Renting my house - crazy plan?

cashorcheque

Hi there,

This is my first post so forgive me if I seem a bit green. I am currently in a temporary job paying £28k; my contract runs out in September. My husband is on £35k. Our mortgage, on a very small Victorian 2-bed terrace with a tiny kitchen, is £1275 a month (bought on a 100% mortgage August 2007 - I know). This obviously represents quite a high proportion of our wages.

Anyway, I have been offered a permanent job paying £30k with potential for rise, and have accepted it because if I don't take this job (starting in September) we won't be able to continue to pay the mortgage. It is over two hours away and, because of the nature of my job, there is nothing nearer I could actually hope of getting. My husband has just seen a couple of jobs he could apply for in the new area, paying a little more than he currently earns, and we are seriously considering moving to the new area.

But we can't sell our house because it is in £20k negative equity and we have no savings to pay the deficit. So we are considering renting our house out. According to two letting agents the rent we could hope to achieve would be £700-725 a month. In the new area, we would rent something for £600 a month (the new area is cheaper to live in). We currently pay £300 a month from a credit card debt, and have almost paid it off, so we would hope to save at least half that, plus the difference, each month as a buffer in case something went wrong (so say £250).

We currently live in Cambridge, where the property market is buoyant and where houses like ours are in heavy demand, so I hope we would not have too much difficulty finding a tenant. We are thinking we should do this with a 'let only' (plus inventory) deal with one of the local agents, and then handling any problems ourselves, just because the margins are so tight.

Does this sound like a recipe for financial disaster? Should we just stay where we are and I'll commute until house prices recovery and/or I can't hack it anymore?

Thank you.

anselld

You need to make sure you consider all the costs,

eg Letting ...
Is the £700-£725 the gross rent or your income after agents fees maintenance, etc?
and depending on that answer you will need to allow for...
maintenance and repairs
insurance
agents and other professional fees
gas certificate
etc, etc
plus the one-off costs of making the property lettable, eg..
smoke / fire / co alarms
energy performance certificate
electrical inspection
any other required improvements
... oh and of course dont forget letting income (after allowed expenses) is taxable!

On the other hand if you commute, what about commuting costs.

However the real showstopper will probably be "permission to let". You cannot let your property without getting permission from your mortgage company, which I would imagine would be difficult to say the least.

Are you sure your contract will end Sept? No chance or renewal? Could you not use the time between now and then to look for something closer?

skint-student-nurse

it is tricky,but as anselld said, the issue would be getting permission to let out from your mortgage company. my OH was lucky with renting out his flat as he is stuck in a 7% fixed rate so his mortgage company did a straight swap on the mortgages but still had to pay a fee for the change over.

the estate agent we let out through took a lot of the first months rent to cover fees,etc and then on top of that we had EPC's,and other checks to put in place just to have tenents look at the place. there are so many 'hidden' costs involved as we soon found out.

I really would think about it long and hard as i would hate for it all to go wrong for you. and please get permission from your mortgage provider if you do rent out your property as we have seen someone loose their home as they didnt have permission.

cashorcheque

Thanks both for your replies. We have an appointment with our mortgage company (C&G) tomorrow, but from as much internet research as possible (we are stuck on a fix at 6.79%, too) it seems that their usual policy is to give permission to let with a £225 fee.

It is totally not possible for any renewal of my contract - I work for a research group that was formulated for four years with a large grant - the project and the money both run out, indefinitely, in September. And I work at a university, so getting a new job almost always means moving to a different area. I was unbelievably lucky to get the job I have - perhaps two jobs a year come up in my field and there are many more people than that trying to get them.

Commuting costs are a big factor. The £700-725 is gross, before insurances/certificates etc. We already have British Gas Homeplan, and a CORGI man comes and checks the gas every year anyway - will that count? Thanks for the list - that's really helpful to know the other costs we can expect. As I said, we would go with let only (which, with the agency we want to go with, is 50% first month's rent, so £350-362.50) plus a one-off fee for preparing an inventory.

Of course, as you say, this is all dependent on the mortgage company agreeing. Perhaps I am too optimistic about this.

anselld

You might be lucky. C&G do seem to be one of the few lenders who have not run a mile from the BTL market. But you will need to be convincing about your ability to afford to repay.

