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My younger brother runs a small yet lucrative business in his free time. He has accumulated around £20k in a very short time.

My mother wants him to put this money into buying a property, i.e: a mortgage, under someone else's name since he is most definitely not eligible for a mortgage (16 y/o, no job, still in school etc...). Her idea is to then rent the place out, using part of the rent to cover the mortgage and the rest can go into savings... somewhere.

I have advised her against this for the following reasons:

  • there are limitations as to when you can rent a property after buying a mortgage (I think). eg: can't rent it out until 6 months have passed - this will cost us (covering the mortgage fees until the property can be rented)
  • there will be gaps when there are no tennants - this will cost us.
  • there are lots of costs in maintaining a property - this will cost us.
  • if his business stops being lucrative it once again will put strain on the rest of the family's finances
  • my brother will learn nothing about financial responsibility from the experience since everything will be done by our mother.
  • difficult to track profit over time, due to points listed above.

I say it will cost us because my parents can barely afford the rent on our property as it is. As soon as they have to pay the mortgage fees out of their pocket, it will be my pocket too.


I have proposed that he invests his money in a low-cost, low-risk index tracker:

  • easier to maintain
  • yes, this is technically riskier than investing in property, but given our situation I think this is actually safer; way too many moving parts in my mother's proposal
  • he is relatively technical/smart - he will enjoy learning about stocks and he will be able to track his savings himself.

Am I correct in my fears about the property idea?

I would not be against it if it was done when he is older, out of school, out of university, when there are less unknowns.

  • Are you absolutely sure brother is not eligible for a mortgage? Have you specifically asked at a bank ? Remember that of all the businesses that have ever existed on Earth, banks are the closest to staving dogs slavering after raw meat, in terms of wanting your money. Banks will write a mortgage to anything, the only thing that restrains them is national rules. You may find brother can easily get a mortgage. – Fattie Mar 3 '18 at 16:17
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    Buying property is actually much riskier than buying an index fund. The ongoing costs are much higher - mortgage payments, taxes, insurance & upkeep vs an account maintenance fee that's a tiny percentage of the investment, and you have a bank or mortgage company that will foreclose if you don't keep up the payments, causing you to lose your entire investment. Whereas with a stock fund, if the market drops - as it eventually will - you just have to wait until it goes up again - which it eventually will. – jamesqf Mar 3 '18 at 19:04
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    To add to @jamesqf's excellent points, an index fund is also a lot more liquid and he can sell a fraction rather than his whole stake if he wants/needs to. – 0xFEE1DEAD Mar 5 '18 at 15:19
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    @SteveMelnikoff - Ha, no worries. Better to make sure that any advice given is accurate than to worry about the 40 fake internet points I'd earnt! – AndyT Mar 7 '18 at 10:21
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    @RNobel: As for doing "a proper course" in any of those things, why? I have a proper education in computer programming (among other things). It's work I enjoy, and which is quite profitable. (And could be more so if I cared to alter my lifestyle.) I expect most people have similarly acquired skills in one or another field. Why should any of us want to take on the extra work of one of those "investment" activities of yours, when we can just put our excess income into good mutual funds, and not think of them more than once a month, if that? – jamesqf Mar 14 '18 at 1:01
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To respond to a couple of points up front:

there are limitations as to when you can rent a property after buying a mortgage (I think). eg: can't rent it out until 6 months have passed

I don't know where you heard that, but that's complete rubbish. Any bank granting you a buy-to-let mortgage (BTL) wants you to be earning rent as soon as possible.

My mother wants him to put this money into buying a property

In many (if not most) parts of the UK, £20k is not nearly enough. The best BTL mortgage rates kick in if the loan-to-value LTV ratio is below 60%, which means that a £20k deposit will get you a property worth £50k, which is practically impossible these days. You can get mortgages with higher LTVs, but they have higher interest rates.

In any case, as you've mentioned, there are up-front costs (e.g. stamp duty, legal fees, mortgage fees, any costs for getting the property in a state suitable to rent); and you need a contingency fund for periods without tenants, and for repairs.

So to summarise: this is a terrible idea, as £20k is not even close to being enough money to invest in your own buy-to-let property.


Investment of any kind is generally a long-term activity, so what are your brother's long term plans?

If he's planning to go to university, he might do better sticking it in a bond (or even a current account with a decent interest rate) for a couple of years, and then spending it on his education.

If he expects to grow the business, maybe he should keep it available in order to invest in that.

Without knowing his intentions, I'd argue that it would be unwise to suggest any particular course of action for his money.

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I'm not sure about the current state of property prices in the UK, so I cannot give you advice on that.

I can give you some advice on alternative ways to spend the 20k.

Like most people, my financial IQ was not very high in and before my twenties. I didn't know how to manage money very well. Everything that came in flew out even faster. It took me another 15 years to understand why financial iq is one of the most important things to have in order to succeed in life, business and investing.

My advice on spending the 20K: keep most of it in your savings account, for now. Re-invest in the business when necessary. Invest the rest in educating yourself and start with your financial IQ. There are numerous ways to do this. I'd start by reading "Rich Dad Poor Dad" by Robert Kyosaki. (and read 'Prophecy' by the same writer to understand why I concluded the first sentence with 'for now').

Do not invest in the stock market, as most stocks, index trackers, funds, etf's are overvalued and there's always a risk of losing your money, even with funds. We're near the top of the economic cycle (see this chart to understand why) and there's a good chance that the stock market will go down somewhere within the coming two years. That doesn't mean that this will happen for sure, but better be prepared for it and don't take the risk of losing your money.

And of course…the majority of users on this site will speak against this advice. If I learned one thing in my life to be important it's to avoid following the majority. If you learn more about life and how this world is run you'll understand why.

All the best and good luck.

  • Why on earth would anyone want to downvote this answer? If you do, at least let everyone here see why you disagree with this advice – RNobel Mar 13 '18 at 14:57
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    I'm well into my 40s and have no idea how you, or anyone else, would define "financial IQ". I would guess it's probably some self-help peddler's latest greatest batch of snake oil. And I'd bet the single way to acquire this "most important things to have" is to buy their books and seminars. – Henning Makholm Mar 13 '18 at 15:14
  • Judgements, judgements, judgements...before you make any, maybe you should do some research before writing off someone's honest answer and advice. Do some googling, AT LEAST. If you're not open to anyone else's views or advice, what are you doing on this website? The sole purpose of this website is to share advice and opinions. No problem if you don't like to take advice, but stop downvoting someone's advice. Please. Keep this website constructive and helpful. – RNobel Mar 13 '18 at 16:08
  • And for anyone else reading this. There's different types of intelligence: intellectual intelligence (IQ), emotional intelligence (EQ), social intelligence (SQ), financial intelligence (FQ). Financial IQ defines how smart you are with money, it's as simple as that. – RNobel Mar 13 '18 at 16:16
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    "Why on earth would anyone want to downvote this answer?" I haven't but two possible reasons are (a) Your first line has "current state of property prices in the US" in response to a question tagged united-kingdom, and (b) I'm not making a judgement either way as to who may or may not be right, but your anti-stock-market / anti-tracker-funds stance is at odds with (what to me appears to be) a sizeable portion of the users of this site, and so (rightly or wrongly) is likely to attract downvotes. – TripeHound Mar 14 '18 at 9:00

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