Lending money to parents for investment - advice needed
Hi Monkeys,
Analyst 1, immigrant from a "low cost country" here. My parents, who still live in my home country want to purchase a property for rent, which would later serve as their pension. They already have 2 similar properties (100% owned with no debt).
They have asked me to lend them $18k, which coupled with their equity of $14.5k will be used as a down payment for mortgage of $50k (LTV of 60%). Would you do it?
Pros:
- Finally "paying back" to parents, whom gave me a great upbringing
- It is relatively little money for an IBD Analyst salary / savings potential (However, I am not sure how long can I stick around in this crazy business)
- Parents have 2 other properties, and with this one they will have a very conservative % of debt in entire rental portfolio (15-10% LTV)
- Me and my siblings will likely inherit it one day
Cons:
- Not easy to talk business with parents, realistically earliest I can get my equity back is within 3-4 years horizon
- Could impact my relationship with them if things go wrong
- Bad scenario, I acknowledge that I may walk away without my equity (writing it down) / Worst scenario, I make payments for the mortgage if things go extremely south (would not leave parents drowning in debt)
Would you do it?
since the dollar amount is so low, I'd say do it.
Do it, as long as you're able to go in with the mentality that if you lose the full investment that's totally fine. If it's just 18k on an IB salary that shouldn't be a problem. IMO, this is less of a business decision and more of a paying your parents back/helping them out situation.
Hey first off thanks for the post, asking for advice and asking a question to the community here. I hope everything is well by you and if anything isn’t, that it gets better soon. I hope your parent’s financial situation can get stronger as well if they want it to get stronger. I’m not in your shoes and have no idea what I would do if I were you but at a high-level if my parents needed money / asked for money from me and I was in a position to give it to them, I hope I would have the courage/ability to give it to them. I have no clue how it would play out in reality. All I can say is good luck and best wishes. Hopefully this helped
If your parents need the money and you believe it is a good investment, I would give it and not expect to be paid back much. If you can afford it. I feel that number is not huge and you get to do pay them back and get it over with.
If they can afford it (are able to do it without your money anyway) and just want you to invest with them, I would weigh opportunity cost of putting this money elsewhere.
Thanks for your comment.
Indeed, I do not expect my parents to pay me any interest or whatsoever. If they will be in position where they have money from rents I would like them to return my money down the line (provided that they repay the bank loan first)
Restructure your family
Think of it as a gift, fine to structure as a loan if that’s how they want it, but think of it as a gift so you don’t have to have any reservations about it after you give it to them, and won’t be worried about it.
Would absolutely tell you not to do this. First, you are in over your head and dont have the experience to pull this off. Second, it is not worth getting your family involved, they would not want you to do this for them. Just find someone that can help them and have nothing to do with their financial well being, as this can't be your focus and should not be your focus. They would not want it to be your focus so just get the idea out of your head.
Why do you think it should not be a focus of mine?
Tbf financial security of my family was one of the reasons why I decided to go for the finance route.
You cannot lend money to family and friends. What you’ll be doing is giving it to them with the hope (not expectation) of repayment, because your relationship complicates things.
By all means, give them the money and hope they pay it back. But be fully prepared to never see it again.
Got it, yes my best expectation is to get the money I lend them back a few years down the line. If I do not get it back then no hurt feelings - I always wanted to support/help them financially, so would do it anyways.
this is right.
I would give it without expectation of being paid back, but have their will state that this property goes 100% to you, unless your siblings are also contributing
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