Buy To Let Newbie Question

mmlabbd

Hi all,

I wondered if I could float this idea by the very intelligent people on this board, it may not be possible or a good idea but it's just something I have dreamed up and would like to venture into.

So;

- Currently I am a first time buyer 6 months in my first flat.
- I've got another 18 months until I can change my mortgage without inccurring penalties
- The flat cost £133,000 when I bought it, I had a £50,000 deposit from my parents and have a mortgage for £83,000
- In 18 months when I move my mortgage for a better deal I was thinking of;
- Changing my current mortgage on flat number 1 to interest only and renting it out and buying another flat to live in. (and before you say "why don't you just buy a new flat to rent out", I'd like to move area myself but would like to hang on to this flat as a rental income)

Now all that seems ok, but...will a bank give me an interest only buy to let mortgage on my current flat and then will I be able to get another mortgage (repayment & interest) for a new flat?
Is there a better way to do this?
AND how can I get some of the capital in my current flat for a deposit on a new flat?
AND Am I trying to do too much and should I forget about the whole idea - please be honest.

I look forward to your comments.

tomstickland

Personal choice on the risk. Too many people in this country believe that property will keep going up forever and all property is therefore a sound investment. Remember, investment really means that value can go down as well as up.

lic

My advice wuld be to do it. 133K less a 50K deposit gives you a bit to play with.
For BTL you only need a max of 20% deposit.
I would advise you to buy a flat/house with at least 2 bedrooms in it. the usual rule is that rent must be 120% of the monthly rent.
See an IFA and he will assess how and where you can get the money from.
A word of caution, do not use a letting agent, they will rip you off and provide very little in the way of service.
Go to WH Smith and buy a lawpack letting agreement and be the letting agent yourself.
To test the market before you buy, place adverts in your local paper, it will cost you about £20, and will be money well spent.
Cheers
lic

clutton_2

i would most certainly advise using a letting agent at least for the first 6 months, to find out what you have to do - if a tenant is not credit checked thoroughly, it can cost you a great deal of money, and it can take you 3-4-5-6- months to get a bad tenant out of a property. The new 2004 Housing Act puts far more responsibilities onto a landlord than ever before. NEVER allow anyone to sign a 12 months tenancy agreement, it makes it much more difficult to get them out if you need to. my best advice would be to employ a letting agent for 6 months, join the National Landlords ASsociation, and learn how to be a landlord, do a lot of reading, then, go it alone. NLA send out a magazine monthly, have a free legal helpline, and regional meetings, and cheaper house insurances will be available to you as a member.

i have bought 3 houses in the last 2 years off amateur BTL landlords who have seriously got their fingers burnt and who lost a lot of money.

Being a landlord is much more complex than it first seems.

good luck

realwildone

First of all if you have been in a flat six months. You may find you are already in neg equity. Flats have of all property been the worst investment in the last year.

So buying another will be a sure fire risk to ruin. But there again you were given the first 50,000 so maybe they will bail you out with another 50,000

Sapphire

realwildone wrote:

Flats have of all property been the worst investment in the last year.

Not all flats - new-build flats rather than period flats and maisonettes.;)

I'd advise against the OPs idea, purely because IMHO the property market is at an all-time high and he is liable to get his fingers burnt. These days a lot of people seem to be taking on huge financial burdens at a huge amount of risk - it generally seems to be inexperienced would-be investors who are being taken in by the property hype. :cool:

If you have money to spare you can afford to take risks, but if you are in debt up to your eyeballs (including being saddled with a mortgage), I would say you are taking a huge gamble in engaging in BTL, especially at this time.

F_T_Buyer

Hold on. What about your parents money? Wouldn't you take this capital into your new home, as i assume your income would not allow a large enough mortgage. What do they think about this as you originally bought your home with their help.

Secondly, assuming the flat you rent out is 100% mortgage (hence the most tax effecient) would the rent cover the interest only costs? It's very doubtful with average yields being 5% gross. If you do have a down payment (i.e. not a 100% mortgage) you need to take into account the loss of earnings on that.

Don't forget 10% of rental income in agents fees, maintenace at 1% of property value on average, potential voids (average at 1month per year).

Add on the new legislation coming in...

It's a lot of hassel for very little, if negative gain. The majority of people make money from house prices rising, but will this continue? Rising interest rates, house prices at the highest they have ever been?

kazap

buy to let has an image of easy money, its not, as said above peeps have made a lot from a rising market so the difficulties have been hidden. I think a fair few people may get burnt and it will be interesting to see if a flood of failed buy to let investment properties hits the market in the next few years, im sceptical about a down turn but that could be a trigger...