Advice about a student property purchase for our daughter?

by Readers Question

8:39 AM, 20th November 2018
About 3 weeks ago

Advice about a student property purchase for our daughter?

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Advice about a student property purchase for our daughter?

We recently set up a family partnership company through Property118 to enable us to split property income between my wife, daughter and myself for tax efficiency. We currently own and rent out 2 properties in Dorset.

This year our daughter has started university and we are considering purchasing a property for her and a few friends to live in (the friends paying rent). Local properties with HMO approval are £20-30,000 more than similar ones without it and we are considering possible options in the area as HMO approval is unlikely on a new property. One option we have would be to purchase a 3 bed “family” property jointly in our daughter’s name which she could then use and rent out the other 2 bedrooms. This wouldn’t then require HMO approval.

My questions are these:-
Ideally, we would purchase the property with our partnership company which our daughter is a part of but would she then be considered an owner as far as HMO is required?

Our daughter has money in a first time buyer ISA. If she were to be involved in a property purchase with us directly or via the partnership, would this count as her first property purchase and she would have to use her ISA money?

Grateful for any advice.

Peter



Comments

Mark Alexander

9:18 AM, 20th November 2018
About 3 weeks ago

Dear Peter

We published an article back in 2012 about Student Mortgages, please see the link below.

https://www.property118.com/student-buy-to-let-mortgages/

I cannot see why your daughter could not hold the property 'on-trust' for the partnership and I recommend speaking to the broker offering this product about all partners being named on the mortgage from day one. On that basis, the beneficial ownership split can be recorded on a Declaration of Trust by the conveyancing solicitor on the basis of the ownership being recorded at HM Land Registry as Tenants in Common.

ED SHIRMAN

9:57 AM, 20th November 2018
About 3 weeks ago

Hi Peter ,the status of the house re HMO classification is dependant on the numbers occupying the premises and the set up of shared facilities , this you must check with the local authority . It is not based on who owns the property.
Ideally i think you should have the house owned by your daughter and she can then claim tax relief on the rent a room basis for example . Also under current legislation , when she decided to sell , it could be considered her primary residence and not pay capital gains tax . Alternatively it could continue as a source of income for her.The key seems therefore to be how you propose to finance buying the property . Hope this helps and am happy to answer other points if it might help . I did the same for my son back in 1998 and built a property portfolio both in a company and personally from that time . I have been involved in HMO's recently with the change to the classification by national Government.

Luke P

10:25 AM, 20th November 2018
About 3 weeks ago

Do bear in mind that when she does eventually want to buy her proper first home, she will no longer qualify for SDLT relief (or Help to Buy) as she will no longer be considered a FTB. Could be costly if she gets a good job and a nice pad in, say, London...

Mark Alexander

11:34 AM, 20th November 2018
About 3 weeks ago

Reply to the comment left by Luke P at 20/11/2018 - 10:25
Hi Luke

Under the method I have recommended, this property would be her first home. Also, she would have the benefit of Rent A Room allowance and the reduced letting regulations on the basis that the people she rents to would be lodgers in her home as opposed to being tenants. Another advantage is no CGT when the property is sold due to PPR relief.

Claudio Valentini

12:23 PM, 20th November 2018
About 3 weeks ago

Personal opinion, I wouldn’t do it – unless of course it’s “Throw away money” but we don’t all have that to hand though…
I considered doing this when my Daughter went to University and the deal fell through, which in hindsight was a good outcome.
There are a number of quantitative and qualitative reasons why I wouldn’t do it:
• 3 years goes by very quickly and after Uni life your daughter may not stay in town. You’re then left with a house in Uni town that you’ve got to decide what to do with
• Student lets can be high maintenance and time costly so if Uni town is in Durham and you live in London etc They usually also need a full refurb at the end of the year
• The return on investment on a purchase in Uni town may not be as good as if you invested elsewhere
• If your daughter is known to be the owner of the property (or child of the owner) she may well be looked upon as entitled/privileged – they don’t need that grief, nor do they need the headache that goes with having to deal with day to day stuff, Lodger's agreements etc plus having to deal with things that might go wrong which they will, once their housemates know they have some skin in the game
If you have money to invest in property, personally, I would put it somewhere that makes the best business sense according to your strategy/criteria and then take the income from that to pay for your daughter’s accommodation in Uni town. That way, she can be like everybody else and just get on with her studies (and spending your money on having a great time away from home) and when the three years is up you still have an investment that makes sense
3 years does go by very quickly...

