Considering buying a property for DS1 to live in

[Flowerypillow]

DS 1 is looking for a place to rent. He can afford the rent but the amount of money makes me shudder.

I have some money that I really should invest somewhere. Enough to pay about half on a small flat in a nice ish area. I'd have to take a mortgage for the rest. The mortgage on my own house is paid up.

I am considering buying a flat which I would rent to him for the cost of the mortgage plus maintenance charge, which would be considerably less than the market rent.

Concerns:

• what if he turns out to be a terrible tenant?

• His GF would likely live there too - how will it feel for her to be living in a house "MIL" owns?
• I have another son who currently doesn't need this help but may do on the future and if you do it for one...

I do genuinely need to put my money somewhere and it seems to solve a problem, but I wonder if it's better to treat the two things separately and let DS pay market rent, even though I could save him a fair amount per month? Let him stand on his own so to speak.

I think I'd be a decent landlord, which isn't guaranteed elsewhere, but I wouldn't like it if he doesn't respect the property. I don't think he'd wreck it but he might not take as much care as I would!

Sorry @Flowerypillow didn’t realise you were OP so worded that a little oddly.

I would:

• buy the flat in your name so it is yours and not your son's
• charge the couple rent as if you were a regular Landlord to cover mortgage and repairs and have a proper tenancy agreement in place
• this means you have to pay tax on the income and you will need a buy to let mortgage.

Basically he will get a secure roof over his head as long as he pays the rent and you are teaching him to be responsible with his money.

I would not provide them with a free home...they are grown-ups and can both work to pay the rent.

Also you don't want the girlfriend to have a claim on the property beyond having tenants rights.

Keep it businesslike.

I’d definitely do it, choose a figure they can afford rather than market rate, and hand it over to a property manager to draw up tenancy agreements and manage the property for you. You can always save or return a portion of his rent to him in the form of an allowance or Christmas present or whatever, or save it for when he wants to buy, but at least this way everything is above board and they are seen to be paying equal. Also, the formality of it and the fact he deals with an agent not you directly might focus his mind on maintaining it properly.

they would get secure housing and a landlord they trust
and the reassurance they are only lining the pockets of someone in the family - family money tends to come back around, so its a lot less fruitless than paying a stranger.

I agree that Green's idea sounds the most sensible... however well you might get on now you just don't know what could happen in the future ... keep it professional and businesslike.

How much would he need as a 10% deposit to purchase?

Yes I intend that he/they would pay rent but maybe at a reduced rate?

If it was a joint tenancy agreement, if they split, she'd have as much right as him to stay? Which actually might be fine, if she can pay the rent.

We did this for older sons but lent them the money for them to buy, at a time when they wouldn't have been able to get a mortgage (they pay us the mortgage). Now they're earning well they pay off chunks off the capital here and there as they can.

OP IME all tenants never treat the property the way the owner would and as a landlord that is something you have to accept. My children don’t treat their bedrooms and bathrooms the way I would like them to but I just have to accept that because it is their space and my standards are not their standards. Unless it becomes a biohazard I leave them to it now eventually they clean up and this is getting more frequent now I have stepped back. Personally I would feel like a controlling profiteer if I invested in a property and then expected my own DC to pay the mortgage for me with DC never owning a single brick of it. I would look at investing and expect a return however, I would want my DC to build up some sort of legitimate stake in the property too not just as a future inheritance.

You won't get a btl mortgage that will allow you to let house to any relative. I gifted eldest son 10 percent deposit in a cheap area in North so he could buy a 2 bed terraced. I'm selling a 2 bedroom btl to my youngest son and gifting him £50k equity as he is buying in much more expensive area where we live. I'll adjust will to show younger son has had more money gifted upfront. It can balance out when I die. I think if parents can afford to help their kids out they should. I know my sister could not help my darling niece when she was at uni so I paid her £120 each month for the 4 years she was at uni to help her out. I am expecting to offer similar help for her 3 siblings in near future.

In a roundabout way I ended up in this sort of situation myself - I inherited enough to buy a house outright at the point in my life when I was a FTB. This came as something of a surprise!

DP and I had been dating for about a year when the bereavement happened, though by the time we'd got through probate and buying a house it was about three years into the relationship, and we were naturally at the point of wanting to move in together anyway.

He pays half the bills and a sum each month towards the house repair savings pot. It's less than he was paying when he was sharing a flat with a friend, and I have a larger, nicer, house , but certainly isn't free. He's certainly not on the deeds and never will be.

I was never terribly fussed about getting married though - probably a good job as if there was a messy divorce I'd be worried about the implications for my house.

If I was starting a new relationship, however, I'd be keeping my financial situation quiet until we were a fair way into the relationship. Taking a leaf out of the book of a very very wealthy friend of a friend who avoids letting on that they're wealthy until they've established a friendship on normal grounds, for fear of attracting the wrong sort.

I don't need a btl mortgage though because I could raise the money (more cheaply?) against my own home. My salary would easily be enough for half a small flat. Worst comes to the worst I could just treat it as if I had a small mortgage of my own. I'll need to investigate the tax implications of the loan not being attached to the property though.

If it was a joint tenancy agreement, if they split, she'd have as much right as him to stay? Which actually might be fine, if she can pay the rent.

If there was a joint tenancy agreement between them then they'd have equal rights. If you wanted to evict one you'd have to issue proceedings to both (though you could later relet to just one). They would be jointly liable for the rent.

One option would be to rent only to your son but allow him to take in a lodger (his girlfriend). This would make your son a live in landlord and give her very few rights beyond "reasonable notice" to leave (legal term - she'd be an excluded occupier). Your son would be responsible for collecting rent from the girlfriend and using that to pay the whole rent on the flat to you.

