Friend lending money to buy property – how can I set it up legally?

by Readers Question

11:08 AM, 14th March 2019
About 2 months ago

Friend lending money to buy property – how can I set it up legally?

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Friend lending money to buy property – how can I set it up legally?

Hi, I am buying a flat as a cash buyer through a LTD company. As I cannot raise enough cash myself, I have asked one of my friends to lend me the money (half of the cash buy + stamp duty + renovation + solicitor costs).

We decided that as soon as the building works are finished, I will get a mortgage on the flat, hopefully the new valuation will be much higher than the total spend.

I will then reimburse him and pay him a share of the increase in value.

Does anyone know how I legally put this in place?

I.E what kind of paperwork, what kind of lawyer do I need?

Many thanks

Jean-Charles

 



Comments

Mark Alexander

11:49 AM, 14th March 2019
About 2 months ago

Talk to a good accountants who specialises in property about redeemable preference shares.

Below is a link to the Member profile of the accountant I use personally, which also includes a contact form ....

https://www.property118.com/member/?id=452

Graham Bowcock

12:00 PM, 14th March 2019
About 2 months ago

Jean-Charles

You are right that you will need good documentation. Agreements with friends can be the worst for going wrong!

Have you thought about your friend becoming a director or shareholder in your company? This would give flexibility for them to put money into the venture, and for you to use it. You would still need proper documentation, but it may be easier than just having a loan. It may also give them some comfort as they would have some control.

I did this with a friend 20 years ago and business has bloomed without us falling out.

Tim Rogers

19:27 PM, 14th March 2019
About 2 months ago

If your friend lends the money to the company, rather than you personally, then the company assumes the debt. Provided you issue a letter confirming the situation, ( you can pay interest etc if that's your deal), should you demise, the debt is still claimable from the company etc.

Extra security can be offered by allowing your friend to place a charge against the property, assuming the property value is greater than the loan it's a fairly robust structure.

I have a similar arrangement within the family, but in my case I must be seen to be paying sensible interest or the tax man takes a very dim view of this type of arrangement.

Michael Barnes

18:07 PM, 17th March 2019
About 2 months ago

If I was your friend, I would also want a personal guarantee from each of the directors of the company (so I would have some protection if the company goes bust).


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