Becoming an Evil Student Landlord

Son and one other require a new flat for at least 2 years.  Comparing rent and mortgage cost, it is clear the sensible thing to do would be for “me” to buy a flat and rent it to them.  We aren’t filthy rich, and would need to borrow to do that but could pony up deposit etc.

I vaguely know of people “buying flats in children’s names” – tell me the pros and cons.  I suspect that’s for 1st time buyer stamp duty etc?  Seems if that’s a charade, not only is it potentially illegal but it also leaves them shafted when they come to actually be first time buyers.  One option could be to not make it a charade, but we aren’t so wealthy to have cash to throw at it as a huge gift, especially as there is a sibling probably 3-4 years away from perhaps being in a similar boat?

We aren’t really wanting to build a property empire – but it grates that he’s paying a fortune to build someone else’s retirement portfolio!  (And we are in part subsidising that).

WWSTW do?

– provide him deposit and guarantor and hope we can do the same for sister in the future?

– BTL and treat as investment (but at greater cost than if we were able to gift it to him)

– forget it and hope he finds a landlord who is not a **** (he’s not suggested this – it’s our idea).

are there other options I’ve missed?

Don’t forget if you buy it as a second home there is a fairly punitive supplement to the stamp duty.  I am told this has been drawn up so that there are pretty much no loopholes.

https://www.stampdutycalculator.org.uk/lbtt-additional-dwelling-supplement.htm

Add in buying and selling costs and the numbers may get tricky.

All depends if your son can get a student mortgage. If the mortgage is in his name then as a first time buyer it will be standard LBTT. If it’s in your name you will have to pay ADS. It used to be 4% now it’s 6%.

Ah, I hadn’t checked out the second home stuff!  I had jumped to the conclusion that was for “holiday houses”.

certainly that would make it an expensive option for us to do, and now I see why those I’ve heard of doing it emphasis it’s in the kids name!

so IF he can get a student mortgage presumably we can lend him the deposit unsecured, and potentially interest free with the expectation it might be returned by the time his sister is in the same boat?

are there other options I’ve missed?

Become an evil Exploited Student Renter?

Rent, sub let to other students, thrash the place and sell all the fixtures and fittings before you leave without paying the last three months rent and bills.

Its only fair to repay the Landlords who have ruined university towns.  😉

forget it and hope he finds a landlord who is not a ****

Having seen eldest have a **** of a landlady and agent for 3 years, we’re back thinking about buying one for youngest who goes this September….

If the property makes sense as a btl do it.

Its not your fault that the uks housing market is totally fubar and acts to transfer money from poor to rich. With no secure quality rentals0

Protect yourself and your son

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We aren’t really wanting to build a property empire – but it grates that he’s paying a fortune to build someone else’s retirement portfolio! (And we are in part subsidising that).

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I of course understand what you mean. But there are providing a service and fixing your costs.

My hunch is that it’s only worth buying as a long term investment.

Firstly because the buy sell costs are only spread over 2 years

Secondly the end of a rental ownership can be messy. My wife rented out her flat when she moved in with me. Later she sold it. She sold it empty. That’s easy to access for buyers but you’re covering the costs while you wait for the sale to go through. Selling with sitting tenants isn’t ideal easier, although it might be easier if the next buyer is looking to rent it out. Presumably you’d market when your son was in it? But it would require quite alot if luck to get the sale just after his graduation.

Finally are you allowed to gift free rental to a relative without any by tax implications? I know my wife has told me we couldn’t buy a flat for her mother to live in and charge her rent. But that night be a benefits rule. Is the rent from the other student taxable income to you or your son?

If you run it as a buy to let with your son as a tenant then check your potential lender is going to be ok with that. I’m pretty sure that letting to family is not seen as a good thing. E.g. would you really evict your son or his close friend for non-payment of rent etc

Also, being 18 at uni is a time in your life when circumstances change fairly fast. I’d value flexibility and suck up the cost while thinking more about what happens when he finishes.

You also need to work out how to structure the purchase. If you buy as an individual then all the rent you receive is taxable income as far as HMRC is concerned. Of you buy through a limited company then you have costs associated with setting that up and doing annual accounts etc but you can then expense the costs of owning the property and the mortgage

Seems like helicopter parenting. Consider the effects on your child of living in another of your parent’s homes. Especially if the other tenants have a different attitude to property care.

part of being away from home is making your own decisions and dealing with the consequences. Including landlords and the like.

as @Andy_B says, being away can also mean needing some flexibility.

unless you are already a property baron I’d propose leaving it up to your child to sort out their accommodation.