This book is a very good intro to letting. Well worth a read!

Yorkie1

Also google for landlordzone forum, they have lots of useful threads for anyone considering letting out their property

anselld

cashorcheque wrote: »

a CORGI man comes and checks the gas every year anyway - will that count?

To answer that one specifically ...
CORGI is defunct, it is now "Gas Safe", though presumably your man will have re-registered.
... and no, it is not enough. It is a mandatory legal requirement to have a gas safety certificate every year. They will do it at the same time but you will need to ask for it specifically and, presumably, pay for it. I paid £70 last year.

BitterAndTwisted

Your plan isn't completely crazy but there are very serious risks and pitfalls for the unwary. Please have a read on the LandlordZone forum for a lot of information about what could go wrong.

Before you even consider this plan you must think about how you will manage the new mortgage repayments and your rent should the worst happen and you never receive a penny in rent from the tenants from hell while having to maintain the property. Or how you will afford repairs and refurbishment costs should your neighbours trash the place after you've finally got possession.

If you do decide to go ahead you must join a landlord association so you can access their legal advice and various other benefits

clutton_2

""handling any problems ourselves, just because the margins are so tight.

Does this sound like a recipe for financial disaster ?"

yes .... as a LL i cringe when i read posts such as yours, and we get a few every month..

presumably you have never been a LL before - so know nothing about being a LL - and yet you plan to live 2 hours drive away from the property and hope to be able to manage it properly ?

What workmen do you have lined up for repairs ? - do you trust them enough to let them assess and do the work and charge you without your being there ?

How will you know if the tenants are behaving badly or have done a runner - and what will you do about it ?

What will you do if they dont pay the rent ?

its fine folks telling you to read up, but, that takes a lot of time - and i know you have until September, but reading is not the same as DOing


you are already on the edge of a financial precipice "" if I don't take this job (starting in September) we won't be able to continue to pay the mortgage."

and yet you plan to rent out - a highly risky business anyway - but have plans to rent out a property at a LOSS of £500 per month


yes - madness - sorry to be blunt.... i am LL and know all about the hidden costs.

i daresay you wont like this next bit - but i am sorry, but your circumstances now reflect the rather foolish decision you made to take on a 100% mortgage.. it has come back to bite you on the bum in a nasty way.....

PasturesNew

cashorcheque wrote: »

Does this sound like a recipe for financial disaster? Should we just stay where we are and I'll commute until house prices recovery and/or I can't hack it anymore?

Thank you.

Yes. Your husband has a well paid job, so he should keep that. It's only two hours away, you can drive there Monday morning and back Friday evening easily enough (I used to do this for a journey 3-3.5 hours away every week).

Mon-Thu nights you can look at something like this: http://www.mondaytofriday.com/

To pay for it, maybe your husband could offer your spare room at your home on that site.

Also, being only 2 hours away, you could easily pop home mid week if you needed to, or even meet your husband half way between the two addresses for a drink/cinema etc occasionally.

G_M

Agree with just about everything already said +

Budget for £700 pm (if this is realistic) but base it on 10 months each year to allow for gaps between tenants etc. If you get a great tenant who stays continuously for 2+ years, always pays on time, great.

But best to base your budget on a less optimistic scenario. Tenant leaves after 6 months. Doesn't pay the last months rent (OK you take it from the deposit), but leaves some damage/repairs to make good from the deposit... oh, oops, no deposit left! New tenant takes 8 weeks to find, credit check, sign contract, move in.... and then leaves 6 months later......

Doesn't pay the last months rent (OK you take it from the deposit), but leaves some damage/repairs to make good from the deposit... oh, oops, no deposit left! New tenant takes 8 weeks to find, credit check, sign contract, move in.... and then leaves 6 months later

Doesn't pay the last months rent (OK you take it from the deposit), but leaves some damage/repairs to make good from the deposit... oh, oops, no deposit left! New tenant takes 8 weeks to find, credit check, sign contract, move in.... and then leaves 6 months later

Doesn't pay the last months rent (OK you take it from the deposit), but leaves some damage/repairs to make good from the deposit... oh, oops, no deposit left! New tenant takes 8 weeks to find, credit check, sign contract, move in.... and then leaves 6 months later