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.

Yeah, being a landlord is hard work. The government prefer institutional investors to private landlords and the main money is often in capital appreciation, which isn't happening.

Perhaps your very generous and lovely flats are better offering to pay the rent in a really nice student development and put money aside for both your children to get a property slightly later in life.

Hate to say it but be careful about inheritance tax.

A few of my colleagues got a deal like this from parents and grandparents when we were students and I was and am very jealous! They were having a whole flat paid off for them while the rest ofbus were auditioning for the garden flat boxrooms...

Aside from the generous gift of the money, your DD will never have to worry about where she is living, she will be able to pick her flatmates instead of having to hope she can find a space in a decent flatshare. Sure there night be maintenance needed on the place sometimes but she and your parents can make sure the place is up to standard before she moves in, and if anything needs fixed she can just arrange it herself instead of having to go through landlords, who IME don't tend to have much of a sense of urgency, particularly when renting to students. The accommodation will be a lot higher standard than she would otherwise be able to afford in London as well.
I would just say make sure it is all above board and it's clear who owns it and who is going to be the guarantor of the mortgage etc. IIRC, if she were to go for a BTL mortgage the interest rate would be a little higher but you might be happier with that if it means you don't have to be the guarantor.
Regarding flatmates I think she would probably be better renting out to colleagues who are not such close friends, as it can be difficult if the boundaries get blurred.

It could be a good idea, but depends very much on your DDs attitude to the responsibility. Being a landlord is a job, and you need to make sure the legals are right.

The money should be gifted and she have ownership. Not least because this allows her to rent on a lodger basis. The will should be rebalanced so her brother does not lose out. Having a base in London is a huge advantage as it means she will be able to afford to stay there for her F1/F2, or buy in a cheaper area of the country.

well this is how friends of mine got on the houising ladder and were able to concentrate fully on their studies as didnt have to pay rent.
The friends got to live in a much nicer house than they would have done for the same rent, so they didnt have any problems like that - rents in London are astronomical!

Sounds amazing your DD is very lucky

I'd have thought a two bed with a smaller or no mortgage and renting out one room would work better - managing 3+ potential other people living there could be complicated, especially if they are lodgers as the legal side is much more vague than tenants. And presumably means more to share with other grandchild/allowing them to also be bought a place.

Also they won't always need the income from sharing in a smaller place - what if they finish studies, meet a partner and don't want to share with several people anymore?

I think giving a property to a young person as inheritance is a generally a good idea these days - they have an asset they can build stability on. But they do need to consider tax and legal issues around it, and again, I'd say a place where they share with just one other person is more sustainable.

Not a chance, especially when she could get a nice, one or two bed flat for half that.

Thank you everyone.

Just had a group call with DD and my parents, all have agreed smaller = better.
Now DD has told us the friend who she wants to live with has inheritance money to buy too. The only issue is she plans to travel after her degree so wouldn't live there for a year, then would be in the workforce sooner so DD may need to buy her out.
That friend is going to talk to her dad.
May end up being my parents contribute half for DD, friend contributes half and they own together. But frankly it all sounds so stressful and I'm not money wise to know if that's a good idea.
Feel like im drip feeding but really I don't even know all the details myself !!

If they can afford it, why not? Housing is only going to get MORE expensive. Sounds like it’s a good investment. If she can cover her mortgage with rent from the let of other rooms I think that’s fantastic.

also, I don’t understand why anyone would pay rent (money pissed away) when you could be accruing wealth. lucky dd!

Far too complicated to have DD and friend both owning the flat. At that age they could well fall out of their friendship.

I would seek professional advice

Noo don’t buy with a friend! Sounds like a disaster waiting to happen. Just get a 2-bed outright. A different friend can always live in if needed. We sold ours last year for just under £500k, zone 2, about a 20 minute cycle (nice proper cycle paths) from Bloomsbury.

Being a landlord is hardwork, you have constant tests to do and paperwork to complete. Plus students can be nightmare - DD is one (student).

Also if she's medical school - she maybe moving around alot due to placements - has this been considered.

A smaller flat, could release some funds and would probably be a good investment. I would suggest a having a contract agreement/lease written up by a solictor.