Edit. I think it is at then end of season 2 of ‘Fresh Meat’ where JP buys the house the group lives in. Unsure if there are any lessons to be learned in season 3 that might help you.

Thank god for chrismac. I was bemused why nobody had mentioned two of the five most important things.Give the money to your son and get him to buy it with you as guarantor, because:

He will pay no ( or next to no) income tax on the rental. ( you would)

He will pay no capital gains tax when he sells it ( you would)

He will get help to buy wotsit ( you won’t)

He won’t have to pay additional stamp duty ( you would)

It’ll reduce and inheritance tax liability.

Clearly there are a few potential problems, but none insurmountable:

If he **** it up and trashed the place or doesn’t get tenants etc then you have to sort out the mess.  Just make it clear that this is his bite at the housing cherry and if he messes it up then he ain’t getting another go from you.

You need to provide similar for his siblings, including the potential value increase over that time. Be realistic, he ain’t going to pay back the deposit. It’s a gift not a loan. So keep some back for little sis.

If it was part of a bigger plan, building a portfolio or buying property where you might want a foothold, then it’s financially sensible. For a couple of years I’d say it’s not worth it. You might get lucky and the value shoots up, you might be unlucky and it crashes or you need a new roof. A gamble to save a few grand in rent. I’d stick the money in an isa and gift some of it to each child when they are ready to buy a house of their own.

As mentioned, it’s a good time for the kid to grow a bit and get some independence

I wouldn’t have wanted to own a flat in my early 20s ace i don’t think my kids would have wanted it either. I wouldn’t have wanted to take on the potential losses in the sale or the hassle of being a land lord after graduation. The individual in question might think it’s a great idea, but is a crucial piece of the jigsaw

It’s not a crazy idea. Whether it works out during the period your kid is at uni is just a question of maths. I’ve heard that 3-4 years of student room rent is a lot. There is also the question of what happens if the other students don’t pay rent or act like dicks – are you really going to kick his best mate out? I would, but I’m a dick.

For me the real question is what happens after: is it a nice town where I’d want to own a rental property in the long term, assuming it pays itself off after 15 years or whatever? Can I switch from student tenants to normal tenants after the kid graduates? What happens if the kid graduates and then wants to stay there after…?

My parents wanted to loan me deposit for my first home and have me expat it back over a number of years or when I sold up, which was ok with me and affordable. Mortgage broker told us that we would never get a mortgage like that. The initial deposit has to be a no strings attached gift and not be repayable in any way.

Theres a lot of chat about the other house mates being dicks, would it make sense to buy a 1 or 2 bed apartment NOT in a student area but more of a ‘young professorial’ demographic, albeit still with reasonable transport links to Uni?

Or you could just let him stand on his own two feet and not add to the UK housing crisis.

Nothing being suggested here alters the number of places to live vs the number of people

A mates parents did this with a flat in 2000’s.

It worked out well for them- they got lucky with housing price rise.

+1 for gift of deposit and your son buying it himself

I’d get chatting to a mortgage broker and see what they say.

Vincent Burch a whole of the market broker in Norwich) have organised 5 mortgages and remortgages for us. They were great to deal with each time. We have hmo properties and few lenders deal with them. No connection, just a happy customer.

stand on his own two feet and not add to the UK housing crisis.

Really?  He will need to occupy a home whether he buys it or rents it so has the same impact on availability of housing.

It’ll reduce and inheritance tax liability.

to be clear – that is really not going to be an issue!  We aren’t even close to having to do any inheritance tax planning based on current thresholds!

Or you could just let him stand on his own two feet and not add to the UK housing crisis.

help me understand how – I’m adding to the U.K. housing crisis?

I’m all for letting kids grow up and find their own way in life, but the government expects me to contribute to his education/living costs, so I don’t see why that money should necessarily pass from me to a landlord with less of a social conscience.

Theres a lot of chat about the other house mates being dicks, would it make sense to buy a 1 or 2 bed apartment NOT in a student area but more of a ‘young professorial’ demographic, albeit still with reasonable transport links to Uni?

so for a bit more context three of them are currently sharing a very nice flat which they have not trashed in the last 18 months.  Whilst the interior of the flat is nice it’s in a crappy Glasgow tenement in an area estate agents probably call “increasingly desirable” but it’s a bit further out than most students go.  It’s freezing cold.  One of the students is leaving this summer, the landlord has implied that a replacement student is legitimate reason to increase the rent.  The landlord is not the worst but he/agency are average at best.   Given the need to find a new person, or a new flat they would prefer to find a new flat for the two of them slightly closer to the uni / centre of town.  It would be a two bed flat so avoid the HMO issues.

