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.