Am I getting a fair deal on apartment with parents?

B

BillyJohnson

Guest
Hi

My parents suggested investing in an apartment with myself and my girlfriend in Dublin. They were going to buy 40% with cash upfront and my girlfriend and I were going to take out a mortgage for the other 60%. We were planning to sell in 5-10 years and everyone was going to take their proportion of the sale money.

However, the banks will not give myself and my girlfriend a mortgage unless our names and only our names appear on the title deeds. We are going to draw up a separate agreement with my parents granting them their proportion. However, they say that without their names on the deeds, they are taking a higher risk and want us to guarantee a minimum return of whatever they would get had they invested the money in a Rabobank (online bank - current interest rates are 3.2% and should rise) account instead. If the price goes up, however, they would get their full 40% of the sale price.

In addition to this, they get 40% of the rent from our spare room and parking space. Their 40% is now worth €228,000 and the rent would be about €52,000 over 10 years (which is a 23% return over 10 years).

Do people think we're getting a fair deal or would we carry too much of the risk if property prices fall?

Thanks,
Billy
 
Are they really investing or helping you out?

If they are investing they should be prepared to take some of the risk.
 
They argue that they're old, not earning and we're young so we could afford to take a hit.
 
while it does not seem particularly fair is it the only way you can get on the property ladder?

your parents have you over a barrel but if in ten years the property has raised signifiacantly in value you are both winners?
 
Mixing business and family always has complications, so I'll ignore that side of the argument for the moment!

In terms of what I would consider fair:

BillyJohnson said:
... want us to guarantee a minimum return of whatever they would get had they invested the money in a Rabobank (online bank - current interest rates are 3.2% and should rise) account instead. If the price goes up, however, they would get their full 40% of the sale price.
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They want to have their cake and eat it. No investment product will guarantee a minimum return on the down side, yet still give you 100% of the gain on the upside.

BillyJohnson said:
In addition to this, they get 40% of the rent from our spare room and parking space.
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Again this is unfair. Firstly, if you're living there, you are effectively providing the service of a management agency, not to mind the additional security for their investment. Secondly, what happens if you can't rent, or if you're not happy with the tennant?

BillyJohnson said:
Do people think we're getting a fair deal or would we carry too much of the risk if property prices fall?
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No, I don't think it's a fair deal & you are carrying all of the risk. It would be a big price to pay to get on the property ladder.
 
Without getting into the ins and outs of it it sounds completely unfair from your pov. This has "family disaster" written all over it. Find another way...
 
Better to negotiate a fair interest rate and repayment schedule for your parents with no upside/downside worries for either of you. Perhaps then the rent would cover much of your payments to your parents?
 
Agree 100% with previous post. Very unfair deal....I do not think they are trying to help you at all.
Are you not trying to buy a property which is too expensive for you ? from you post, i make it worth €580k....
You should find a cheaper one and go 100% yourself and GF.
 
Just to throw in another complication, you will need an exit strategy if you and the girlfriend break up, which I am sure you both hope will not happen, but at least plan for it, especially with your parents involved.

Christy
 
Christy said:
Just to throw in another complication, you will need an exit strategy if you and the girlfriend break up, which I am sure you both hope will not happen, but at least plan for it, especially with your parents involved.

Christy
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I second this very stongly. It's a big thing, but people rarely take it into account. Can involve severe difficulties (financial and otherwise) if the break up did happen.

You only need to read other threads here recently where its only after the fact that splits of property/money/mortgage is considered and sometimes not agreed amicably at all.

Some sort of binding agreement (don't know the legal complexities - perhaps the experts could enlighten us further) should be investigated so that people know where they stand immediately should the worst come to the worst.

"It's because I do love you so much that I'm asking you to sign this agreement that will kick in should we break up"..... harsh but fair :)
 
Is this a big joke? ive never heard anything so ridiculous in my life. get a grip of yourself man. people have just lost it with regards to getting on the property ladder. at some point their will be a correction in house prices and you are going to be in the worst position of anyone in ireland. you will fall out with your family,girlfriend you wil get sick of renting out the room will constantly be under pressure when you have it vacant, how do you split the costs service charge etc. you are guaranteeing your parernts a return of 3.2% ? are you the rabo bank? but if its higher they get that ? why not say that if they want unlimited upside return then they cant have guaranteed minimum. none of there senarios will end up in a good outcome. it will all end in tears!!!
 
Are you sure you are going to rent the spare room for the next 10 years? Renting your spare room might be fine at the beginning, but you're gonna want your own space with your girlfriend at some stage - three's a crowd and all that.

Secondly, bear in mind that the average first time buyer stays in their first property for only 5-7 years (some BBC programme I saw a while back claimed this) - what happens if you want to sell sooner than 10 years - 10 years is an awfully long time away at this stage in your life.

Are you not trying to buy a property which is too expensive for you ? from you post, i make it worth €580k....
You should find a cheaper one and go 100% yourself and GF.
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I'd second this - I think you're trying to run before you can walk - I don't know any first time buyers, even buying with a partner, who can drop nearly €600k on their first home. Do yourself a favour, set your sights a little lower, and keep the parents out of it.

Families and money, particularly Irish families and money, are a dreadful combination!!
 
Have you considered what will happen if interest rates rise over the next few years? Would your parents look for an increase also on their investment?

Anyways 600k for an appartment for a first time buyer is crazy, there are too many scenarios where things can go wrong and the scenario you give where it all works out (e.g. renting a room for 10 years, guarenteed return for your parents, 40% of rent income to your parents) just doesnt sound a good idea.

Look to purchase something you can actually afford.
 
I think all posts so far have missed one important point - the parents are investing 40% of the cost but getting 0% usage of the apartment. Theoretically, Billy should pay a notional rent of 40% of the market rent to his parents to compensate for this, IE he is getting 100% usage of the apartment for 60% of the investment. If he was paying such a rent, it would then be reasonable to split rent-a-room, car space rental income and capital gains 40/60 but without a guarantee to the parents. (Another way of looking at it is if the parents invested their 40% cash in their own investment property, they would benefit from rent and capital gain - by jointly investing with Billy, they are giving up the rent so it makes some sense for them to want to lock in the capital gain in return)

Essentially, Billy is getting his parents share of the apartment rent free for 10 years - this may or may not be worth the guarantee - but that depends on attitude to risk among other things.
 
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