9:40 AM, 4th September 2020, About A year ago 18
Suddenly it struck me, I have a friend who is struggling to raise enough deposit, as he waits longer to save for a deposit, the property values go up, so he is forever chasing his dream to own his own home.
So I had this brain wave, where I might be able to help him and gain something out of it at the same time whilst he also gains, so kind of double benefit for both of us. It is a bit like an interest-only mortgage. Here is how I suggest it might work provided it is drawn up all legit with a firm of solicitors and both parties remain truthful to the deal
So let me start, I have spare 100K sitting in my bank earning ZERO % interest! Not only that interest rates are unlikely to go up for a considerable amount of time, but the best I could get is also 2% in a Savings Bond. But I do not want to lock my money in a Bond, nor lend this money to my friend either, so what I propose I can do is to buy a 2-bed house in Nottingham that is where my friend lives, he can choose the house he likes, so I buy it for cash for him but under my own name, for about 100K,
He is currently staying in rented accommodation and paying around £500PCM rent for a 2-Bed house, He has a steady income, supporting a small family of wife and two children, not a problem here either.
So once I have purchased this house, we go through a proper contract where I will charge him same rent each month and gain by getting £6000 rental income on my 100K doing nothing currently in my account, but I sign a special agreement where he can buy that house in future for the same amount I paid for it today, so for instance in 10 years he could buy it for 100K from me when house prices may have gone up by another 50%.
This means he can buy from me a property that might be valued at £150K for £100K as per our special agreement, so he gains £50K and I gain 60K, so when I sell it to him for £100K I do not have to pay any capital gains tax on the sale of the property but only the income tax on the rental income.
This scheme can only work if he trusts me, and I stick to my promise that I will not back out to sell him at 100K rather than at a higher prevailing price 5 or 10 years later.
The idea is he should be able to buy his own property from me for 100K in 5 or maximum 10 years time, by which time he may have got higher savings and better credit references, thus qualify for a mortgage more easily, get a mortgage whereas he is not in a position to get a mortgage now.
Has anybody done something similar to help a friend or a family member if so are there any implications and other legalities? Can you sell a property under market value at the same price you bought trying to help a friend?
Suppose my friend does not keep his word, and moves out or buys another property, I still got mine and I can rent it to someone else, or sell it at a higher price and make a gain and pay any capital gains tax and I still got my original cashback which would have earned me nothing sitting in a savings account.
Any views or thoughts will be welcomed.
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