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Family affair

 
#1 Family affair
11/10/2007 13:54

aNon

My brother is currently thinking about buying a flat in London due to the fact that he’s paying a huge amount of rent (as with everyone else in London I’m sure) and that our mother has just received 50k from the sale of our Grandmother’s house, which she is willing to lend him as a deposit. He has also asked me if I wanted to come in and give him all my savings (about 10k) and maybe even contribute to his mortgage. Which was nice of him.

I don’t mind giving him the money in exchange for a reasonable percentage of the flat, I’m just worried about the other factors which could effect things.

· He is about to start an entry level job with KPMG in corporate finance. As there is going to be a slowing down at the top end of the finance market, they are surely going to start jettisoning jobs. And I’d imagine it would go last-in-first-out. Although I realise that KPMG is a more stable environment than IBs and PE.

· House prices are possible going to fall, although if that does happen I’d expect the London fallout to be minimal. However, given the rates of return I could get for a fixed rate bond, I’m wondering if this is a bad idea.

A little bit more info: I’ve only been working 2 years and have no house of my own so I’m not sure how risky I want to be with my savings. Plus I don’t think my brother can get the house he’s looking at without my 10k help.

I’m just looking for a bit of advice; what would you do in this situation? I don’t mind being a little bit out of pocket if it will help him significantly more than it will harm me, but equally I don’t want to back a doomed horse.

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#2 RE: Family affair
11/10/2007 14:36

anon to aNon (#1)

few things to consider:

the 50k loan - how does that get paid back

what is your exit strategy from the flat/mortgage - what if you want out and your brother doesn't

where does risk/reward lie - who take the hit/benefit if the value goes down/up (although it's only a real impact upon sale)

careful going in with family - as you can't risk falling out wiht them over money

why not try and have an equal split of payment/ownership with an annual review point of sale - keeps it easy and straight forward

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#3 RE: Family affair
11/10/2007 14:56

hang on to anon (#2)

your mother is going to lend your brother 50k? what about you? I would suggest that you take her money, get him to stump up 10k to match your 10k and go 50/50. House market is going to dip but you are always going to be OK in London. A lot of hidden costs inbuying houses, which will soak up quite a lot of what you think you have

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#4 RE: Family affair
11/10/2007 15:00

aNon to anon (#2)

Good points, and stuff that I had been thinking about.

I’m assuming the 50k loan will really be mum buying a x% stake in the flat, then that’s easy to work out upon sale. Same with my £10k.

The exit strategy is that we would agree to keep the house for a fixed number of years, then all parties would have to agree to take it further if required. We’re looking at 3-5 years atm. Therefore I guess he’s assuming that the house will go up in value.

As far as the risk/reward thing goes, surely it is proportional to the investment. If I agree to cover 20% of the monthly mortgage costs, I’m taking responsibility for 20% of the loan.

I’m leaning on the side of telling him not to bother, as I can’t see it being worth the risk. Are house prices in londres likely to go up at more than 7% a year?

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#5 RE: Family affair
11/10/2007 19:13

Ned Flanders to aNon (#4)

I think that if your brother is about to start a new entry level job he should be patient with regards to buying a house. I know that rent money can feel like money down the drain but:

1. It's not a great moment to buy a house. Prices are dropping around the UK, not (yet?) in London but not really a great investment right now. Don't expect the returns of 5/10 years ago.

2. If you're looking for a 3 year investment I'm not sure how much you're going to get out of it personally. The expenses of actually buying the house might sap quite a lot out of your personal profit margin.

3. You've got 3 family members with different stakes and interests in the house which could prove quite conflictual if either of you wanted to get out.

4. You say that you're "assuming" that your mother would be buying x% on the flat. I think you need all this stuff in writing, sounds ugly but it could get even more ugly if in a year's time all 3 of you have different agendas!

Hope that helps!

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#6 RE: Family affair
11/10/2007 20:28

aNon to Ned Flanders (#5)

Yeah, thanks guys. I got a call this evening saying that their offer had been accepted and that we needed to sign up for the mortgage now, and I said that I wasn’t particularly keen on the idea and that it seemed like a lot of risk for not much gain.

We have a combined salary of not much more than 50k p/a, and even with a 60k lump sum to put in/pay costs I’m not sure how they found a 6.5% mortgage for 6 times our salary.

But anyway as I see it:

Good Points:

Could make 0-7%*350k = 0-24k pa.

Bad points:

Could lose a similar amount

If he gets turfed out of corporate finance I’m stuck with a mortgage of more than I earn per month.

We can get 7% savings accounts (60*0.07=4,200) at no risk anyway. (plus 12% Regular Savers)

I’ll be moving cities soon and might need my cash to buy a car to get to my new job.

Can’t think of any more, but I think I’m going to tell him to stick it. He can always wait a year and try again.

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#7 RE: Family affair
12/10/2007 08:55

anon7 to aNon (#6)

Dude, you're forgetting in your 0-7% calculations that 6.5% of it's gonna go straight to the bank in the form of interest.

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#8 RE: Family affair
12/10/2007 09:12

aNon to anon7 (#7)

Yeah, but I figured that that would be the same whatever so I missed out the taxes.

