using rental income to pay dmp

lookingforthelight

Hi all,

I have previously thought about selling up and going into renting to use equity to pay off debts. I would then need to spend x years saving up a new deposit.

I now have another idea.
I would still sell and go in to renting but instead of using equity to pay off debt i would use it to buy a 1 bed flat and rent it out.

From what I can see for let now, the rental income would be a BIG boost to what i could pay into a DMP.

My DMP at the moment has interest frozen but I can only pay a small amount and will take over 10 years to pay off.

Should I:-
1) Sell, pay off all debt, go into rental and start saving a deposit from scratch (taking a long time).
OR
2) Sell, go into rental, continue to pay small amount to DMP, buy flat, rent out, pay rental income to top up DMP payments or even use rental income to save full and finals. The DMP would be completed much earlier and I would still have a house deposit if I then sold the flat (plus possible capital gain if house prices recover in 5 years time).

Which option is best do you think?

Thanks

lookingforthelight

bump.........

lvm

Would the equity in your property pay for a 1 bed flat outright? I'd assume if it didn't and you needed any sort of mortgage, this would be very difficult if not impossible (and against your DMP rules of no further credit agreements).

What if you couldn't find a tenant or your tenants didn't pay rent? Remember you'd also have to pay for the council tax/water rates when the property is vacant.

What's the value of your debts? Is interest frozen? Would/Could you release some equity to pay lump sum towards debts?

It would be a big risk to take and you'd need to have a very hard think about it.

Could you not rent out a spare room you have in current property? Would you make a profit on renting it out and moving into a small flat/bedsit yourself?

lookingforthelight

Equity IS enough to pay for flat outright.

I have no current spare room to rent and cannot do equity release due to DMP

DMP interest is frozen,

Looking at flats in central Brighton - very bouyant rental market.

I intend to talk with local agents for advice. Void periods would not be so crucial as i would not have a mortgage to cover. Water and Council tax would not be huge on the value of flat i am looking at. Obviously initial rental income would be saved to cover voids and a buffer for any repairs.

lvm

Well...in the long run it would look like you'd be better off selling your current property and using equity to buy new one (if you were 100% confident you could cope if you had no rental income).

If house prices do increase as expected in next 5 years and your interest is frozen, you'd be quids in.

Would probably still be looking to reduce your 10 year payment plan as I'm guessing you wouldn't want to be renting for a long time...