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  • Mortgages & Finance

    2 bed flat for Uni-going adult daughter

    Hi

    My first post on here ,after trying to find the answers .

    Situation -.

    My daughter is going to turn 18 in a few months and going to university .

    I have a few buy to let properties, though a SPV company , with buy to let mortgages on them .

    I was wondering if it would be better to buy a flat for her , as a first time buyer vs buying the same flat through the buy to let SPV ..

    The advantages and disadvantages as I see them ..

    Flat costs 170k , 1 mile from university .

    Rental potential 800PCM for single let , 950 if let to 2 students .

    Advantages of " daughter buying it " ( with us stumping up the cash for deposit and also the mortgage payments )

    1. Stamp duty as first time buyer ( vs through the company .). significant  saving

    2. If we put 25% as deposit , that money is out of our estate for inheritance tax purposes ( we are both in late 40s and hope to live more than 7 years  from this transaction )

    3. If she takes in  a friendas a lodger  in second room , she will get rent a room relief and this income will not be taxed to my company ( saving corporation tax on this income )

    Disadvantages

    1. She doesn't earn anything, ( but will be getting monthly money from us) and therefore unlikely to get a decent mortgage ?

    ( both me and my wife earn well and happy to be guarantors )

    2. Looked at " mortgages for university " and see that Bath Building Society and Laughborough do them , but their rates r quite high and stipulate various things , like " AST for short term is possible but after that you have to live there "  , but my daughter will be in halls for the first year from September , and I am likely to buy  something soon , meaning this may be a rule we fall foul of .

    I was sure that other people have been in this situation before , and so asking for advice / suggestions , instead of trying to reinvent the wheel .

    Many thanks

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    Hi BrummieAndy,

    I was thinking of something similar via option 3 but for a larger property where she can stay and rent out the other rooms to other students.

    Regards

    ThePropertyBloke

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    Hope your daughter gets into this Uni you have high hopes of buying a property for!

    I would say avoid at all costs tbh. Did you ever go to Uni? It's a place where people find themselves and learn some of lifes lessons.

    Having mummy and daddy buying a flat that the child then has to find a suitable housemate for is a recipe for disaster. Are you going to interview the perspective tenant?!

    I wouldn't dream of doing such a thing. Let them find their own feet at Uni.

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    Thanks for that advice . I should rephrase my question and clarify the situation a bit more .. my bad .

    I was hoping to

    1. Transfer some money to her ,to get it out of my estate .. will be better in the longer term .

    2. Use her status as a first time buyer and save 6k on stamp duty ? Does this apply even  if the house gets tenanted ?

    3. Save tax on rental income as she has no current  income .. so  if she takes a friend as a lodger in the sexond room she gets rent a room relief uptown 7500 per year . If instead  the property is let out( in the scenario she wants to stay in another larger house with friends)  , the income from the flat will go into her account and  will pay for her living expenses ,reducing my outgoings on a monthly basis .

    4. We have an agreement that if she decides to not live in this flat ,( she may wany to live with 4 friends in a larger house or any other situation that we can't foresee at present ) then we would rent it out ( as I do for some other but to let properties) and she can live where she chooses ... So we can disregard the psychological/social issues in this scenario and just look at it as a financial scenario please ?

    5. And she can later sell it and use the equity for the next purchase in the future .


    I do accept that the kids have to learn to  make their own way ... This was more about utilising the tax and other advantages ,if possible/ legal  .

    The reason I didn't think of a larger property was because the University ( Birmingham ) is surrounded by an article 4 area ,and so a new HMO  is not permissable and established HMO property doesn't often come to market  .

    Thanks and if there are further suggestions/ comments on how best to achieve the financial goal , I will be grateful


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    We've done something similar for our daughter. The Buy for Uni mortgages are disproportionately expensive so we took out an interest only  mortgage on the family home instead and bought our daughter's property in cash. It's worked out much cheaper.

    Her house has four bedrooms so it is legally an HMO even though it is also her primary residence, and she has been fully involved in making it HMO compliant and liaising with the builders and selecting furniture. She has much better taste than me.   We're also making some of the bedrooms ensuite as they are very large and she wants that for her own room. 

    It's a loan, from us to her, so she is responsible for paying it back and for paying the new mortgage on the family home; which is considerably cheaper than paying for lodgings and easily covered by renting out the rooms in the student house. The plan is that in five years time, when she has her own career, she'll remortgage the student house in her own name and pay back the loan on the family home.

    I'm so encouraged with the way it's going that I'm looking at buying another student house in my own name in the same area and she's been coming along to the viewings and chipping in with good ideas about what students want. She plans to go into property herself and the idea is that under my guidance, she will manage both student houses. The competition includes purpose built student flats and poor quality shared accommodation so our challenge is to provide something more appealing; which we think we can do.

    I've seen my daughter mature and grow through this process and it's brought us closer together.

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    That sounds like a sensible altwrnatalt. I might also just take money from the offset mortgage on our home and buy the flat outright .

    Do still want an opinion if anyone can help , with regards to other tax benefits as mentioned above ,or better to just buy as a buy to let ... I have a company o it won't be adding to my own income but we will still have to pay corporation tax on the income ,and lose out on my daughter's Capital gains allowance at time of disposal

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    Re your other questions.

    • It's her primary residence so no extra stamp duty
    • All residents are students so no Council tax
    • Yes rent-a-room allowance does apply and so does personal tax allowance up to £11,850
    • Daughter has found three housemates all ready to move in in the summer and she found them surprisingly easily. They said it was easily the nicest house they'd seen. 
    • They are all quiet studious young people, totally the opposite of what things were like when I was a student. 
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    Thank you .

    Best wishes to your daughter for university and the property investment journey .


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    Many thanks and the same best wishes to you and yours.

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    I would say hold off until 2nd year.

    First year is best in hall, for social, going loco, and making friends reasons.

    Then get a group of friends together that can be a household, whether 2 or 4 - I would say D + 2 x lodgers is the sweet spot, as the max without being HMO. Unless in Scotlandshire.

    There is a world of difference between 1st year and 2nd year, in terms of maturity and civilisation. And our experience is that groups of friends get together quire quickly in year 1 sometimes - our houses normally have signed contracts with groups of friends in place before Christmas for the following year. Some of these have been groups of 1st years.

    You also avoid the aggro of having to wait until a place is confirmed and buying rapidly, and D is on the ground to watch for suitable houses.

    ML

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