I will be made redundant by the end of the year, getting £9,000. I would like to invest this to help out my sister to buy her first property. She and her fiancé have £20,000 of their own deposit and looking to buy a house that cost £260,000, and we have no idea how to calculate my investment in this matter; we love each other very much and we are best friends, so neither of us wants to do something wrong to one another. We just want to be fair to each other.

We are considering the options, but at the moment it would be like this:

I would contribute this money to the deposit, but wouldn’t pay anything else-more, and so I want to know, if they do the house up, and it increases in value, how does my share get worked out if I want it out in about l0 years?

Thank you so much, obviously we do not have much money for solicitors / lawyers, and we don’t really really need them, but want to be fair to each other above everything else.

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    You are getting let go? Don't you think you should hold on to this money until you get new work? – JTP - Apologise to Monica May 8 '14 at 9:54
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    Coveyancing by yourself is possible, but you need to be diligent. Use this book amazon.co.uk/Conveyancing-Fraud-Michael-Joseph/dp/0950502340 – DumbCoder May 8 '14 at 10:03
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    If you can afford it, why not give your sister the money? Do you really need to open yourself up to that kind of family drama? Do they have something like the Jerry Springer show in the UK? If your goal is to be on it, there are easier ways to go about it. – Pete B. May 8 '14 at 13:15

I would contribute this money to the deposit, but wouldn’t pay anything else-more, and want to know if they do the house up, and it increases in value how does my share gets worked out if I want it out in about l0 years?

This can be simple; You have contributed 9K out of 260 K. You own Approx. 3.4% of equity in the house. Whenever this gets sold, you will get back 3.4%. Now the real trick comes in, if the house is not being sold, ie your Sister would continue using it, and you want out, then one would need to decide the fair market value. You could agree to consult some lists or agree of the fair value based on sale price of similar properties in the area. This is where it normally gets difficult and can cause disputes.

we do not have much money for solicitors / lawyers, and we don't really really need them

It is advisable to get a lawyer as one doesn't know what happens 10 years in future, things may go wrong between you and your sister, or your sister is no more and her fiancé may not honor the agreement you have.

There are other considerations;

  • It would be advisable you have your name on the property. It would help from Tax point of view in future.

  • If you are not having your name on the property, then the money you are giving would be loan or gift and needs to have the right paper work

  • If its a gift you can't have it back. Your sister would have to make a gift back to you later whenever you want out.

So it can really be complicated and it would be worth the money you spend on lawyer

  • +1 Buying a house can be a complicated business even without what you're proposing, so using a solicitor is all but essential. – Steve Melnikoff May 8 '14 at 10:20
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    @SteveMelnikoff - Atleast in UK, it is more or less predetermined(what steps need to be done) and with standard contracts, you don't need a solicitor to do the conveyancing. If you are diligent enough and have the time you don't need a solicitor. It is a very false premise to require a solicitor, unless there are serious issues. A solicitor doesn't do the conveyancing, his assitant or a trainee does it for you. – DumbCoder May 8 '14 at 10:44
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    @DumbCoder - the same in Australia, my wife has been doing the conveyancing for us for the last 15 years or so. There is a DIY conveyancing kit available. It can save you thousands of dollars with each purchase and/or sale. – Victor May 8 '14 at 12:50

A simple and low-interest loan is probably the least likely to cause acrimony, aside from a direct gift.

You seem to be describing an equity stake in their house, where some portion of the appreciation in value accrues to you (relative to your initial investment). An equity stake in their house probably doesn't make much sense. You sound as though you're not going to do any of the work aside from the contribution of money. Equity might make sense as a way to reward you for efforts, such as home design or renovation, that increase the value of the home.

You probably don't want to be in a position where you are together improving the property and your payback only comes when she sells for more money. What if you have different ideas of how to do it? She has to live there and may want improvements for her needs rather than for buyers. What if she asks you to pay for a portion of the improvement costs or resents you not offering? What if she doesn't want to sell for some reason, so your money is locked up with her family choices? Renovations can often be stressful, so these decisions may be made at difficult times.

Either a gift or a low-interest family loan may be simpler for your needs. You can just set the loan terms you want, say payoff over 10 years or a deferred payment schedule. If she gets in trouble, you could perhaps delay or forgive payments. I don't know the UK tax consequences of a loan of this nature, if any.

As a general proposition, it's best to set clear and simple expectations at the beginning, and avoid agreements that require multiple decisions to be made consensually in the future, possibly during a time of stress.

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    Ditto. I presume no one on this forum knows anything about your family situation beyond what you've described. But for you to do this as an investment ... would you have any control over if and when she sells the house? What if she ends up living there for decades? Or for the rest of her life? What if at some point you really need the money and she doesn't want to sell her house, but doesn't have the resources to pay you? It really sounds like you're setting up for complex family problems. Better to make a straight loan with a repayment schedule. – Jay May 8 '14 at 21:44

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