using equity in main residence to fund buy to let

olias

Hi,

I currently have a home valued at £203000 which I own out right. I am looking at the possibility of raising capital with a mortgage against this house to fund a rental property with a view to this being a long term capital investment (10 years min). Here are the figures:

main residence worth £203000
I currently pay £220 a month on a 15000 personal loan over 7 years (approx £14000 and 6 years remaining)
I am looking at raising approx £108000 mortgage on my current home and using this to pay off my loan (releasing the £220 a month - I also have a 'spare' £120 per month, meaning £360 per month 'spare' cash) and purchasing a rental property for £90000, leaving about £4000 for fees/furnitue etc for rental property

Myself and my wife have very odd income streams (benefits/trusts/self emplyed income etc etc) so will have to look at a self cert mortgage which a brief trawl online shows will cost about £350 to £400 per month fixed for 4 years (interest only)

rental property should rent at about £400 to £450 per month, so will more than cover mortgage cost, plus I have the 'spare' £340 per month explained above to cover any voids when property is empty.

My main aim is capital growth over the period I will own the rental, so any income from rent itself will be a bonus.

Only downfall I can see is that taxwise, I probably won't be able to offset the mortgage costs against retal income, as the mortgage will be on my main residence, not the rental.

Can anyone spot any flaws in my plan or have any comments on the feasability etc etc. Thanks

Olias

Euphoria1z

any loan that funds your buy to let can be offset against rental income, as long as its the interest part (not repayment) and you can show that the loan from your existing property funded the buy to let mortgage.

tonygee_3

Next property 'boom' wont start till at least 2020 so youll just have 10 years of maintainance and hassles before any hope of capital gains.Only an experienced developer will make money till then.
If u like property wait till about 2018 then invest in Housebuilders,Land etc much less 'messy' and tax free in ISA.
In last 'boom' housebuilders shares far outperformed property itself

olias

tonygee wrote: »

Next property 'boom' wont start till at least 2020 so youll just have 10 years of maintainance and hassles before any hope of capital gains.Only an experienced developer will make money till then.
If u like property wait till about 2018 then invest in Housebuilders,Land etc much less 'messy' and tax free in ISA.
In last 'boom' housebuilders shares far outperformed property itself

Hi, thanks for your comments. I see your point, but I think your initial point is a bit of a sweeping statement. I underestand all about 'cycles' etc, however I have been lucky enough to make money on all my property I have ever owned whether or not it is a 'boom' time. This has been through a combination of spotting undervalued property/property in the right areas/owners desperate to sell/a bit of updating and refurbishing and of course some luck!:D

I think the property I am looking at is undervalued, it is in a good area but it is currently empty and has been for a while so I think the owners could be leaned on with a low cash offer. It also has the potential to create an extra bedroom quite easily and cheaply, which I would probably do prior to selling further down the line. The comments from Euphoria1z (thanks), make it seem even more attractive a proposition.

Olias