big risk or not

kerryi27

Hi,

my husband and i are looking to buy a 2nd property to rent to my mam and dad. we have found a house reduced from 95k to 86k and have put an offer in of 77K.

we think they will accept the offer tomorrow as they are keen to get it out of their hair as it was their mothers who died.

Its double glazed , in quite a nice area but has ducted air heating and obviously redecorating as very old fashioned decor.

the houses in the area were going for 115K back end last year.

anyway we have agreed to rent it to my mam for 375.00 per month as she pays that now and couldnt afford to pay more. Also she will collect my little boy from school which will save me 80.00 per month.

our mortgage on interest only will be 382.00 per month plus about 70.00 per month on secured loan against our property.

so we just about cover the interest but we are hoping as we dont have a pension this will be better investment as my mam will grow old in there, shes 54 now, so although not paying top rent, we wont ever have to worry about it being empty.

What do you sreckon. Is this risky or good idea.

thanks in advance

kerryi27

anyone any thoughts?

lynzpower

this sounds SOOOOO risky I cannot say!!! :eek:

Your mum is only 54, so we'll assume she will be working for the next 10 years.

Then when she retires, who will pay the mortgage then?

Your mums income does not cover the ACTUAL cost of the property - what about when mortgage rates rise? , and you will be subsidising it too? Where is all this money going to come from? Do you have heavily accelerating career and pay structures with your jobs?

If you are buying on interest only, then the balance of the property is not being eroded at all?!! Where are you going to find that spare 150k from ( ie 77 for the property and 77 ish for the interest ( rough rule of thumb is the total mortgage cost is double what the price of prop is) ?? to actually BUY rthe house outright. Not being funny but my mum is around the same age as yours, and going very strong. She wont be leaving this world for potentially another 40 years.

Will you not need that money back in the meantime? I mean it sounds like youll be struggling with it now, what about the maintainence- new roof? boiler? Undoubtably in the next 40 years these will need to be done- at least once! where is the spare money to put away for ongoing maintainence over the years?

If you are worried NOW about childcare costs, ( ie she will save you 80 per month)im worried you simply cant afford the upkeep on the second property??#

What would happen if your mum lost her job ( it certainly happens to older people or she becomes a bit more imobile and cant manage to work? Will you be able to comfoprtably pay the mortgage without her contribution or will you ahve to kick her out and sell it etc.

I really think you are SO close to the bone here its unreal. as for it being your pension, I will let others answer that Please tread very very carefully. Its great you have asked for advice do not commit top something that you may not be able to afford, as it could be disastrous.

Good luck & keep us posted. x

kerryi27

hi,
thanks for the reply, I am not worried about childcare costs. My husband and I have a small mortgage ourselves. I just explained about childcare as to show that really, initially it will not cost us anything.

we could easily afford to pay another couple hundred pound a month if we wanted to.

when she retires, i think her pension will pay or she will get housing benefit.

we want to get it on interest only but my husband and i are going to over pay every month to get the capital down.

we waste alot of our money, going out and things and dont save, so we thought if we paid something towards this house, it would be a better investment and are hoping one day our son can have it, hes five now, and we think that would be a good start in life to him.

we were gonna fix the mortgage for five years and hoping if we havent managed to pay any mortgage off and if anything happened and we did have to sell that the propert will have gone up and we might make ourselves 20 k or something.

do you still think its a bad idea. I am worried now........

kerryi27

any other opinions?

lynzpower

hi kerry

I think thats made it much more clearer.

Many of us waste money at the moment, on things we dont need. It sounds to me like you have a bit sloshing around so you have a view to overpaying the mortgage and so forth. so It doesnt sound as if you are that close to the bone.

Have you done a FULL SOA and budget? Working out on a tight budget what extra you will have to overpay + put away for maintainence.

Would it be a problem fr you if she for whatever reason couldnt pay the rent, or would you be able to subsidise that much.

I suppose the issue is how mcuh spare do you really have and only you know that. I am even though quite an established budgeter, that the way prices are rising, my grocery budget has had to double over the last 6 months. Utilities, petrol etc are ALL set to rise, substantially too, for the foreseeable, so if I were you Id try to factor this into any calculatiosn you might be making at the moment.

kerryi27

what is a FULL Soa?

thanks for all your advice by the way.

lynzpower

oh sorry

Full Statement of Affairs, a budget basically the calculatoion software is available on the site and a must for all moneysavers, a really good tool .

kerryi27

yeah, i probably didnt make myself very clear. We are doing it more for ourselves than my mam. We were gonna buy a bigger house but we love where we are and dont really want to move so we thought this was a better option.

we are hoping to be able to pay it off while we rent it out and my husband makes about 40k and our mortgage at the moment is 400.00 but you cant help worrying and thinking about worst case scenarios, like if he were to lose his job.

Thats why we thought fixing it for 5 years and see how the land lies then. If mortgages sky high and we couldnt afford it. We are hoping the house might have gone back up in value and we could have made a nice little profit.

kerryi27

lynz,

we would like to rent it at its full price at 550 per month but we wouldnt like to risk having it empty for few months and having to cover full mortgage we thought less risk this way. my mam is on list for council house so maybe in 5 years , we can revaluate and she could go to council house and we could rent out properly

kerryi27

does anyone else have any views on this, ie the market, will it be in better shape in 5 years, what about this supposed 25% hike