Advice please

bloaty

We currently own our bungalow and are considering investing our savings in buying a larger one.

We are in our early 50's and I personally would like to hold onto our existing property and rent it out, and take out a small mortgage on the new property.

The reason for this is we would like to reduce hour hrs of work and use the income from the rent to pay for our new mortgage.

We have a 3 bedroom bungalow in a nice area (looking to purchase new home in same area) and the average rental for a small 2 bedroom property is £450.

The biggest problem is my husband doesn't like debt so I would need to be sure what I am considering makes sense in order to convince him!

Is this possible?

All views/opinions will be greatly received.

Thank you.

Chinkle

Anything is possible, but you haven't given any figures. Have you actually sat down and looked at what your mortgage costs would be, factored in costs for maintaining/managing the rental. Would you manage it? Pay an agent? What are the tax implications? Looked at your responsibilities as a landlord?

Would it be worth the hassle if you want to settle down for a quiet life?

I think your husband would be more convinced if you had done some research and presented him with a reasoned argument and supporting figures.

bloaty

Chinkle wrote: »

Anything is possible, but you haven't given any figures. Have you actually sat down and looked at what your mortgage costs would be, factored in costs for maintaining/managing the rental. Would you manage it? Pay an agent? What are the tax implications? Looked at your responsibilities as a landlord?

Would it be worth the hassle if you want to settle down for a quiet life?

I think your husband would be more convinced if you had done some research and presented him with a reasoned argument and supporting figures.

Thank you.

I can see there is a lot of things to consider and acquire more information on.

surreybased

bloaty wrote: »

The reason for this is we would like to reduce hour hrs of work and use the income from the rent to pay for our new mortgage.

Hi there, this comment just stood out for me, it's seems you would take on more debt and use up your savings whilst at the same time reducing income. Are you comfortable with that?
It's worth looking at the actual return you would get from renting out your house (include all the buying costs, stamp duty if it applies, letting agents fees, insurances, costs of voids etc) plus the cost of utilising your savings. Look up rental yields as that will help you decide if there really is a financial case. Over the medium term no one knows what house prices will do - it's worth factoring in a stagant, declining and increasing house market. The rush to rent out properties was due to the prices increasing however most non professional landlords don't actually achieve a good rate of return (circa 5%) which when you consider the risk, worry of debt and hassle doesn't feel worth the effort. We had great tenants in a place we rented out - lovely people, kept the place spotless however when they lost a job the rent wasn't paid for a few months. We were able to cope as we had additional income but it does make you realise that you can't guarantee rental income.
Just think through these scenarios so that you feel the risk level of a new place is something you're comfortable with.

bloaty

Thank you for your helpful reply.

We just feel the return on our savings at present is very poor, despite most of it being in TESSA/ISA accounts.

If we sold our bungalow at a realistic price the difference to purchase one with slightly bigger accommodation would be around £75K which would still leave us quite comfortable but we couldn't afford to purchase it cash and therefore it would be dependent on the sale of our property if we found something we liked and wanted to make an offer.

This is why I am thinking about holding onto our existing property, then renting it out and if it isn't cost effective we could put it up for sale and pay off the mortgage.

You can tell I have no knowledge in this area and it may not seem as simple as it sounds.

PS, reasonably priced properties for rent in my area are rare and I realise for this reason if we took up this option we would need to think about where we advertised it.

whitewing

Is the idea of keeping the original bungalow so you can move back into it at a later time when you retire properly?

Would it be worth buying a smaller place to rent out? (Bearing in mind all the previous posters' points about renting)

PasturesNew

The return on your savings, AT THE MOMENT, is poor. But it's also hassle-free and risk-free. If you needed your money, it's there.

Once you rent your home out, it's no longer yours. It's somebody else's home. They have rights and you have obligations. What if the boiler/heating system needed £3k of work? If it were you you might leave it a few months, while you find a family friend who can do it cheaper. Or you might decide to wait and change the entire system next year - and in the meantime you're happy using other forms of heating. As a landlord you have a duty to fix it, pronto. You're on call 24/7 potentially.... a tenant may never call, but when they do, you have to act - it'll usually be when it's least convenient, like when you've booked a weekend away, or are at a wedding 200 miles away.

You will pay interest on income from renting it out - and have to do a tax return.

To find tenants, you'll most likely want to use an agency (so it's legal and correctly done), this might cost you the first months' rent in any case - then if they manage it for you it'll be a further 15% off the rent straight into their shiny back pocket. They'll probably also magic up other costs and fees for you to pay.

If a tenant is leaving, you might not be able to start showing round potential new tenants until that one's completely left the building. By the time you find a new tenant, if they're moving from elsewhere and there are credit checks to be done, you might find a void of 4-6-8 weeks isn't unusual.

There are ever-changing laws, tenant rights, landlord obligations ... all to be taken into account.

Is your decor to the liking of today's renter? You might find that the agents sniff at it and say it's all a bit tired/dated. It might be "lovely", to you...

You'll need an annual gas certificate, landlord's insurance, etc etc. All stuff to sort out - sucking up your time. Time is more precious than cash once you have enough cash ... and if you own your bungalow outright and there are two of you working and you have savings, then this might be called "enough".

Why not enjoy what you have. Remember: a bird in the hand is better than two in the bush.

rentinginlondon

One thing than may be worthwhile is to investigate your responsibilities as a landlord and see how much time committment this may take. I am not a landlord so can not advise, but as a tenant I know I want my landlord to repair and fix things within a reasonable timeframe etc.

Here's some links which may provide some information: oops i tried to post links however as I new user I am not able to if you search in google for landlords responsibilities you will be able to come up with some sites (including government sites) to provide you with some information.

lincroft1710

I heartily endorse PasturesNew's post.

BitterAndTwisted

I really wouldn't advise becoming a professional landlord. When property prices were going up and up and up lots of folk bought properties to rent out but a lot of them were looking at the value of their asset increasing massively over the long-term rather than making a profit from the rent in the short to medium-term. That is much less likely in today's market and the headaches entailed with being a landlord are certainly not for the inexperienced or faint-hearted. You seem to be in quite a comfortable situation and I certainly wouldn't want to risk it all.

Have a look on the landlordzone forum for a some ideas about what is entailed and the aggro which can be involved.

mufi

lincroft1710 wrote: »

I heartily endorse PasturesNew's post.

As someone who's in roughly the same position as the OP, so do I.

We've decided to spend some of our savings (combined with the proceeds of our house sale) on buying a more expensive property, while still keeping some in the bank. Buying a second property and having a mortgage again, let alone becoming a landlord, holds no appeal whatsoever:eek:.

Having done the sums, our move is going to cost around £23,000 in legals/stamp duty et al. Bearing that in mind, combined with the fact that it's by no means assured that our generation will get a second bite of massive house price rises to offset moving costs, my suggestion is to buy one property, and make sure it's the one you wish to spend the rest of your days in.