23
Feb
Why I'm renting from Dad
The trend for grown-up children to live at home longer is
forcing parents to get creative with investments.
A year ago, Endellion King was renting a poky
studio in Purley, Surrey. The living room doubled as his bedroom,
and the flat’s dimensions allowed for only one friend —
a close one, at that — to visit at a time.
When he told his family that he was thinking of moving back into
the parental home in Redhill, his father had an idea. “Rather
than put my money into a pension plan, I decided I wanted to buy a
property,” says Peter, 58, a partner in a corporate
relocations company. “I didn’t want a traditional
buy-to-let, as I had no experience of it, but this way I knew I
could help him as well as helping myself. I get a reliable tenant
who won’t trash the property, and he gets to live in a nicer
flat than he could otherwise afford.”
Now Endellion, 26, an event manager, is luxuriating in the
new-found space offered by his two-bedroom, 713 sq ft flat, which
his dad bought for £185,000 last June. Endellion is covering
all the costs, paying in rent what he believes to be just under the
market rate for the area. “I was aware that the arrangement
was, first and foremost, an investment for Dad, but it suits me as
well,” he says.
“I get a flat that I can decorate, where I know the landlord
is going to be helpful if something breaks, and he gets a tenant
who treats the home as if it were his own.”
This mutually beneficial arrangement reflects a growing trend among
parents who want to help their kids, but are looking for an
alternative to the traditional “Bank of Mum and Dad”
route — and aren’t exactly enthusiastic about having
their not-so-little darlings return to the family nest. The latest
figures from the Office of National Statistics show that nearly one
in three men and one in five women aged between 20 and 34 live in
the parental home. Hardly surprising, then, that parents are
springing into action.
Neil Sloam, managing director of the London-based estate agency
Brian Lack & Co, reports a definite rise in parent landlords.
“There are lots of people out there who want to help their
kids out, but don’t want to simply hand over a big
cheque,” he says. “I think parents are trying to teach
their children the value of money, so, rather than throw cash at
them, they treat it as a business. Sometimes parents give their
kids any capital growth achieved on the property to use as a
deposit on their own place.”
Colin and Catherine Greengrass, from Ipswich, are planning on doing
precisely this. Last December, they bought a two-bedroom flat in
the centre of the city for £89,900, installing their daughter
Laura, 23, a trainee chartered accountant, as their tenant.
“We’re about to draw up a tenancy agreement, to make it
all official,” says Colin, 52, a prepress manager in a print
factory. “The rent Laura pays covers the mortgage. We charge
the market rate less 10% — which is what I calculated a
letting agent would have cost me — and the plan is that when
she wants to buy a flat of her own, we’ll sell this one and
split the profit.”
For Laura, who previously lived in a cramped studio, it’s a
win-win situation. “It definitely has benefits for my parents
— they get a reliable tenant who covers their mortgage
— but I get a much nicer flat. I can even have friends over
for dinner, which, after my last flat, is something I don’t
take for granted.”
James Bailey, head of sales at Henry & James, a central London
estate agency, reports an increase in this type of familial rental
scheme. “Often, parents will buy a two- or three-bedroom flat
and the children will oversee the renting of the spare rooms to
friends. Parents get the capital growth, they know their property
is being looked after and they don’t have to worry about
tenants defaulting on money owed.”
Most parents in this situation see their investment as a medium- to
long-term project, adds Ian Dickson, head of Winkworth estate
agency’s office in Hammersmith, west London. His clients are
looking to a future beyond the time their offspring fly this second
nest. Often, they count on their son or daughter using the flat for
three or four years, after which they will let it on the open
market.
“They are buying peace of mind as well as an
investment,” Dickson says. “The returns on their
annuities aren’t so fabulous at the moment, and they see it
as a good time to invest in property while prices are relatively
low.”
How to make a generation gain
Parent power
* This could be that rarest of things: a way to help the kids that
won’t cost you a penny. In fact, you might even end up making
a profit.
* Keep things business-like: draw up a rental agreement, if not to
control your own little darling’s behaviour, then that of the
messy mates they might be sharing with.
* This is an investment, not an exercise in buying your
sprog’s dream home. Choose a property with potential for
capital growth that will be easy to let when the kids move
on.
Pester power
* Know your rights: now that your parents are landlords, they
can’t drop by early in the morning and start snooping. Who
you invite around, and when, is your business.
* Don’t let the flat become a dumping ground for
granny’s old castoffs. Demand up-to-date fixtures and
fittings — and if a trip to Ikea isn’t forthcoming, ask
for a reduction in the rent.
* Look after the place. You may get a share of the profit when your
parents sell — or when you inherit it.
SOURCE: Sunday Times 21st February 2010