Buying a property with an adult child

I'm selling a share I have in a property which will realise c.105k.

At the same time my son has been looking to rent a 1 bed apartment in Dublin - can't get anything half decent for €900 a month which is the budget.

He has about 35k in savings but on a salary of about €32k will not be able to get a mortgage I would imagine.

So I was thinking about jointly buying an apartment / house that he could live in for say 240k and mortgage over 10 years (repayment would be around €1k per month paid by my son, I am now 55) and my son would have a 25% interest in the property?

Any thoughts / advice would be appreciated.

Roger

Rent is much more expensive than borrowing the money to buy the property, so it's probably a good idea financially. However, there are a few disadvantages.

1) It will be very difficult for you to get the money back, so it's important that you don't need it.
2) If your son doesn't make his repayments on time, your credit record will be affected by it.
3) It will be a bit messy from a tax point of view. He will be exempt from capital gains tax as it's his home. It's a bit more complex for you. If you buy before the end of the year and hold it at least 7 years, you will be exempt from CGT for the 7 years.
4) If he rents out a room, will that be your income or his income?
5) There is great scope for falling out. For example, if he wants to trade up after 4 years but you need to keep it for the 7 years, he could be really stymied.

If you do up a clear legal document before hand, you can minimise these problems.

I think that there are better ways to do this.

1) He buys the property in his own name, but you are both on the mortgage

He can rent out a room and use the proceeds to repay the loan to you.

Alternatively, use the rental income to reduce the mortgage as quickly as possible and then the lender may let you off the mortgage.

2) If he can't get a mortgage in his own name, you buy the property in your own name and let him live in it rent free. Sell it to him after 7 years for €240k

You take out a mortgage of €100k in your own name.
If you sell it after 7 years, you will not be subject to any CGT.
If it's worth say €300k and you sell it for €240k, the €60k will be subject to Capital Gains Tax, but should still be well below his threshold.

The big problem here is that you have to keep it for 7 years to avoid CGT. What if your son wants to move beforehand? He will want his €35k back so that he can buy a different house.

3) Just wait until he can afford to buy a suitable property
The problem with this is the cost of rent in the meantime is likely to be far more than the cost of interest on the loan.

Thank you Brendan - you've certainly given me a lot to think about here.

1) it's important that you don't need it. - pretty sure that should be the case
2) your credit record will be affected by it. I understand that
3) If you buy before the end of the year and hold it at least 7 years, you will be exempt from CGT for the 7 years. - yep had considered that
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One further question please.....in relation to your 2nd response...

2) If he can't get a mortgage in his own name, you buy the property in your own name and let him live in it rent free. Sell it to him after 7 years for €240k

You take out a mortgage of €100k in your own name.
If you sell it after 7 years, you will not be subject to any CGT.
If it's worth say €300k and you sell it for €240k, the €60k will be subject to Capital Gains Tax, but should still be well below his threshold. Not quite sure what you mean by " but should still be well below his threshold"?

The big problem here is that you have to keep it for 7 years to avoid CGT. What if your son wants to move beforehand? He will want his €35k back so that he can buy a different house. If he wanted his share back after 3 or 4 years (including in the increased equity I could do that for him from other sources)

3) Just wait until he can afford to buy a suitable property
The problem with this is the cost of rent in the meantime is likely to be far more than the cost of interest on the loan. - agreed

If it's worth say €300k and you sell it for €240k, the €60k will be subject to Capital Gains Tax, but should still be well below his threshold. Not quite sure what you mean by " but should still be well below his threshold"?

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Sorry - I could have been clearer.

If you sell him a property worth €300k for €240k, you will be deemed to be giving him a gift of €60k. This is below the threshold for Capital Acquisitions Tax.

The big problem here is that you have to keep it for 7 years to avoid CGT. What if your son wants to move beforehand? He will want his €35k back so that he can buy a different house. If he wanted his share back after 3 or 4 years (including in the increased equity I could do that for him from other sources)

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That's fine so. But the key thing is to specify a minimum term e.g. 3 years. To avoid any arguments, make sure that you agree in advance a method of valuation e.g. the house price index for your area.

He probably should plan for 7 years though, as you could be flush with cash at that stage - not just the €35k but also you could sell the apartment and have the profits to lend him, if that is what you choose to do.

Thanks for the clarification Brendan - a follow up question I have is the CAT - is the threshold a once off or is that an ongoing allowance until the threshold is reached? (I wouldn't like to do something in the medium term which would impact him in the longer term or might affect inheritance tax).

Another question - and others might be able to help out here, any suggestions as to which institutions might be most interested in supporting this, or should I be going to a broker?

Roger

Does this stack up as an investment if your son wasn't involved. Good to not buy a one bed, good that he can get rent under the rent a room scheme tax free. Easy to manage as he will be living there, if he's a stake in it he will enhance it.

Must say rents for a one bed in Dublin are shocking at 900€ a month for something half decent.

Bronte said:

Does this stack up as an investment if your son wasn't involved. Good to not buy a one bed, good that he can get rent under the rent a room scheme tax free. Easy to manage as he will be living there, if he's a stake in it he will enhance it.

Must say rents for a one bed in Dublin are shocking at 900€ a month for something half decent.

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I think it does stack up without his involvement Bronte and I wouldn't consider a 1 bed as I agree fully with your points. The thing about the €900 a month is that he has offered the asking price on lots at this stage but never gets the nod - apparently people are incentivising estate agents to get the nod - it's crazy out there.......

Roger