Buying Property for Child Starting College - What’s the Best Approach?

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Dred81

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Our eldest is (hopefully) starting college this September in Shannon. It’s a 4 year course, and although she’ll get student digs for the first year, we’re thinking it would be wise to purchase a property for the duration of her studies.

We’re thinking a three bed as it will provide an income of approximately €800 per month (albeit term time only). She can stay in digs for the first term until the purchase is completed (and also recruit housemates).

We’ll be cash buyers and are unsure of the best way to go about it. The options I’m aware of include:

1. Set up a company, provide a directors loan for the capital and pay income tax on the rental income. When the property is sold the loan is repaid to us. Not sure what happens in terms of capital gains?

2. Loan/gift the capital to our child to purchase in their own name. Pay no tax on the rental income as it’s below the €12k threshold. Not sure how the loan would be repaid to us upon the sale of the property or what implications this would have for our child in terms of inheritance? Also not sure about capital gains in this instance as it’s their primary residence?

3. Trust fund - I haven’t a notion how this works! Please enlighten me.
 
4. Buy the property in your own name. Your daughter can avail of up to €14,000 a year tax free under the rent-a-room relief. She just has to live there, not own it.


As for your own ideas:

There are threads on using a company to buy property and it’s generally not tax efficient.

Similarly your loan/gift idea seems far too elaborate. There is no real tax advantage to her owning the property at her age and you can gift it to her later in life.
 
A friend's parents did this when she went to college in Dublin and it worked out well, but to play devil's advocate:

Does it definitely make financial sense to buy? How much would ordinary digs/rental be for her over the 4 years? There will be stamp duty, legal fees, insurance, house maintenance that eat into potential savings/profits.

Do you want to be landlords for a group of students for 4+ years? You may not be in a position to sell after she has finished her studies (e.g. recession hits) so you could be stuck with a property that you can't rent - can you afford that?

What if the course doesn't suit her and she wants to move away after a year? Would she feel pressured to stay in the course knowing that you have made a big investment?

You say she is the eldest so you have at least 2 other children - can you afford to do the same for each of them?
 
starting college this September in Shannon
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Based on daft there are 2 properties within "walking" distance (1.5Km)
How does she propose to get to and from the catering college?

With fellow students as tenants and she has transport she may feel pressurized into giving lifts.
 
Dred81 said:
It’s a 4 year course, and although she’ll get student digs for the first year, we’re thinking it would be wise to purchase a property for the duration of her studies.
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So there is no need for you to do anything now. Wait until she has finished first year and then decide what is best to do. If she quits college, then you won't be left with an unwanted investment on your hands.

But, in the meantime, here are my views on the matter...

In the past, it would have been a bad idea to buy a house with the intention of holding it for just 4 years. The transaction costs of stamp duty and legal fees made renting better.

But I think it's worth considering now as the transaction costs are lower now and it's very hard to find suitable property to rent. And when you do find it, you might not keep it.

The issue as raised by arbitron is valid - the two other children. Is there any likelihood that they would live in the house while they are in college? If they might use the house, then go for it. Or choose a house which there is a chance that they might use. Or might she live in the house for a few years after college?

It is tax-efficient for her to buy the house with a loan from you in that any gains would not be subject to CGT as it's her principal private residence. However, these could be wiped out by her loss of FTB status.

But wait a year before deciding.

Brendan
 
Brendan Burgess said:
In the past, it would have been a bad idea to buy a house with the intention of holding it for just 4 years. The transaction costs of stamp duty and legal fees made renting better.
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You're right Brendan but in those days stamp duty was a lot higher and rental yields were lower. Now stamp duty 1% and rental yields can be 10%!

Suppose you have €250k in cash and a child going to cost you €8k a year for three years in rent.

  1. Buy a property for €250k: €5k in stamp duty and legal fees, another €2k a year in management fees a year so €11k certain costs. Potential for capital loss or capital gain.
  2. Keep your €250k and maybe earn €2.5k a year interest on it, pay €8k a year in rent. So you are down €16.5k in certain costs no potential for a capital gain or loss.
Whether you prefer 1. or 2. depends entirely on your risk tolerance and broader financial circumstances. If you can sweat the property via letting rooms to other students then 1. becomes more attractive. Likewise if you have more than one child likely to end up in the same city for third level it tilts the balance toward 1.
 
BlackandBlue said:
With fellow students as tenants and she has transport she may feel pressurized into giving lifts.
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And that boundary, along with lots of other adult choices are ones she will have to learn; has no bearing on buying a house.

OP - your plan sounds good to me; if you have your eye on a good property now I'd say go ahead. You'll have the time to do the painting, fit out etc yourself & save some cash.
 
Brendan Burgess said:
It is tax-efficient for her to buy the house with a loan from you in that any gains would not be subject to CGT as it's her principal private residence. However, these could be wiped out by her loss of FTB status.
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If the intention is for her to buy it with a loan from parents and then sell the property after college, I would nix this idea immediately. The parents taking her FTB status off her for their own benefit. When she goes to buy, likely with a partner, they will have to have a bigger deposit than they should normally have. Are the parents going to give her the extra 10% that she's going to need at that point?