Luke P

12:37 PM, 20th November 2018
About 3 weeks ago

Reply to the comment left by Mark Alexander at 20/11/2018 - 11:34
Hi Mark, I should have clicked the 'Reply' button as I was aiming it at Ed's "Ideally i think you should have the house owned by your daughter..."

Just a consideration, perhaps financially better off structuring differently but I know someone whose parents did something similar. They were using their money to help their daughter, claimed PPR relief upon sale (all very sensible under the circumstances), but a number of years later when daughter was buying and all her friends were getting SDLT relief, she couldn't...but her parents weren't prepared (monetarily nor in terms of expectation) to cover the additional cost of her true 'FTB' house...none of them had thought ahead. Relationship had turned a little frosty and daughter was trying to prove she could manage without them, but this added an awkward situation...she couldn't get the same entitlement as her peers and really had parents to 'blame'; parents weren't prepared and felt as she was adamant she could 'go-it-alone', wouldn't intervene.

ED SHIRMAN

12:51 PM, 20th November 2018
About 3 weeks ago

Hi everyone . Mark , of course the relationship you have with your daughter both now and in the future is a key factor in this as well as your investment objectives. My boys . now men ,and i maintained a very good relationship and they trusted and respected my experience and planning for their futures. I would wish you the same but only you can decide. The handling of maintenance issues etc can be managed by finding trusted local traders and i didn't have any problem when my son lived in his property with other tenants. I didn't find distance as a problem once this was set up . Good financial and man management is of course needed.Nothing comes easy , you have to make it work for you if that's what you want .

Nick Faulkner

13:52 PM, 24th November 2018
About 3 weeks ago

I am with Claudio...... I have done it and would not do it again. I am a student landlord in Norwich and so when our eldest child went to university in London we bought a house for her to live in with a few friends to help pay the mortgage.
My daughter a serious studious type picked quiet people to live with. They were quiet but not because they were studious but because they were nervous and neurotic . Our girl was concentrating on her work when I had a call from one of her housemates in hysterics. She had seen a mouse....in the 200 year old house. I had to take out a very expensive contract on the little furry creature and sadly he got what was coming to him. In the same week I was round at one of our houses in Norwich where a couple of country girls at the local Art School told me they had caught three mice during the week. I was horrified and asked where they had come from " It's Dave in Room3. He buys live mice to feed his snake and they escaped" it was all told to me in a very matter of fact way. Obviously Dave should not have had a snake in the house nor the mice that went along with it.
Back in London my daughter was getting upset by her colleagues. She was in the dilemma that Claudio pointed. She was not the landlord, I was, but nor was she just a house sharer but had a degree of responsibility for the property. The stresses caused by this would mean buying a house for student child would not be advised by me.
Our daughter went off to Cambridge in pursuit of another degree and was followed by our son. Regretably he was a feckless youth who filled the place with his mates.... as bad a bunch of students as we have had in forty years in the business.The third child having seen her sister worried and her brother ranted at by me refused to move in and rented elsewhere. A wise move.
From a business point of view it was a good buy. Property prices were shooting up in London and after six years I sold it and had to pay 50% of the original purchase price in CGT.
Buying a house for a student child sounds a good idea but there are several downsides especially since George Osborne's attacks on the PRS so think about it very carefully.


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