before you factor in fairness.

Plus.... care costs? There may be no inheritence for your ds at all.

If it bought in their name couldn’t that be complicated? Can’t they just gift her the whole £500k and let her buy it herself (is a possibility)? Then it’s in her hands straight away.