Also, would it be worth your parents talking to a finincial adviser as well regarding inheritance tax etc. They may benefit from start a trust fund for your children instead.

Avoid going into joint mortage with other families, complicates matters.

good luck

One of my colleagues rented a room in exactly this scenario OP. The house owners parents gave her a deposit on a 4 bed town house in Surrey Quays, and it was her job/responsibility to keep paying the mortgage by making sure the rents covered her monthly outgoings.

I thought this was absolutely amazing. She was never short of people wanting to rent, even had a cleaner.

The house was around 400k at the time (early 90's) I can't imagine what she walked away with. Lucky lucky girl.

Yes I would. Just been playing around with this. If she prefers the two bed. Take the 500,000. Put less than half in the flat. Put the rest in investments. Then after 25 years you have a flat probably worth a million. Plus over a million in investments for the measly contribution of £500 a month when she’s living rent free. So she could contribute more. This is life changing money. Make sure you use it so her life is changed for LIFE. How exciting 🥰

https://www.hl.co.uk/tools/calculators/regular-investing-calculator

Where is DD living now?
There is a lot to be said for living in student accommodation as there is a big sociability factor in that.
Living with just one other person for your entire student time is fine, if you are very social. But if herself and the other girl are quiet and reserved then, dunno...

Sometimes quiet and reserved people do better being put into situations where there are ready made flatmates so they are thrown into a social group as such.

The way I'd put it to my parents is - 'forget about DD for a minute, this is a flat YOU want to buy to rent out. DD might decide she's moving out in 3 years to move in with a partner - then are you guys happy to rent to strangers?'

It sounds like a stressful headache for all concerned.
Where the hell will a 74 year old get a mortgage though? It's just not possible.

If she does this please advise her to get a 2 bedroom flat with share of leasehold, not in a block with service charges.

As others have said, do not buy with friends. I've known men do this when younger and it's gone well (more of a doer-upper situation) but generally it doesn't end well.

I would absolutely advise against DD and friend buying together - I know two sets of siblings (both close, get on well) who bought together and it was really complicated trying to work out when to sell, who owed/owned what etc. Even decor choices 😆 I wouldn’t want to do that with anyone who wasn’t family.

Realistically if both friends want and are able to buy then they should each buy their own place and find other friends to be tenants. Or they choose to rent together and the GPs find another outlet for their spare money.

If she ever wants/needs to sell she doesn't want to evict a friend!

Definitely don't encourage DD and friend to co-own. They're far too young and it will be a total nightmare if one wants/needs to sell and the other doesn't.
I think you need to simplify this down: could DGP just gift the equivalent money? Sooner rather than later because of the 7 year IHT rules and perhaps on the basis of a trust so that your DD doesn't just have access to loads of cash (even if she's sensible, it's about youth, vulnerability, other people etc). Then take a breath and have a think about how to do this without the pressure.
Buying property is a very good idea, but it does need a bit of calm reflection.

Student accommodation- but this isn't easy to come by after first year and the private's are ridiculously expensive.
DD has known the other girl for a while (they both played competitive tennis) but they were never close until they ended up at the same uni!
I think the best bet is big outright, friend as lodger and that be that!

Does she have to go anywhere for working in hospital experience or will that be local to university?

I wouldn't advise buying with her friend, they could fall out, get into a relationship and want their partner to move in, how would you dd buy her out,

I did this in a different area, but I got the mortgage with my dad so we had the double advantage of his money + my age.

Bought him out and still live there 10 years later 😂

Had nightmares of housemates/tenants (even friends who turned out to be great in small doses but terrible to live with), but some were okay.

Not sure they'll get a mortgage for the rest at their age if they're only putting down 50% on such a large amount?

Also it will likely be considered an HMO, depending on the specific council (where I am more than 2 people from different families is considered an HMO). If it is you'll have to get approved for that, have all the licensing costs if you do get approved, and also have to meet all the requirements regarding fire doors, locks, fire blankets, etc. etc., which will cost a fair bit and not necessarily improve the look of the place if it's a family home.

Buying with a friend is going to be a bad idea especially if they are doing different length courses. Friend could want out after 3 years forcing a sale.