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.

Will the flat be in their name and dd and her friends just live there paying rent. They cannot guarantee that there will be any inheritance in the future. If they put down a deposit of 500k how will the other 500k get paid, will there be a mortgage, dd won't get a 500k mortgage on a student salary. Would it be easier just to gift both dc the same and dd can buy a 1 or 2 bed flat if she wants to. It all very well her friends saying they will move in and pay 1250, is that each room a month which is a lot for a student with bills, food etc on top.

This might actually be the best idea!
DD doesn't want to live alone but if it's a 2 bed she can still have a friend stay (and profit from the rent) without being reliant on them. Off to suggest this.

Yes my thoughts also, who is getting a mortgage for 500k? No one is apparently earning. An outright flat is better as an investment for the gps and they get to keep the rent.

So whose name is the property likely to be registered in? You would need to be on the deeds to secure a mortgage.

In that case, where does dd come into it? Who will actually be on the deeds of the property? Are they giving her half the flat and you own the other half (and could eventually give that to your ds?)

That’s ridiculous.

In three years’ time are you going to borrow a second £500k for a property for your son?

Surely they’re better off using the £500k they have available to buy her a smaller flat outright?

Typing money up across three generations is just silly.

I wouldn't take on a £500k mortgage if I'd only just paid off my own mortgage. She's better off buying something smaller outright with no mortgage. This is what my own student daughter has done with her inheritance. She has a lodger and then that money is hers as income.

I'd separate the two decisions. They need to decide how to invest their money to get the best return. They need to decide how much money to give to your DD and when. Personally, I think that combining the two is potentially too messy in terms of things going wrong within the group of friends, fairness to other sibling, and conflict between what GPs want to buy and what DD would rather live in (or do with the money more generally).

They can invest in property in a way that works for them AND help DD with rent. Separately. They might later want to give her and her brother a lump sum to buy a flat at an appropriate time. That's essentially what I am doing as a parent, not a grandparent.

Dont take on the mortgage. All sorts of things can happen.
Dd could drop out
Have an accident
You could get ill
Mobility problems

This us your parent's game, they should play it without you.

V lucky daughter indeed

This plan is completely insane.
Do you and your husband qualify for 500k mortgage without risking your own property?
Would mortgage lender allow lodgers and how will it impact the rates
What happens in 6 years when your daughter no longer wants to live with flatmates? How would she cover the mortgage then? (not on her "generous" junior doctor salary, that's for sure).
What happens if mortgage rates go up?

Why not to buy a 1 bed flat for her to live by herself? If she fancies living with others, she can easily find a flatshare to rent. 500k can also quite easily cover 2 bed and she can have one friend living with her to help with the costs of paying the bills plus a little extra to save up.

Could they pay for it outright (use your sons share too) and then there is no mortgage. Your son and daughter would split the rental income and your sons be saved for his time at uni. They could then sell it in the future and split it equally or your daughter could buy him out if she wanted to keep it.

Just spoke to DD and she has jumped at the idea of a 2 bed to share with one friend. I'll call my parents now and hopefully talk them round too. DD really doesn't want to live alone (she's a social butterfly and quite anxious at the thought of being in London alone)

Best of luck to you and your DD :) just to mention, with this current scenario (2-bed flat for £500k), would the plan still be to buy it somewhere near DD’s uni? I only ask because I don’t think it’ll be possible to buy somewhere at that price in central London. I live in west London, in zone 3 (Acton/Ealing), and 2-bed flats here are sold for about £500k or more.

I think they’d be better to buy a smaller place outright, possibly a 2 bed. Dd could then have a lodger which has a decent tax free allowance to pay bills/ repairs.

If you do go done this route I’d insist on it being managed professionally. Guarantors and deposits for all tenants. No exceptions because they are friends.

Does dd want to live in a flat, some students prefer to live in halls for friends, support, uni life, transport and 18 is pretty young to take on a property if its her first time away from home.

I'm a Londoner so am used to high prices, but a four bed flat for a million pounds that - most importantly - requires a £500k mortgage is a terrible idea. Better to get a 2-bed that can be purchased outright, and she can rent out the other room. No need for her to live alone, and it can help contribute towards maintenance costs.

As long as your DS gets a similar deal when he turns 18 where he wants to work/live then I'd say that's fine and fair. Is your son happy with the arrangement as well? To be perfectly honest, I'd be miffed if my sibling got a tonne more money than be because they chose to live and study in London.

Don't forget to thank your parents, it's easily forgotten when you go through the stress of buying a place!

Just seen update, is her friend on the same course, if she is anxious about living alone in London,

I think a 4 bed property is too much, financially and maintenance wise. I would advise to go for the 2 bed flat, either no mortgage or a small one. And something that is manageable for DD to pay if she keeps the property after her studies, not something where she's dependent upon the rental income to cover it.
From my experience just having a 1 bed flat in london, think about if its an old property vs new build. I have an old property (share of freehold) and we have loads of problems (leaks, mice, constant maintenance) - who will be liable for those issues. Not to mention a nightmare dealing with the other freeholders. I found we are the youngest owners in the building by a lot and the other freeholders don't like that. So lots of different factors to think about. Best to think what is the best investment for the grandparents/DD, what is the least risk, easy to manage.

Yeah, I was going to suggest they buy something smaller and cheaper - a two bed flat is perfect. Also less maintenance etc and no need for a mortgage or if there is a mortgage, it's a small one.

I'm less concerned about the friends and rent situation as basically, I think the landlord needs to be positioned as you/your parents, not your DD. This is especially true if the flat is in her name.

Assuming the flat will be 100% DD's at some point, I'd suggest that they invest a similar amount for your DS at the same time so that it is ring fenced etc.

Perhaps this would work if an actual letting agent deals with the rent collection and tenancy issues. The relationship with the other tenants is the real sticking point and this would provide a buffer.

I'm not sure, DD is at UCL and would ideally want to remain as close to there as possible. I think the one they had looked at (the 4bed) was Kings Cross sort of way.
DD plays tennis frequently out at the sports centre near Latimer Road so i imagine she would be happy there but really it comes down to where she can find somewhere she can afford.

it will be a buy to let mortgage I assume so based on the rental yield. Not that I am agreeing with the idea it is bonkers. Poor DD will have to be always on guard for flatmates damaging things, bringing people back who don't look after the flat.

What does DD think? No way I'd want that responsibility when I was at uni. What happens if your parents can't manage the landlord responsibilities. I'm not sure you can get a mortgage on the basis of letting the other rooms.

I think the friend she really wants to live with is on a different course, Econ maybe? And I think it's only 3 years. Might be a good thing though rather than having someone she spends all her uni time with too?

Just to echo other posters who agree with them getting a smaller flat for your DD and buying it outright.

Seems madness for you to be lumbered with an another mortgage when you're only just mortgage free. I think it may also cause potential friendship issues for your DD not to mention you being liable if her friends don't pay the rent for whatever reason.

I'd also check with your parents about if they've set aside anything for DS so things will be fair for him, as this could cause a potential falling out in future.