Yahoo Finance 'Can I buy a buy-to-let with my mother's money to generate income to pay for her care?'
I share power of attorney with my sister for our mother, who has been in a care home since February. We pay around £5,000 for her care per month. This is offset in part by £2,500 from my mother's pensions and other income.
We have sold her house and have £400,000 spread between different bank accounts.
Under power of attorney rules would we be allowed to buy a house for around £275,000, which we could let out and bring in income of £1,500 a month to contribute to our mother's care?
T Kelly, via email
As your mother's "attorney", decisions you make must always be for her benefit. You are essentially stepping into her shoes and acting as she would herself regarding her finances and property.
Provided that there are no restrictions to the power of attorney, such as a clause written in by your mother saying her money cannot be used to invest in property, your plan to purchase a buy-to-let in your mother's interest is not breaching your powers, said Nicola Waldman, a private client solicitor at London law firm Hodge Jones & Allen.
If you have a "lasting" power of attorney it must be registered with the Office of the Public Guardian, and if it's "enduring" it must be registered if your mother lacks capacity.
Ms Waldman said she couldn't envisage difficulties buying the property as you have enough cash but there might be problems if you needed a mortgage. You should not do anything that will put your mother's money at risk and the rental income must be used towards her care fees.
Ms Waldman said your actions won't be monitored by official bodies but would be investigated if suspicious were aroused. For example, you might be investigated if the care fees were not paid or her assets were found to have been depleted after her death and the authorities wanted to find out what happened to your mother's house and income.
The property must be owned by your mother and registered in her name, although you would handle the purchase as her attorney, said Hannah Martin, a solicitor who specialises in inheritance protection at Gardner Leader Solicitors.
You would also be able to sort out insurance and the letting arrangements after completion.
In terms of your plan to supplement your mother's care, Jonothan McColgan, director and chartered financial planner at Combined Financial Strategies, said it wasn't a "bad idea" but "no one gets the returns on property they expect".
Your anticipated rental income of £1,500 a month for a £275,000 property equates to a 6.5pc rental yield, which is high. Average yields are around 4.5pc.
Now it may be that the property you have in mind is undervalued or needs work, which may explain the figure you've arrived at. If you have to renovate it, this will eat into your cash.
Mr McColgan suggested checking property websites such as Zoopla to check if your rental income is in line with properties in your area. Even if your tenants agree to pay £1,500 a month, you're unlikely to be able to put this entire sum towards your mother's care.
The income is your mother's and could push her into the higher tax band. You will also need to consider the outgoings associated with letting a house and how you and your sister intend to manage it.
For example, costs could include not just upkeep of the property but you may wish to appoint an agent to manage the tenants and contracts. Mr McColgan said in some cases this could chip away 10pc to 15pc of the rental income.
While you don't want to be responsible for making a bad investment, you're in a good position.
If you left the cash in the bank, it would cover the cost of your mother's care for 13 years - the average stay is four years.
If you went ahead and bought the property you would have £125,000 in cash. This would be enough to fund care for four years and any income from the buy-to-let could supplement this.
Mr McColgan said your intentions were good: it appears you want to make your mother's money work for her rather than see if waste away in the bank and the purchase of a property to let out could be in both your and her interest, if you desire a buy-to-let which will be yours when your mother dies.
Alternatively, Mr McColgan said a balanced investment portfolio could realistically yield 5pc to 6pc based on past performance.