Those are the two ways of doing it; it depends on if you want to create a power imbalance between them tbh.

@Flowerypillow, if you open a limited company you could claim mortgage interest back from tax. If a general loan not tied to buying property I'm not sure you can. If you just buy as flat without putting it into a limited company you can't write mortgage interest rates against tax but you get a 20 percent credit off tax on interest rates.

Fwiw I think the girlfriend is a red herring. If you let flat to them both they'd have equal rights. If you did not I could not see girlfriend moving in and putting herself in a vulnerable position in case they broke up. My eldest sons girlfriend lives in her own rented house with her late teen DD and cat but stays over at my son's house 1 night in week and 1 day over weekend. He stays at her house 1 night each week and 1 day over weekend. His gf rent is very low. She would not give up her house as security for her DD and herself unless they married. I have told my son I can understand why she has to protect herself and her DD and it is not a rejection of him. She would never find another rental house for such a cheap rent with a LL who keeps house in good repair.

Have a proper tenancy in place as @Greenfairydust said, but make the term limited to the time you anticipate second DC needing similar help.
So say 3 years or whatever.
First DC lives cheaply for a known planned amount of time giving him chance to save for a deposit.
When second DC is at the same life stage first is now the situation is reviewed and the help transfers to the younger so they both get a fair crack of the whip. The review might mean you sell and buy a different place or the younger gets the tenancy or.... Whatever.
If your help is time limited it can be fair and planned around.

If the mortgage is affordable can you not buy as tenants in common?

you put your x% cash in, he raises the remainder by mortgage. Terms are when house is sold you get your x% back, or he buys you out by x date.

then it’s “his” house and the onus is on him to maintain so he makes a profit. Then when you get your money back you can do the same for younger child.

Also be aware if your son or girlfriend living with him need to claim universal credit in the future whilst in the flat, it is likely to be considered a contrived tenancy as not market rent and never let before.

My parents did this for me and my partner. We lived there for 12 years and saved for a mortgage in the mean time. When we moved,they sold and made a large profit. Your son would be very grateful! Maybe do it on the understanding that he saves for a mortgage too? When he moves out,your other son can move in if he needs to?

My parents did a similar thing but instead of them owning it and renting it to me to cover mortgage (don’t know the legal ins and outs of that) the mortgage was in all three of our names - mum, dad and me. I paid the mortgage myself while I lived there then when I left uni and moved to a different city, they paid off the remaining mortgage and rented it out. All three of us are technically the landlords, any profit it made was put away and kindly given to me towards a deposit on my own house. Now, the profit goes straight to my parents and it’s a bit of extra income in their retirement. Worked out well long term, I can’t thank them enough for the help it gave me. But I am an only child so there was no stress over having to provide the same for another sibling.

I recently saw an old Location, Location, Location catch up with a family that had bought a flat with a long term view.

Their eldest daughter moved in and didn't pay rent (as far as I remember) but it allowed her to save up a deposit to buy her own place.

During the catch up, she had moved out and their younger daughter had moved in and was doing the same thing.

The eventual plan for them was to sell their own house and downsize.

Whether that would be your eventual plan or not, it might be an option for your younger son later on.

I think this has a lot of potential pitfalls.

First of all, I think you have to be straight with yourself about why you're doing it. It's primarily for you — an investment vehicle for your money, and a (potential) retirement place for you to live in.

It strikes me that you risk keeping your son tied to you a bit. (And as you say, you have another son, so you're creating a precedent that might not be convenient or handy for you a few years down the line.)

Aside from any financial or ownership matters, this way your son doesn't get to stand on his own feet this way; his mum would be his landlady, his reduced rent payments are entirely at your discretion, you feel entitled to have views on how he treats the place and who he has living there with him. It risks feeling (somewhat) like an extended teenagerhood for him, just with a separate postcode. Depending on how old he is, he may not want this at all. He might find it really emasculating just at a point in his life when he's wanting to spread his own wings — even if that means tough times for a bit while he's juggling income, rent, bills and life costs.

Furthermore, if the flat happens to be in an area that you prefer (or can afford) but that he doesn't necessarily want to live in? Won't he feel pressured into living somewhere he doesn't actually want to be? Would it be suitable for his work, his friends, his life?

I feel like you have two goals/objectives in mind here but they are somewhat in conflict. If you want a flat for an investment or retirement option for yourself, great; buy one and rent it out at market rate until you're ready to either move in, or sell it on. If you want to help your son out, make a financial gift or help with monthly rent payments. But trying to combine the two feels, to me anyway, like ramming together two things that don't quite go.

If you don’t need a mortgage then your son can buy the house is his own name, you can lend him the money and take out a charge over the property.

That way any rental income will be his . He can earn around £7k a year on the rent a room scheme before he has to pay tax.

He won’t have to pay capital gains tax when he sells it.

If he marries then his GF would have a claim on the property but only after he had paid off the debt to you.

Amd yes of course his Gf / flatmates should pay rent and a share of the bills - why wouldn’t they ? they would have the same legal rights as any other lodger, assuming they have their own room and share the rest of the flat with him . But that’s up to him of course .

You will need legal and tax advice .

Could you do this for your other son? Otherwise it seems unfair to provide one with a secure place to live and not the other. I would resent that massively.

I do think there are lots of ways this could go wrong if the girlfriend breaks up with him, and has to leave the property. Even if she is legally a lodger (and I'm not sure she would be) she would have some rights.

I'd also think about what happens if damage is caused to the property?

@Postapocalypticcowgirl like i said early in the post i know quite a few work colleagues who have done this and it's seen as a family asset not something that belongs to ds1 vs 2.
giving two children equal in a family does not always mean penny for penny.
it's really interesting to read how there are a variety of ways to ringfence and approach this.