The initial deposit has to be a no strings attached gift and not be repayable in any way.

thanks for the heads up on that – it’s the sort of thing I’m hoping to find out before we get too far down the road without an option to change my mind.

I’ve heard that 3-4 years of student room rent is a lot.

it is – for what the two of them are currently paying (ie 2/3 of the rent) you could borrow 180K!  That would get a decent 2 bed flat in Glasgow city centre.

There is also the question of what happens if the other students don’t pay rent or act like dicks – are you really going to kick his best mate out? I would, but I’m a dick.

to be honest I’m not sure that problem is completely absolved in the current arrangement (or any likely future rental).  The tennants are joint & severally liable and so if they trash, don’t pay etc he’ll be kicked out / lose money / pay extra… in reality I suspect we’d end up bailing them out.

the comments about possibly not wanting to become a landlord himself are 100% valid.  I guess that was one of the things which steered me towards us doing that.  But I was trying to understand the pro’s con’s of the options before asking him – because it’s a lot easier to say “we’ve consider this and are willing to do X if you are interested” than say “we could maybe do something and have him excited and then have to go back and say – sorry I missed the Stamp duty / Cgt impact and we can’t help you on terms we are ok with”.

those saying “just gift it” – it may happen BUT in essence if we have surplus cash it would be going in the pension, so by gifting rather than “investing” it – I retire later or on less money.  Of course that’s the sort of sacrifices we make for our kids – but whilst we are obviously comfortable to be able to even consider this we aren’t swimming in spare cash.

How much is rent in glasgow? I had no idea it could be so much. My son in Sheffield was paying under £500 a month for a room in a genuinely nice house

Like woodburners and Landcruisers, it’s always someone else’s problem on here.

Exactly what @thegeneralist said except:

I was bemused why nobody had mentioned two of the five most important things.Give the money to your son and get him to buy it with you as guarantor,

Lend the money to your son at a silly low interest rate, then he doesnt have to pay Capital Gains Tax on the gift for the deposit and you avoid all the second home stuff?

I really can’t see how the university education system would work without buy to let Landlords. The Landlords in sheffield provided some where to live for my son. Some houses were better than other but overall it worked well. How else could it work?

The guy who rented to my daughter in Bournemouth was more of a chancer

Supernova

For pretty much every house in the UK that somebody would like to buy there’s someone who would like to rent it for various reasons other than simple affordability.  If you legislate to control the price / availability of houses to buy you will hurt those who want to rent.  I don’t know if you had noticed but the rental sector is in a bit of a post-covid crisis with lack of availability pushing prices well beyond what is reasonably affordable.

The basic problem is a lack of decent houses where people want or need to live.

Lend the money to your son at a silly low interest rate, then he doesnt have to pay Capital Gains Tax on the gift for the deposit

Neither the giver nor the recipient of a cash gift has to pay Capital Gains Tax.

Honestly sounds like more trouble than its worth, the thing folk are missing is you say ‘son and 1 other’, so that means someone paying your son / you rent, which then brings in all the rules for being a landlord, not to mention getting a mortgage that’s not got the condition about renting and so on. as others say, you then have buying and selling costs, counting on prices staying the same or rising and so on, paying rent is a pain, but without as many liabilities as owning, not sure how far you are from Glasgow as well, is your son and his mate up to ownership at this point?

@ampthill – 3 bed tenement flat, too far east for most of the Glasgow Uni students, but ok for Strathclyde Uni (40 min walk or 15 min bus) busy main road, front door to the close (stairway serving 8? Flats) has never locked and buzzer never worked in the two years he’s been there, neighbours mostly seem ok but the entrance is certainly not inviting (rubbish, dark etc).  Flat itself is nicely decorated, cold but not damp.  Furnishings are “student” rather than luxury.  But although targeted at students bedrooms had bed and wardrobe but no desk or chair.    For that you are paying £1650 – and they want more!  Of course to secure it they had to rent it for two summers so far etc!

