Should I buy or sell or rent out? (Inheritance and Debt issues)

pjgtips

Hi

Any advice you have would be appreciated.

I am 45 and have inherited a 50% share (c. 65 - 70K) in a house from my Mom along with my sister who inherited the other 50%. The house is worth about 130 - 140K. I need to decide whether to realise the equity or whether to purchase the property outright (probably initially as a buy to let with a view to living in the house at a later time).

I have an emotional attachment to the house and the memories of living there with my Mom and other family - I have lived in it for most of my life (but not for the last 5 years). I also have friends and family in the town. I would like to live in the house again in the future but it isn't feasible at the moment.

I am currently living in rented accomodation with my partner who does not wish to move due to his family commitments - we live about 20 miles away in a town where I have no support network. It may be that in the future we/I would want to live in the house. My partner is working away for the next 6-9 months and I will live in the house for the majority of this time or until the house is sold/I buy it. I find the insecurity of rented accomodation difficult although I do love some aspects of the house we currently rent.

I earn about 21K but have 18.5K in credit card debt (mostly low interest) and another 7K outstanding on a bank loan (+ 1.5K outstanding on a student loan that I don't earn enough to need to make repayments on). This debt was getting to be a problem from me but obviously the equity in the house could resolve this (though I would rather have my Mom and the debt problems). As you will guess from the above I have no other savings. The debt is from a bad period about 4-5 years ago before I met my current partner and I could manage on my current income quite well (it is the capital and interest on this old debt that cripple me) and my partner contributes to the household expenses and he and earns over 40K (but isn't responsible for any of my debt).

My job has a pension and lump sum on retirement and I would get a reasonable redundancy settlement if the worse happened. However, if I realised the equity in the house I could pay off my debts and use the remainder to retrain as I really don't enjoy my current job.

My thoughts at present are to try and get a buy to let mortgage possibly on an interest only basis (if advisable adding my cc debt to the mortgage amount) and then to rent the property out. The rental market is buoyant in the town in which the house is located and I would expect to get 450 -500 pcm in rent. I would ideally be looking to have an interest only mortgage into which I could make capital repayments at some points; unless a repayment mortgage is more appropriate.

If we do sell; everyone seems to think it would sell quickly despite the current climate as its a lot of house for the money in a small town with excellent schools. The reason for the price is it's only two bedroomed and ex local authority but it is am attractive house in a quiet nice cul de sac, has reasonable size rooms, is close to the schools (but not too close) and it isn't directly overlooked and has a reasonable sized garden, garage and drive.

Do you have any suggestions/advice. (My sister wishes to realise the equity but would prefer it if I bought the house rather than an "outsider").

BitterAndTwisted

Being a landlord when you have absolutely no experience is a risky enterprise if you don't spend quite a lot of time and effort learning about your legal responsibilities and the tax-implications. The idea of an interest-only BTL mortgage is bringing me out in hives! Especially as the rental income is projected to be only £500 pcm. This isn't even factoring in the huge emotional component in owning this particular home and having strangers living in it and possibly not looking after it in the way you might wish.

As you are so very heavily indebted (£20k!) I would recommend that you sell the property and get yourself debt-free asap. Whatever is left can be squirrelled away and used towards a deposit on another property when you and your partner are ready to buy.

pjgtips

Thank you for taking time to reply.

Just to add this is me stepping my toe in the water trying to establish what I need to think about/be aware of and I would be willing to find out about the legal and tax implications. Embarrassingly despite the debt pickle I got myself in a few years ago, I do have financial/taxation experience albeit not in buy to let but would be willing to learn. I do admit I had mistakenly thought most buy to let mortgages were interest only.

Although, I appreciate what you say about the emotional aspects of renting it out I find it distressing to be in the position of having a toehold on the housing ladder and taking it off especially when it's a house I love and would happily live in. Especially as even though he earns a good salary and hasn't any debt - I really don't expect my partner will ever want to buy again (he is still on the mortgage ofthe house of his ex-wife).

I appreciate the complicating factor is the debt I built up in a period 4-5 years ago (before I met my current partner) but if I could attend to that; I really can manage financially. If I add I had a period of extreme depression at that time and took medication that made me financially reckless. Prior to that I had savings in the bank and since then I do manage on my current income apart from the debt albatross.

Jowo_2

Go to the Debt Free wanabee board for advice on how to manage your debts. I think you are being a bit optimistic about the impact of them on any potential mortgage.

The main risks that you were advised about from renting the problems don't actually relate to your emotional bind to it - novice landlords attract rogue tenants and agents and under appreciate the financial risks of ending up with a bad tenant who can wreak havoc in the property and take a long time to evict.