Investment Opportunity

[madderthanapissedonchicken]

If someone offered you an investment opportunity: you put in 20,000 to see a return in 5 years, how much would you expect to see back.

This would be someone close to you and you would be doing it to help them out, but also make some money yourself

It might be that in 5 years time the person is still not able to buy a different house if they have to pay you back the loan as all house prices will (hopefully) rise.
What if they can't afford to move?
What if you need the money in the meantime?
Most mortgage companies will want to know where the deposit came from. If it's a gift then it's just that- legally you can't expect it back.
You would also be liable for capital gains tax on any profit.

I would expect to be robbed, quite frankly.

This is not an investment.

As someone said, you’d have to report it as a gift. Then they don’t have to pay you back. I would be very careful lending that much money to a person.

It isn't an investment if they are living in the house, it's their home. There are many risks to this..such as decline in house prices. Who valued the house?

What state of repair? How much needs to be spent on it? Is the person earning a low'ish wage? If they couldn't sell or buy another house in 5 years what would happen?

Lending to family is definitely risky, especially as you will have to declare it's a gift so therefore no formal agreement. Be prepared to lose 20k and or the relationship.

If it works out ok, look at a compound interest calculator 5% would be 5.6k

As a couple of previous posters have said, I reckon for an investment of this risk level you'd want to get back no less than 5-6% a year, compounded (compare this to the fact that you could keep that money in cash at the moment in a savings account and easily get 4-5%, and that's much lower risk). An average equity portfolio returns you 7-8% over the long term, and again that's probably lower risk (think a typical ISA, which is more liquid as well).

On 20k roughly roughly you'd want 5-10k+ in that case - I'd err towards the upper end as PP said, more like 10K back to make it worth the risk.

I believe there is a way to give a personal loan as part of a house purchase, as my parents did this for me (pretty sure it's not just a gift, as I know that technically my dad could still demand the money back). Realistically though I would strongly suggest you seek financial advice around the structuring to make sure you get it right from a tax perspective and to give yourself as a lender the right protections (which will have a cost in itself).

As others have also said - it's realistically not a great investment opportunity and there are lots of other ways you could generate a similar return with lower complexity. If you want to help out a family member I'd do it but don’t expect lots back; if it's a purely financial decision you could probably make better ones.

Scenario 1. You're sufficiently wealthy that you would not miss £20K if it was not returned. In which case, be generous to your family member and lend it without interest.

Scenario 2. Your £20K is a substantial percentage of your current assets, and is needed to develop your future financial growth. In which case, don't lend it in these circumstances - it's too risky. There are much safer routes to earn a return on your investment.

Only their name on the house? It would be really incredibly stupid to do this. When it comes to money forget love.

So you would have no claim on the property and you are willing to sign a letter stating the £20k is a gift and not a loan? What could possibly go wrong.

you are being incredibly naive.

I have a great investment opportunity for you though 😂

You would probably have to sign something to say the money was a gift and then when you wanted it back you would have signed a document to say it was a gift - do you see the issue there?
Its not an investment its you helping out a family member and that can go very very wrong

This in spades