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  • FIRST POST
    • troutman
    • By troutman 9th Oct 16, 5:45 PM
    • 35Posts
    • 11Thanks
    troutman
    Keep our house and buy new home
    • #1
    • 9th Oct 16, 5:45 PM
    Keep our house and buy new home 9th Oct 16 at 5:45 PM
    We are exploring options of keeping our house and buying a 2nd home.
    The ideal situation would be to rent our home (currently valued about £625k), rentable value about £2000 and move to a new home, value about £750k my salary is £86k + £3k bonus. We have about £400k equity in our home with about £185k currently outstanding on repayment. Would there be any possible options available to do this?

    TIA
Page 1
    • Thrugelmir
    • By Thrugelmir 9th Oct 16, 5:58 PM
    • 53,431 Posts
    • 46,056 Thanks
    Thrugelmir
    • #2
    • 9th Oct 16, 5:58 PM
    • #2
    • 9th Oct 16, 5:58 PM
    You do realise that the stamp duty payable on the second home purchase is going to be £50k. Going to take a few years of letting to recover that amount.

    £24k rent on £625k value is only a 3.8% yield (before costs and tax). As an observation is this a good property to let as a business venture?
    “ “Bull markets are born on pessimism, grow on skepticism, mature on optimism, and die on euphoria. The time of maximum pessimism is the best time to buy, and the time of maximum optimism is the best time to sell.” Sir John Marks Templeton
    • troutman
    • By troutman 9th Oct 16, 6:31 PM
    • 35 Posts
    • 11 Thanks
    troutman
    • #3
    • 9th Oct 16, 6:31 PM
    • #3
    • 9th Oct 16, 6:31 PM
    Thanks for your thoughts, we want to move anyway as we need more room so accept the daylight robbery moving tax is unavoidable. This isn't a business venture as such, its more about long term retirement not short term income/rental gain. What would you advise?
    Last edited by troutman; 09-10-2016 at 6:33 PM.
    • mrginge
    • By mrginge 9th Oct 16, 6:36 PM
    • 3,958 Posts
    • 6,939 Thanks
    mrginge
    • #4
    • 9th Oct 16, 6:36 PM
    • #4
    • 9th Oct 16, 6:36 PM
    Thanks for your thoughts, we want to move anyway as we need more room so accept the daylight robbery moving tax is unavoidable. This isn't a business venture as such, its more about long term retirement not short term income/rental gain. What would you advise?
    Originally posted by troutman
    Well if it's long term retirement, 40% tax relief on pension contributions would seem like a sensible place to start....
    • Pixie5740
    • By Pixie5740 9th Oct 16, 6:49 PM
    • 10,095 Posts
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    Pixie5740
    • #5
    • 9th Oct 16, 6:49 PM
    • #5
    • 9th Oct 16, 6:49 PM
    The additional 3% SDLT is completely avoidable by selling your current main residence rather than hanging on to it.

    Letting property is a business and should be treated as such. Rental yield is important, banking purely on capital gains is risky.

    You'd need to leave (at least) about 25% equity in your current home if you want to let it out but need to release equity to fund the next purchase. Do you have any other savings or just the equity in your home?

    The rent will need to be 125% of the mortgage payments although some lenders are asking for 145% these days. so that means your monthly mortgage payments on the let property would need to be between £1600 and £1379 a month maximum which could mean releasing less equity than you'd need to fund the new home.
    Last edited by Pixie5740; 09-10-2016 at 7:42 PM.
    Annual income twenty pounds, annual expenditure nineteen pounds nineteen and six, result happiness. Annual income twenty pounds, annual expenditure twenty pounds nought and six, result misery.
    • Mr.Generous
    • By Mr.Generous 9th Oct 16, 7:13 PM
    • 1,517 Posts
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    Mr.Generous
    • #6
    • 9th Oct 16, 7:13 PM
    • #6
    • 9th Oct 16, 7:13 PM
    as a business proposition the £50k stamp duty kills it dead. Buildings and tenant insurance plus usual costs as a landlord (tenant finder, gas safety, inventory) are going to push you into year 3 before you get to breakeven. That's if its occupied all the time. Sell it and buy whatever you can get in the lower stamp duty ranges if you want to become a landlord, yield will be higher.
    • AnotherJoe
    • By AnotherJoe 9th Oct 16, 7:38 PM
    • 6,295 Posts
    • 6,667 Thanks
    AnotherJoe
    • #7
    • 9th Oct 16, 7:38 PM
    • #7
    • 9th Oct 16, 7:38 PM
    Yep, if you want to be a landlord, what's so special about your current house ? Seems somewhat random to pick that one, its one heck of a coincidence it's your best choice for rental !!

    You'd likely be better off with 2 smaller houses. Spread the risk, lower SDLT and since being a landlord is all about profit, starting off with a completely avoidable maybe £20k loss doesn't seem like the smartest move.

    Though I wouldn't be a landlord anyway, if you think property is where its at, put the money in investments that are property focussed where you can shelter them from taxes (including capital gains) don't get tied up in the legalities and hassle of being a landlord , dont have vacant periods, ongoing costs, tenants that trash your property, and so on.
    • Thrugelmir
    • By Thrugelmir 9th Oct 16, 8:43 PM
    • 53,431 Posts
    • 46,056 Thanks
    Thrugelmir
    • #8
    • 9th Oct 16, 8:43 PM
    • #8
    • 9th Oct 16, 8:43 PM
    This isn't a business venture as such, its more about long term retirement not short term income/rental gain. What would you advise?
    Originally posted by troutman
    Letting is a business it's not an ATM machine. Can be highly profitable. All you need is the tenant from hell and you'll soon be regretting your decision.

    How comfortable would you be with £935k of debt. Interest rates are not guaranteed to remain low indefinately.
    “ “Bull markets are born on pessimism, grow on skepticism, mature on optimism, and die on euphoria. The time of maximum pessimism is the best time to buy, and the time of maximum optimism is the best time to sell.” Sir John Marks Templeton
    • anselld
    • By anselld 9th Oct 16, 9:16 PM
    • 5,128 Posts
    • 4,661 Thanks
    anselld
    • #9
    • 9th Oct 16, 9:16 PM
    • #9
    • 9th Oct 16, 9:16 PM
    You do realise that the stamp duty payable on the second home purchase is going to be £50k. Going to take a few years of letting to recover that amount.

    £24k rent on £625k value is only a 3.8% yield (before costs and tax). As an observation is this a good property to let as a business venture?
    Originally posted by Thrugelmir
    Totally agree with Thrugelmir.
    3.8% is a pathetic yield to start with and will be further decimated by finance costs especially when the tax changes for BTL kick in.

    Halve your SDLT bill by selling your existing property. Invest the capital released in some other way, stocks, pensions, etc.
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