Pros and cons of a potential deal

[bayestheorem]

Hi there,

I'm a 21 year old college student, so no way I'd be able to get a mortgage due to no income. However, my side gig has been doing well and I have £85k cash in the bank. A family member (67yo) has mentioned selling me their house (worth c.£300-400k) for around £50-60k cash so they can use the money to do things they want to do with the rest of their life on the condition that they can live in it for the remainder of their life rent free. The house wouldn't be left in a will, it'd be signed over straight away so no chance of others contesting the will etc and no inheritance tax, although capital gains would be due when I sell unless I move into it and live in it for a while beforehand I guess (while renovating maybe). This would leave me with give or take £35k plus whatever I can make on top before I finish college in a couple of years to put towards somewhere to live once I leave college.

Anyone got any thoughts on the pro's/con's of this as a deal and whether you'd take it if in my position?

Cheers!

[Papa bear]

Can't comment on this for U.K. Law, but in the US, this would throw up so many red flags.

Arms length transaction, if you had no income, where did you get the cash, etc. 

Good luck! 


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[meatface]

Can you describe the nature of this person, and will you be living with them?
Do they have good genetics and will live another 30 years? Are they going to annoy you for the next 30 years? Will they expect you to take care of them at some point? Will your future spouse want to live with this person?

[bayestheorem]

Can you describe the nature of this person, and will you be living with them?
Do they have good genetics and will live another 30 years? Are they going to annoy you for the next 30 years? Will they expect you to take care of them at some point? Will your future spouse want to live with this person?

I wouldn't be living with them and would never be expected to care for them at any point. It'd be a case of them living in the house as if it was theirs until they pass, as if they were renting from me for no cost.

There's also no chance of any deviousness (is that a word?), they're very trustworthy, traditional and I'd 100% trust them with the deal, not that I'd need to if the deeds were signed over I assume.

As for health, I have no idea how long they have. 100% healthy at the moment, which is a good thing really but I get that for the purposes of this it has to be looked at differently.

Can't comment on this for U.K. Law, but in the US, this would throw up so many red flags.

Arms length transaction, if you had no income, where did you get the cash, etc. 

Good luck! 


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The source of funds isn't an issue, it's 'income' but non-taxable income so I haven't had to report it and can't use it for a mortgage. Completely legal though. I hadn't considered the arms length transaction stuff, slightly trickier so thanks for the heads up!

[radram]

I would definitly persue the offer to learn more.

I would treat this as an equivalent of a reverse mortgage. As far as pitfalls, try to find a sample reverse mortgage contract so you can see what protections are in place. You are most interested in protections of the lender, not the borrower.

For example, who provides the maintenance, and at what time frame? Can they do what they want with the property, or do modifications need to be approved by the new owner? If the place is trashed, can his/her estate be sued to recover damages?

You would also need to calculate "lost rent", and appreciation for the duration of his/her life to see if you would come out ahead.

I would only be comfortable with a sale that occurs occurs on the front end, with a 99 year non-transferable lease for $1 per year, with all other costs included in the contract. If they are still the registered owner at death, I would not have any confidence the deal would be completed after death.

Keep us posted.

[Another Reader]

They are reserving a life estate in the property and conveying the residual interest to you.  Repairs, maintenance, and capital improvements should be negotiable, but most likely, you would be responsible.  If you want to be responsible for taxes, insurance, and repairs on a property you will eventually get but at an unknown date, it might be worth it.  See an attorney that specializes in this type of arrangement before you proceed.  You may need to add situations to the contract that would terminate the life estate, such as them destroying the property or being mentally incompetent without proper care and supervision.