AIBU to worry my parents are undercharging rent on their flat?

[Gladdo]

My parents have lived in a 5 bedroom flat in a lovely part of their city for years. Now they have decided they want a bungalow closer to my siblings and I who have moved to another city. My mum doesn’t want to sell the flat and has decided to rent it out.

They have decided to rent it to the son of one of my mums friends, this son and his partner have 5 children, I believe the father works but the mother doesn’t (they may have a newborn if I listened correctly so this makes sense).
My mum has decided to rent it significantly below market rate (the other 5 bed flats in the area are mainly used for student lets but seem to make almost double), the reason being so it falls under the local housing rate for their universal credit.
It’s a beautiful property, probably needs a bit of redoing, but my mum said they can decorate.

Im really worried, I don’t want my parents to be exploited, I’m not sure they are taking any real advice and setting things up, when repairs are needed I’m worried they won’t be making enough from rent to cover it so be paying out of pocket.

I tried to tell my dad and he said they don’t need profit, they just don’t want to sell right now incase they change their mind.

AIBU to be really worried about this and fear they are taking advantage?

How much are they getting in rent?

If your parents have full capacity, then I don’t think you should interfere. Not everyone has the same values around money. You can disagree, and if they ask your opinion you should give it frankly, but otherwise I would let them make their own decisions.

I think it will be about £1650.

Do they realise they will pay income tax on the rent received? And capital gains tax when they sell either property?

Leave them alone, they don't want to make a big profit and they are hardly charging a peppercorn rent at 1650! They want to help a family afford a decent home, they are good people.

I have told them to look into everything, I’m not sure if they have.

Are they also prepared for what might happen if they come to a point where they do decide to sell it?

They could have an enormous challenge in ever getting them to leave so they can sell the place - and if similar-sized places are a lot more, they could end up refusing to leave citing nowhere else they can go; as well as the awkwardness in them being connected to (currently) friends. They could also slander them to everybody they all know for their 'callousness' in 'making 5 children homeless'.

Sounds like a great deal for the new tenants .. all paid for by the taxpayer

Paid for by taxpayer how?

They sound lovely. It's rare, but not everyone is out to make as much as they can out of other people. As long as they're not leaving themselves without enough to live on, I'd be really proud.

Have they registered as landlords, EPC rating C, EICR, Gas Safety, Legionella, Smoke/CO Alarms, PAT test, is the furniture fire retardant (newer furniture has this on the labels,) have they set up the deposit scheme, seen an accountant about income tax; being a landlord is not something to accidentally fall into as they could face fines. If it’s a favour then neither side are protected.

It's too late. If they change any plans now I assume your mum's friend will react badly. But as pp said, they'll need to follow all the rules and pay tax, while being very unlikely to recover the property easily.

Essentially this is a very generous act of charity from them.

£1650 a month isn't charity. Honestly the world is fucked if people think landlords 'only' charging 1650 a month are offering charity. These landlords don't have a mortgage to service presumably, you rrslise that insane 'market' rent charges are driven by BTL landlords with interest only mortgages pushing rents as high as they can get away with to maximise profit? If the OP's parents are happy with a marginally more modest rate of still very high rental income that is nobody else's business and it's not bloody charity FFS

I'm a landlord myself after I moved in with my DH and couldn't sell my flat at the time. I have been undercharging my tenants for years and the thing is, a good tenant that pays on time is A LOT more valuable than a couple of hundred extra per month from shitty tenants.

The approach I took was to let it out unfurnished, the flat didn't even have curtains. Tenants can do what they like, I only repair what I am legally obliged to repair. If the dishwasher breaks, it's their problem etc. I don't pay for decorating etc. This arrangement has worked for everyone, for years.

The biggest issue for your parents, that they may not fully understand, is that it is near impossible to kick someone out now. So they need to be prepared for the tenants to 1) not pay their rent and 2) still be in the property for a year or more before you can remove them.

The rate is below the Universal Credit threshold

My mum rents her house out for the same as local housing allowance because her tenant is on UC. I think its a nice thing.

What do you mean by this? You're not saying anything

Good long term tenants who look after a property are well worth a small drop in rental income. I take it your parents aren’t relying on this income for living expenses.

They mean it’s the maximum local
housing allowance rate.

So full rent could be covered by the tax payer if both adults did not work.

They possibly don't realise all the rules and costs associated with being a landlord? Could you show them a guide that reflects the new post 1 May rules?
Great they don't need to make a profit but they don't want to be out of pocket either

You are right to be concerned OP - they should definitely get some professional tax advice. Sounds like a whole heap of potential trouble only to then have to pay CGT for the months that it was rented out and that's on the overall profit so if they have owned it for some time they'll potentially be paying needless tax on profits made long before it was rented. Could well end up being a case of no good deed goes unpunished. They would be far better off selling and then relocating nearer family

They are doing her friend a favour. Charging under market rate when they could rent it for more.

It is an act of charity.

Yes, £1650 rent (from which as pp explained they will have to pay tax, landlord licence, EICR, gas check, landlord insurance, EPC, smoke alarms, maintenance and repairs) in an area where the same properties go for more, is doing a kindness. Particularly because these tenants, unlike the open market, will not have to have a credit check or references.

And if it’s not a bargain, they are free to rent elsewhere. One income and 5 kids, I’m sure landlords will be fighting for them. Perhaps you could explain how actually they deserve it for less and should haggle it down because of course OP’s parents are just evil landlords.

No, I stand by it, OPs parents are being very charitable with this offer.

Make sure they get landlords insurance. Saved us when my partner rented his house. Ten months of unpaid rent.

My biggest worry is that they may not be able to commit to providing this flat forever and there could be tremendous anguish and awkwardness if they ever wanted to end the tenancy .Especially as it is a generous offer below market rent and a comfortable flat . With 5 children and a young baby the friend's son will need a home for many years and it might be hard for your parents to take possession of the flat again if they ever wanted to. It would be better to clarify that they would commit to renting it for 2 or 3 years but that they might not to be able to continue for longer . Moving house is stressful and expensive and their generosity could well back fire on them or on their children (you )

My parents have a small block of flats in their home country. They rent them out at about half market rent. They don't need the money, and all are long term tenants that take care of the place.

If everyone is happy with the arrangement then I think it's fine.