Regulated Tenancy Property Investment

ScottyG_3

My wife and I have been considering buying a second property as an investment. I have been looking at various options but when I saw an opportunity to by a victorian terrace house in a popular area where I live I was surprised at the price. Now I understand more about regulated tenancy it is clear why. However I am still trying to decide whether it represents a good long term investment. Weighing up the pro's and con's it would seem like a good punt, but I am unsure whether by remortgaging against my own home, there are other implications I should be taking into consideration (tax mainly). I assume I would be taxed against the rentable income, but are there any other taxes I should also factor into my calculations? Particularly once the property realises it's full value?

Any pointers much appreciated - :A

mwahaha

If you've been reading about it you probably realize by now its high risk. The fact you are talking about remortgaging rather than buying with cash concerns me. You are effectively gambling on the present tenant dying.... Regardless of any ethical concerns, are you going to be happy paying the mortgage for another 20 years+ if they (hopefully) live that long?

It's obviously worth getting as much info as possible on the current tennant(s), a couple with 30 year old children living at home who would inherit the tenancy is a very different prospect to an elderly widow. It's worth taking a look at some actuarial tables to see what you're getting into.

Tax wise my understanding is the fact its regulated doesn;t matter - you can still offset the interest against the (relatively small) rental income. The fact that he financing is secured against a different property doesn;t matter.

I believe you'll have to pay CGT on the gain when you sell it which could be significant if it subsequently has vacant possession.

My biggest concern would be if the tenant stays for another 20+ years because the regulated rent isn't going to be enough to pay a mortgage, particularly when interest rate rise, and it could be a spectacularly bad investment.

Is it in Cambridge BTW?

Jowo_2

http://www.landlordzone.co.uk/residential_tenancies.htm

1. Rent Act Tenancies can seriously damage your wealth, and perhaps your health as well!
2. Beware when buying properties with sitting tenants.

Tenancies brought into existence before 15 January 1989 are governed by the Rent Act 1977. These are uneconomic for landlords to operate - avoid them if you can. Exercise extreme caution when purchasing properties with existing tenants.Tenancies commencing after 15 January 1989 but before 28 February 1997 may be either Assured Tenancies or Assured Shorthold Tenancies. The default tenancy here is the Assured one which offers more security to the tenant, unless the landlord can show that the correct Shorthold (Section 20) Notice was served. Again, caution is needed when purchasing with existing tenants.

PasturesNew

Rentable income might be minimal ... how would you feel if it's £30/month?

Can they move somebody else in, that will be able to take over the tenancy?

mwahaha

Yeah, given OP was so surprised by the price I was assuming a Rent Act tenancy. (Also because I suspect I know the house...)

A search for Andre-Francois Raffray shows how wrong things could go!

theartfullodger

I heard of a case where the Landlord attempted to bribe the regulated tenant to leave & give up their rights for a consideration of £20-£30k: Tenant's advisers suggested £100-£150k bung was more appropriate!

Proceed with care!

Watching old TV programs suggesting investing in property is the way to riches may seriously damage your sanity. Mortgage brokers will convince you that values can only go up... and we know they are lying...

The sitting tenant can of course get married at any time / adopt someone, thereby creating someone with succession rights...

Mind you, 'phone the owners in 5 months time & make a very silly offer: They may just do a deal....

Cheers!

Lodger

mchale

ScottyG wrote: »

My wife and I have been considering buying a second property as an investment. I have been looking at various options but when I saw an opportunity to by a victorian terrace house in a popular area where I live I was surprised at the price. Now I understand more about regulated tenancy it is clear why. However I am still trying to decide whether it represents a good long term investment. Weighing up the pro's and con's it would seem like a good punt, but I am unsure whether by remortgaging against my own home, there are other implications I should be taking into consideration (tax mainly). I assume I would be taxed against the rentable income, but are there any other taxes I should also factor into my calculations? Particularly once the property realises it's full value?

Any pointers much appreciated - :A

Dont touch with a VERY large barge pole

barnaby-bear

ScottyG wrote: »

My wife and I have been considering buying a second property as an investment. I have been looking at various options but when I saw an opportunity to by a victorian terrace house in a popular area where I live I was surprised at the price. Now I understand more about regulated tenancy it is clear why. However I am still trying to decide whether it represents a good long term investment. Weighing up the pro's and con's it would seem like a good punt, but I am unsure whether by remortgaging against my own home, there are other implications I should be taking into consideration (tax mainly). I assume I would be taxed against the rentable income, but are there any other taxes I should also factor into my calculations? Particularly once the property realises it's full value?

Any pointers much appreciated - :A

These tenancies are allowed to be inherited too - typically a second cousin's young son and wife will move in to support "great-aunty" just before the "elderly female tenant who's lived there her whole life" (EA willl push this type of scenario) "moves on" - so you need to gamble on the number of relatives younger than you the tenant has - I've heard anecdotals of people paying to be the favoured "godchild"...

SouthCoast

mchale wrote: »

Dont touch with a VERY large barge pole

Cut them up to make baseball bats:

http://en.wikipedia.org/wiki/Nicholas_van_Hoogstraten

N79

I have some regulated Ts (inherited, not willingly bought). I strongly advise that you do not get involved in this side of the lettings market as a complete novice.

If serious, things to consider.

1. The Ts age and general health (it sounds calous but the older and more infirm the better).
2. Younger relatives (has the tenancy been inherited already, was this propertly documented, could the tenancy be inherited again etc).
3. Current rent levels - how far have the slipped below market (once rents have started to slip it will take years of arguing with rent tribunals to even attempt to get them back up and even then it is often impossible -this year a 1% rent increase on a rent of 82.76 a month against a market rent of approx 800 . )

Make sure you have a good solicitor that specialises in rent act tenanies.

Final advice - don't do it.

ScottyG_3

Thank you everyone that has replied.:T

I knew to expect a few negative comments when getting involved with this type of property. Having said that during my research I have read at least two positive articles the most reliable probably being TimesOnline.

The current fair rent is set in the region of £360 per month covering approx. three quarters of the interest repayment. However if this income was taxed then this would affect my calculations.

An elderly lady lives in the property, and although I would prefer not to wish her demise, she could be around for another 10 - 20 years, but realistically more likely 5 - 10. As I understand it anyone inheriting the tenancy would pay free market rents.

mwahaha - yes you are right about the location.