Has anyone ever let a friend invest in their BTL property?

by Readers Question

10:15 AM, 15th April 2020
About 7 months ago

Has anyone ever let a friend invest in their BTL property?

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Has anyone ever let a friend invest in their BTL property?

Hi, I am looking for a bit of advice and wondered if anyone could offer any suggestions. I have a friend currently working in Bermuda, (but from UK), who is looking to get on the property ladder.

They can’t get an overseas mortgage, but have around 20K that they would like to invest and have asked for our help.

I have pondered whether they could invest their funds into one of the existing BTL properties that I own jointly with my spouse, but I wasn’t quite sure how to do this, or even if it is a good idea to suggest this to them. The reason for this is that it would have to be a long term investment to them as the market has suffered a bit of a downturn of late.

Not sure how this type of arrangement could be structured to ensure fairness to all parties. E.g. how do we work out the percentage of the value of their investment, and try to estimate the future value of the property. We would continue to be responsible for the mortgage/expenses and to receive the full rental income.

Also, there is the question of what sort of legal document would need to be drawn up in the absence of their name being put on the deeds to the property.

Has anybody ever done anything like this before?

Ann-Marie


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Comments

david porter

10:38 AM, 15th April 2020
About 7 months ago

How to have a bigger problem and additionally lose a friend?

David Price

10:45 AM, 15th April 2020
About 7 months ago

Yes with disasterous consequences. Don't do it.

Paul Shears

11:14 AM, 15th April 2020
About 7 months ago

Don't do it!

Mark Smith (Barrister-At-Law)

11:17 AM, 15th April 2020
About 7 months ago

If you did decide to go ahead you can use a deed of trust to reflect the % you are allotting to the friend. Unlikely to be and CGT or SDLT on that amount of investment.

Gunga Din

11:17 AM, 15th April 2020
About 7 months ago

Agreed. Don't even mention it to him. People take liberties. You need assurance of absolute control over how you run your business, even if he says he will not try to influence.

Steer clear.

Sharon

11:23 AM, 15th April 2020
About 7 months ago

Reply to the comment left by Mark Smith (Barrister-At-Law) at 15/04/2020 - 11:17
This is helpful as I was considering a tiny investment (around 2%) with a friend's proposed purchase to slightly reduce hi borrowing. I am concerned at whether I would be called upon to additionally fund any 'work', especially anything unexpected that crops up so would appreciate if you think this could be covered in the Deed of Trust?

Mark Smith (Barrister-At-Law)

11:25 AM, 15th April 2020
About 7 months ago

Reply to the comment left by Sharon at 15/04/2020 - 11:23
Yes-a JV agreement can be devised to cover all these eventualities

Sharon

11:32 AM, 15th April 2020
About 7 months ago

Reply to the comment left by Mark Smith (Barrister-At-Law) at 15/04/2020 - 11:25
Thank you, that's very helpful

James Mann

11:43 AM, 15th April 2020
About 7 months ago

I have done this several times with friends. I have always set up a partnership where the initial stakes have been equal, although this is not necessary. A partnership document will be necessary to record the percentages of this initial capital. The initial capital needs to cover all the purchase costs and deposit. I have taken complete control, and bought a house solely in my name. Organised the mortgage solely in my name. I then take 10% of the rental income for commission to organise and contract tenants.
In order to finish the arrangement, either the property is sold and after all expenses including his percentage of CGT, the profit is divided in ratio of the initial capital, or the property is valued and you buy him out taking everything into account.
There are further measures that you can take if you have a family LLP that may be useful.
Over the years I have found this to be an excellent way of increasing my property portfolio when I would not been able to otherwise and to take advantage of the commission as well as half or third of the uplift, depending on the partnership arrangement. Obviously everyone has to trust each other, but you stay in control.

Rob Crawford

12:44 PM, 15th April 2020
About 7 months ago

I wonder what the friends expectations are, he may be disalusioned and later become disappointed. That's when the problems will start! Ask yourself, "do you need this?"

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