@supernova – I’ve never owned a woodburner or a landcruiser.  But I still don’t understand what it is you think I/my son should do to not contribute to the problem?  It’s obvious with wood burners and landcruisers what the alternative is – but let’s assume I do nothing to help here – he will rent from another private landlord (unless you have an actual solution).  If anything providing an alternative slightly cheaper option reduces that market demand for rentals by a tiny fraction and puts some downward pressure on rents (again as a one off by a tiny proportion) discouraging those just out to profit from others?   Now I think what you might be saying is “mummy and daddy helping, inflates the prices that can be paid and adds to the market price”.  I get it, if you aren’t lucky enough to have a mum and dad who can help that leaves you at a disadvantage, perhaps you might be lucky enough to have a friend who’s parents can help and you benefit from slightly cheaper rent.  The economics are screwed up – but I can chose to help or chose to take some sort of meaningless political stance that will not help my son (and since the state expects me to support him – indirectly hurt me!)…. Feel free to open philanthropic student accommodation in Glasgow though – I’ve got your first two “customers”.

When you say too far east, do you mean Drumchapel or even further?

The problem is when you jump up to 3 bed rentals it gets quite a bit more, if there are 2 of them do they need a 3 bed, that could cut rental costs a bit?

But I still don’t understand what it is you think I/my son should do to not contribute to the problem

I suspect you won’t get an answer. I’m a big leftie but your son clearly has to live somewhere and he’s going to end up paying someone’s mortgage.

Only thing I would contribute is that – having lived in a house where my rent was paying one another housemates’ mortgage – you can create a wedge between friends.  My friend was mostly ok, but when there was an issue that needed sorting, it was him that needed to fix it. And he was doing a PHD and also terrible at getting around to things. But then if we bodged a fix (in a studenty way) he could grumble because he wanted it doing properly. And he also needed to be able to put his foot down if someone was late on the rent.  So just a note to be careful there.

So £52000 for 0.66 of a flat for 4 years. One of the calculations one shouldn’t do. Like working out what i get paid per day to run the physics course…..

I planned the same, but in the event Son1 went to Dublin for four years and I can’t get/guarantee an Irish mortgage as a UK resident, despite having the deposit. And housing in Dublin makes London look reasonable! So he’s paying 1100 euros pre month (yes you read that correctly) for half a tiny tenement house in Dublin 6. Someone is making a lot of money. as it’s 52k over four years. Two years isn’t really that long, however, so have a plan for them to let it out afterwards.

You need to factor in the Conveyancing fees (or whatever they might be called in Scotland) to buy and sell the house thats going to be +£5k before you start

Then in the first 2 years of a Mortgage 95%+ of that will be spent on interest to the bank. Thats likely to be equal to the amount of rent you’ll pay, plus any other fees the bank may want.

If you own the home you’ll need to factor in repairs/maintenance which is generally ~1% of the value of the home per year.

I doubt it’ll be any cheaper to buy vs rent, plus you have to take on all that additional risk.

So the reducto ad absurdum of most of the responses seems to be don’t buy a house, it’s a really bad idea. Much better to rent.

Gotta say, I’m really struggling to get that ( which is obviously neither here nor there, of course)

I must be missing something but I don’t see how a student would stand a snowball’s chance in hell of getting a mortgage regardless of having a decent deposit. What are they supposed to be making monthly mortgage payments out of?

What are they supposed to be making monthly mortgage payments out of?

The money that they would otherwise have been spending on rent, plus their housemate(s) pay rent to them.

Neither the giver nor the recipient of a cash gift has to pay Capital Gains Tax.

Stand corrected. Thanks!!

how a student would stand a snowball’s chance in hell of getting a mortgage

Not a problem if there is a guarantor who checks out. Did it in past for sister.  Just get your solicitor to check the terms as the initial wording from sisters solicitor on mine had me guaranteeing any mortgage on the property after my sister would have sold.

@thecaptain – apparently there’s half a dozen lenders who specialise in this market – that was news to me but is something I’ve gained from the thread.  Thanks to those who highlighted it.  So although they are lending to student they factor in the “other occupants” rent and presumably the student loan/summer work/parental contribution that currently pays the rent and don’t really care because I’m on the hook if they don’t pay!

@chew – it’s a while since I’ve bought/sold but I doubt the costs are £5k.  That might include estate agency fees and home buyers report at the point of sale!

@argee no sorry I’ve confused you – he currently rents with two others.  One of them is not going to be there next year, so the two remaining are planning to find a 2 bed place.  Current flat is nowhere near Drumchapel (which is NW Glasgow) – he’s basically as far East as you can go in Dennistoun.  He’s currently paying £550 pppm – <£1000 pm mortgage gets you enough mortgage to buy something fairly decent with 2 beds.