Buy to Let with father

DonnieCorko

Hi there,

My family have a second property that is currently taking in around 25-35k rental income per annum via corporate lets. The property cost is around 250k. This "business' is something I set up using another passed away family members home that was left to us so I pretty much set it up from the ground and run it at present. I have been doing this since around 2017.

I am thinking of trying to replicate this in a split with my father. Buy another property and do the same thing. My father has around 120k to put into this. I am contemplating borrowing 120k via a BTL loan and going 50/50 with my dad on this.

I do not have my own home but I am currently in the process of applying for a mortgage. If I do manage to buy a small 1 bed for myself for 220kish I will have around 20k savings left over after paying my deposit. So 120k from my father, 120k loan, 20k savings for the BTL property.

I am wondering is this possible do you think? My rent is currently around 950 so buying a 1 bed to live in, the mortgage would be roughly the same.

Looking at online calculators for buy to let, 20 year 100k loan at 4.8% interest rate would be a monthly payment of 650 Euro p/m. 2500 p/m rental income split between both of us is 1250 p/m. Rough maths, let's say a 50% tax rate, would just about cover my part of the mortgage. This of course is not taking into account interest rate tax relief, nor is it taking into account yearly expenses that we may have for the property. Additionally, interest rates are quite high now so its possible this payment may come down in a few years.

Wondering what other people's thoughts are on this? I know people don't recommend becoming a landlord at the moment but I feel our situation is a bit different from the norm because of the high rental return to cost of the property, and also because I can funnel customers to this new property when the other one is booked (its booked solidly and we turn away a lot of clients).

Thanks for reading!

I think you will struggle to get a rent of 2500 from a property you purchase for 240,000 today.

Most BTL mortgage rates are approaching 5.5% so you might have to recalculate. The bank might not allow your father's name on the deed if you need a mortgage, he might have to give the 120,000 to you which will count towards your inheritance.

You did not factor expenses in your calculations. Some are tax deductable some are not. While you can write off the tax deductible ones you are effectively only writing off 52% of the expense so you still have expenses to consider in your calculations.

It's not going to sustain itself while you have a mortgage and so will reduce the amount you can borrow if you look for a mortgage for yourself while you have a mortgage on the rental property

DonnieCorko

https://www.boards.ie/discussion/comment/121002683#Comment_121002683

Thanks for the reply.

At present, we are corporate letting a 2 bed at that value for around 3200 p/m. I reduced the average rent I would expect to 2500 to allow for potentially a little bit less for numerous reasons.

Father's name on the deed was the main concern I had tbh. I wouldn't want/ask him to gift me the 120k for it. Is it possible to sign something that might state the bank has rights to recoup any losses before the father/myself?

I understand there are expenses, I was just doing some quick calculations. However, I am confident I could service the mortgage (or at least the vast majority) with the rental income.

My biggest concern is my father's name being on the deed. Any knowledge of whether it is possible? I thought that as the LTV on the property would be around 50%, that it would be okay with having his name on the mortgage too, but perhaps not.

https://www.boards.ie/discussion/comment/121005512#Comment_121005512

I still think a 9% annual return on your investment is at the top of the scale and a bit optimistic. The 15.4% (38,400p.a.) you are currently making for a two bed is hard to believe unless its in short-term lets instead of corporate lets, when was the property valued at 250,000?

I don't think the Bank would have an issue with your father being on the mortgage as long as ye both meet the banks criteria hopefully his age doesn't go against him, it would be worth having a consultation with the bank to find out. If your father is not on the mortgage but is on the title deed and there are issues down the line it makes it a lot more complicated for the bank so I assume they would be reluctant to enter into that type of agreement.

Buying an investment property with another person is complicated and there are a few things you need to consider. If your father needs his funds back in the future what happens. When your father passes away will he leave his share in the investment property to you. Who gets final say in important decisions. Who does the day to day management of the property.

DubCount

I think buying a property with any family/friends is a bad idea.

I'm sure OP gets on very well with his father, but property is a long term game, and circumstances change. What happens if OP's father dies and the estate is going to someone who does not want the investment. What happens if OP wants the equity to do something else but the father does not want to sell. No matter what the relationship is today, 10-15 years from now may see a very different set of circumstances.

Stick to property investment on your own or with a spouse.

antoinolachtnai

Your structure is very bad and doesn’t share out the risk or the profit equitably. Your father is taking a big risk and you are taking very little. Your father’s independent legal advice will correctly advise against this transaction.

I would get accountancy advice on the structure of this.

This is all without looking at whether it is a good business proposition overall.

You might be better off buying out the rest of your family from the existing property so you own it outright. Or selling out your own share and buying another property yourself.