I wouldn't try to be to sophisticated about this. Buy it in your own name, rent out the two other rooms and sell when she finishes. I wouldn't necessarily get the room mates before she moves in either. She may make friends who are looking for a room and she would prefer to live with them than complete strangers.
 
To the OP.
Financial considerations aside.

On daft there are 16 houses for sale in Shannon.
Discount 4 as not suitable or double entry leaving 12.
There is currently only one property listed for rent.

I suspect buying is the better option.
As pointed out if she leaved the course for some reason you would be left with a property.
But it should be very easy to sell on
 
Steven Barrett said:
If the intention is for her to buy it with a loan from parents and then sell the property after college, I would nix this idea immediately. The parents taking her FTB status off her for their own benefit. When she goes to buy, likely with a partner, they will have to have a bigger deposit than they should normally have. Are the parents going to give her the extra 10% that she's going to need at that point?

I wouldn't try to be to sophisticated about this. Buy it in your own name, rent out the two other rooms and sell when she finishes. I wouldn't necessarily get the room mates before she moves in either. She may make friends who are looking for a room and she would prefer to live with them than complete strangers.
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Regarding the child loosing FTB status. Child could be 23 to 25 when selling perhaps. May not be in a position to buy own house for 10 years after. FTB rules could change in that time span. If buying now for cash and looking for a mortgage 10 years down the line perhaps as a married couple I wonder how would it ever be known by a bank that the individual had a house before ? When you take into account no CGT under Option 2 just perhaps in the event of a gain no CGT would offset the FTB 10 % loss that individual would have to come up with.
 
Roro999 said:
Regarding the child loosing FTB status. Child could be 23 to 25 when selling perhaps. May not be in a position to buy own house for 10 years after. FTB rules could change in that time span.
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The substantive definition of an FTB hasn't changed in at least a generation.

Roro999 said:
If buying now for cash and looking for a mortgage 10 years down the line perhaps as a married couple I wonder how would it ever be known by a bank that the individual had a house before ?
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Knowingly making a false declaration, more than likely to a State body, in order to gain a benefit not otherwise available to the applicant, is fraud and may leave the perpetrator liable to prosecution or other penalty.
 
T McGibney said:
The substantive definition of an FTB hasn't changed in at least a generation.


Knowingly making a false declaration, more than likely to a State body, in order to gain a benefit not otherwise available to the applicant, is fraud and may leave the perpetrator liable to prosecution.
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What state body would one in the scenario be making a declaration to as only referring to either a deposit of 10% or 20% from a bank ?
 
Roro999 said:
Regarding the child loosing FTB status. Child could be 23 to 25 when selling perhaps. May not be in a position to buy own house for 10 years after. FTB rules could change in that time span. If buying now for cash and looking for a mortgage 10 years down the line perhaps as a married couple I wonder how would it ever be known by a bank that the individual had a house before ? When you take into account no CGT under Option 2 just perhaps in the event of a gain no CGT would offset the FTB 10 % loss that individual would have to come up with.
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Mortgage applications are underwritten.

I remember when I worked in a life company, underwriters had access to an insurance database where they could see if someone had a protection case loaded or declined. If something then answered that they had never had a case declined, the underwriter knew. While I am not au fait with the information available to a bank's underwriter, access to a list of registered property owners isn't outside the realms of possibility.
 
I wouldn't worry too much about the banks' attitude to FTB status. The parents are wealthy so they can help out.

I would be more worried about government subsidies or tax breaks for FTBs.

Brendan
 
Roro999 said:
What state body would one in the scenario be making a declaration to as only referring to either a deposit of 10% or 20% from a bank ?
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If an applicant makes a false declaration to a bank, that may count as fraud too. And if there are State-operated FTB supports like Help to Buy or First Home Scheme in place at the time of application, there may well be a temptation on the applicant's part, perhaps prompted by the bank, to apply there, and possible suspicion on the bank's part if the purported FTB applicant fails or refuses to apply.
 
L
T McGibney said:
If an applicant makes a false declaration to a bank, that may count as fraud too. And if there are State-operated FTB supports like Help to Buy or First Home Scheme in place at the time of application, there may well be a temptation on the applicant's part, perhaps prompted by the bank, to apply there, and possible suspicion on the bank's part if the purported FTB applicant fails or refuses to apply.
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Leo's post says FTB definition and that's clear enough for my point.
 
NoRegretsCoyote said:
4. Buy the property in your own name. Your daughter can avail of up to €14,000 a year tax free under the rent-a-room relief. She just has to live there, not own it.


As for your own ideas:

There are threads on using a company to buy property and it’s generally not tax efficient.

Similarly your loan/gift idea seems far too elaborate. There is no real tax advantage to her owning the property at her age and you can gift it to her later in life.
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If the property is in our name and not our daughters, can she still avail of the rent-a-room relief? I presumed it would have to be the property owner but perhaps a child qualifies?
 
Dred81 said:
If the property is in our name and not our daughters, can she still avail of the rent-a-room relief?
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The condition is that is her principal primary residence.

She doesn’t have to own it but does have to live there most of the time.
 
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