Want to buy a house but keep existing property and rent it out, need advice please.

Hammyman

BitterAndTwisted wrote: »

Would that still hold true on an interest-only mortgage? I suspect not.

Yes because that is what our mortgage is on the one we're letting out.

Emmzi wrote:

where is the deposit for new house coming from?

If they're doing like us, from equity release in the current house they're planning on letting out.

clairet707

cooliegirl wrote: »

Thanks all great advice!

I'm in enfield (greater london) but not a london postcode...if that makes sense :-)

So was the amount that you got on the 2nd residential mortgage affected by the exisitng mortgage?

I have my own business, so I am used to the tax returns - unfortunately. My mum and dad are LL so can maybe pick up some tips from them.

All in all though, when does being a LL become profitable for most? I mean in particular, when you are like me and you cant afford to own the property outright? It could take 10-15 years to pay off the mortgage from rental income, maybe more. Does that seem sensible or just plain stupid? I mean, when do i see the benefit in my pocket from becoming a LL...when I am retired?

I do have a child and it would clearly be a good investment for her (and any more children to come) though.

No, our second mortgage amount wasnt affected by the first, we had to show we had enough savings to cover a 6 month void of lettings. But then again we were lucky enough to have a large deposit. We had very little equity in the first house so we couldnt use that as a deposit for the second.

So far it hasnt been profitable for us, and weve been doing it just over 3 years, but we have had the same tenant in for those years, she recently moved out so this year our expenses will be greater than our income from it. Im not sure on 1 property it will become profitable. Weve had a few issues with this tenant so for a few months its been a bit er shall we say interesting.... Luckily financially its been ok but were still sorting the mess out..

As artful says dont go into it thinking its going to be easy, make sure you get a network of handymen and contractors that you trust - it makes things a lot easier.

Regarding the tax returns, make sure you read up on what you can and cant claim as expenses... Its different from doing an employment return!

cooliegirl

theartfullodger wrote: »

ONLY rent out property if you have the emotional & financial reserves to cope with no rent paid for (say) 7 months whilst you keep paying all bills, mortgage, legal fees to get tenant out & you STILL have to make repairs or the Judge may decide you are harassing tenant and allow him to stay longer. e.g. on month 6 he 'phones you at 10:37pm Saturday night & lets you know the toilet is leaking - and has been for 4 weeks.. and you gorra get it fixed...

Artful

7 months...wow, that's alot. Thanks Artful.

cooliegirl

Hammyman wrote: »

I did this a couple of months ago.

It is not a Buy to Let mortgage that you want but a LET TO BUY - the two are not the same thing. There are quite a few LTB lenders and the requirements are different in regards to your income. Some will want to know your income but some are only interested in the rental income. Most, if not all, want a monthly rental valuation of at least 125% of monthly interest payments.

When it came to the mortgage for the house we moved into, the existing house we were letting out never came into it and in fact the rental income counted as income for calculating how much we could borrow for the new house.

Thanks. How did it work for you timing wise? i don't think we could do that, we will need to find a new house, then spend some time making sure that our old house is in tip top rental condition. The income from rent may be a few months later.

cooliegirl

Emmzi wrote: »

where is the deposit for new house coming from?

Thats a thought, I would need the equity from my existing house to get a bigger house...is that a bad move?

cooliegirl

just bumping this thread to see if anyone can help with my last question, thanks.

hazyjo

I think it would be better investing the equity in a bigger house that will probably increase in value far quicker than the house you want to keep along with whatever you buy, and you'd be able to afford a bigger house. When I met my hubby, he had a flat and I had a house (his has since sold, mine's being sold). We could have kept one to rent out, but it seemed much more logical to use the equity from both on a big deposit on a joint house. Still taking out a big mortgage, but we plan to stay there and not move again (until maybe after retirement!). Have a think about what works best for you. Increasing the mortgage on your house to find a deposit for the new house will mean a pretty huge mortgage with little deposit on the joint house (and the risk of negative equity further down the line). You'll also be reducing the equity in your current house and putting the same risks on it.

As an example, if you have a house worth £200k, with 25% equity = £50k, and you need to increase your mortgage by £30k to find the deposit for another house worth say £300k, you'll only have £20k equity in your current house. It could drop that in 6 months in this market! Wouldn't you be better selling and taking the (hypothetical) £50k equity and putting it towards a new house for the two of you?

My take on it anyway... sorry if I've got something wrong!

Jx

Rainmaker_uk

cooliegirl wrote: »

just bumping this thread to see if anyone can help with my last question, thanks.

It's not a bad move if you can do it. But I would expect that a lender would require another 15%+ deposit on the new house as well as keeping an amount of equity in the existing property (may not need to keep it all in). But there may be a way around this - I would speak to a broker and see what your options are.

cooliegirl

hazyjo wrote: »

I think it would be better investing the equity in a bigger house that will probably increase in value far quicker than the house you want to keep along with whatever you buy, and you'd be able to afford a bigger house. When I met my hubby, he had a flat and I had a house (his has since sold, mine's being sold). We could have kept one to rent out, but it seemed much more logical to use the equity from both on a big deposit on a joint house. Still taking out a big mortgage, but we plan to stay there and not move again (until maybe after retirement!). Have a think about what works best for you. Increasing the mortgage on your house to find a deposit for the new house will mean a pretty huge mortgage with little deposit on the joint house (and the risk of negative equity further down the line). You'll also be reducing the equity in your current house and putting the same risks on it.

As an example, if you have a house worth £200k, with 25% equity = £50k, and you need to increase your mortgage by £30k to find the deposit for another house worth say £300k, you'll only have £20k equity in your current house. It could drop that in 6 months in this market! Wouldn't you be better selling and taking the (hypothetical) £50k equity and putting it towards a new house for the two of you?

My take on it anyway... sorry if I've got something wrong!

Jx

Thanks J, you have really hit the nail on the head with what has been going around in my head - and your estimations are pretty close too ;-), I so very much want to keep the house but it almost feels like unless I have alot more equity, it could potentially be a bigger risk than I am prepared to take...it's food for thought. When I am ready to move though, I may be looking at a bit more than 25% equity but not a great deal more (max 30%).

hazyjo

cooliegirl wrote: »

Thanks J, you have really hit the nail on the head with what has been going around in my head - and your estimations are pretty close too ;-), I so very much want to keep the house but it almost feels like unless I have alot more equity, it could potentially be a bigger risk than I am prepared to take...it's food for thought. When I am ready to move though, I may be looking at a bit more than 25% equity but not a great deal more (max 30%).

In a pretty similar situation myself not a million miles from you (in Highams Park, selling a 2 bed Victorian house for £230k). Similar prices to Enfield!

We're spending over £400k now, but were originally looking at around £350k. I know it all sounds like a lot of money to some, but it would only have gained us a bedroom and maybe a loft conversion, and only maybe an eating area in the kitchen, and maybe an ensuite or downstairs loo. We thought we'd want to move again within 10 years so have stretched a bit now and are buying something together with equity from both our places. It kinda made more sense in the long run... Don't make any rash decisions. It's taken us a year to work out exactly what we needed. We offered on a couple of '30s' semis but so glad things didn't work out or I think we'd have regretted it.

Good luck with whatever you do.

Jx