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#9 RE: Family affair
12/10/2007 09:23

Mike to aNon (#8)

But that 6.5% would be thrown away in rent.

If he gets a 100k mortgage, pay say 6k for his mortgage or 6k for rent pa.

But he is buys, the house price will rise say 7%pa = 122k (or 22k profit). Assume he has an interest only mortgage.

ps. dont forget fees etc...

and over the next few years i will almost guarantee house prices wont price by anywhere near 7% at least in London anyway.

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#10 RE: Family affair
12/10/2007 09:34

anon7 to Mike (#9)

sorry my mistake, i assumed he was living at home!

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#11 RE: Family affair
12/10/2007 10:35

Acn SM to aNon (#1)

hello friend

i have had enough experience with family and money to give you some safe advice.

bottom line is that you keep family and principle separate.

my first question to your mother will be why aren't you getting 50% of the 50k. i can guarantee you that your brother will never pay her back and she probably wont ask for it. you'll be the loser here.

as for your brother asking you for 10k, again i will guarantee you wont get that back anytime soon, if at all, in a greater value than you can get from investing it elsewhere. you'll be the loser here.

apart from questioning why your mum isn't treating you two equally, i would also question why your brother doesn't work hard and wait to earn what he wants in life. the fact he is taking a short cut and coming to you is concerning.

i may sound harsh but what just seems like a bit of cash can cause a large family rift. also, when a parent gives one child more than the other, over the years this will lead to resentment.

and wait until either of you get married/long terms girlfriends who start taking an interest in your finances.

unless it's legally binding and equally in both your favours, don't go down this dangerous path.

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#12 RE: Family affair
12/10/2007 10:41

anon to Acn SM (#11)

why doesn't your brother buy and you rent a room at good rate from him - he gets mortgage help, you pay low rent with no hasle

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#13 RE: Family affair
12/10/2007 11:59

aNon to anon (#12)

If I were to go in, mum would either keep the 7% equity that her 50k buys, or split it between my brothers and I (I have a 2nd brother who is still in uni, and as such has no money to spare). That is not the problem.

My brother would live in this house and pay rent with a friend of his (I live in Notts). Mortgage repayments would be £1,600 with 2*600 covered by rent. My thinking was that if I put in ¼ or ½ of the remaining £400 p/m then I would own that percentage of the debt (possible gains).

Paying £100-200 pm to get a significant proportion of any gain in house value is obviously appealing, but I considered the risks too high and have said that I don’t want to take part. Mainly because I’m moving to Leeds pretty soon and could need the wonga for a car to get to work etc. Plus I can see myself wanting a house of my own in 3-5 years.

So it’s called off; I told him to wait a year or so until he’s settled in his new job and probs had a pay rise, then he might be able to get it on his own and house price movement might be easier to predict.

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#14 RE: Family affair
12/10/2007 12:50

non to aNon (#13)

50% of your problem solved then.

The other half of the problem is trying to make sure you secure 50% or 33% (if split with your 3rd bro) of the 50k...else i am sure your older bro will find a way to utilise it.

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#15 RE: Family affair
12/10/2007 13:14

Hardly a handlebar to non (#14)

Why the MBB focus? Why the desperation? Find a path which fits your background. Contorting yourself your career path in order to compensate for your desmond makes no sense. In fact, it makes less sense than Imanol Harinordoquy's moustache. Are you attempting to regain ground lost on the mythical elite?

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#16 RE: Family affair
12/10/2007 13:15

hah to Hardly a handlebar (#15)

oops - wrong thread.

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#17 RE: Family affair
12/10/2007 13:35

aNon to hah (#16)

It was nicely written though!

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#18 RE: Family affair
15/10/2007 09:10

aNon to aNon (#17)

I just spent 6 hours getting from Leeds to Nottingham on the train. I'm going to spend the money on buying a car....

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#19 RE: Family affair
15/10/2007 09:47

anoon to aNon (#18)

is the title of this thread freudian?

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#20 RE: Family affair
15/10/2007 10:02

confused to aNon (#18)

You spent 6 hours making a 2 hour, 1 change train journey.

Also you posted this today so before 10am. Did you leave before 4am and stand on the platform for a few hours awaiting the first train?

I think somebdoy is talking rubbish

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#21 RE: Family affair
15/10/2007 10:53

anon to confused (#20)

Wow, you guys are quick to accuse!

I left the house in Leeds at 4 yesterday afternoon, got to Guisely station by about 20 past. The trains were down and had to take the replacement bus to Leeds station which left at 4.40 and got in at just after 5.10; only a little late but enough that I had to wait an hour for the next Sheffield train.

Got the 6.10 (ish) train to Sheffield which was also late meaning another hour wait at that station. 8.30 ish train to notts gets in just after 9.30, quick bus ride back home gets me back just before 10.

Therefore 6 hour journey that would have taken 2 in a car.

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#22 RE: Family affair
15/10/2007 10:58

anon to anon (#21)

2 hours by car.

Are you even aware of the existence of speed limits? Do you care about the environment?

Such wanton recklessness. YOU ARE KILLING THE PLANET.

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#23 RE: Family affair
15/10/2007 12:21

anon to anon (#22)

If you get a motorbike, you can probably do it in 1.5 hours

I recommend a Kawasaki Ninja or similar

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