BTL dilemma - help required

yorica

Hi

I want to share with you my dilemma and seek advice from anyone out there.

I want to rent out my current house and buy another for myself & family.

I have a £65k residential mortgage on my current property paying about £330 a month repayment mortgage.

I've contacted a letting agent who can find me a tenant who'll pay £900 a month rent.

The new property I've found for my family costs £275k.

I'm the sole earner earning £45k a year with £20k in savings. I also have an outstanding £3.5k credit card bill (0% interest deal).

I want to rent out my current house as it's really aimed at 1st time buyers and there aren't many lenders handing out mortgages to first timers anymore but there is a healthy demand for rental property in my area.

The cost of selling a house is also too prohibitive (£20k or so) so I
thought I could put that towards the new property.

Does anyone out there think this pipe dream is a possibility?

Any advice is gratefully received.

zappahey

Is it your dream to be a landlord?

Can you afford to cover any rental voids, non-paying tenants, to carry out significant repairs when bad tenants trash it, etc?

Are you happy to be called on Sunday evenings to carry out emergency repairs?

Are you emotionally attached to the house? Are you happy that others may not treat it in quite the way you do?

Those are only a few questions you need to ask yourself at the outset and don't imagine that it's just easy money.

Good luck.

GuidoT

Your current property that you have a £65K mortgage is worth approximately? If you expect a rental of £900 is must be worth significantly more than £65K.

I ask because on £45K you will be unlikely to get a £255K mortgage, therefore you would want to equity raise on your current property.

Being a LL has some downsides (and I see loads of posts here warning about such) but in the main I have found it to be positive, I have several houses and have been a LL for about ten years.

However, there is one downside at the moment, banks do not want to lend on BTLs and those that do charge large arrangement fees and the IRs are not great.

poppysarah

What's the value of the house you only have a 65k mortgage on?

mustrum_ridcully

zappahey wrote: »

Is it your dream to be a landlord?

Can you afford to cover any rental voids, non-paying tenants, to carry out significant repairs when bad tenants trash it, etc?

Are you happy to be called on Sunday evenings to carry out emergency repairs?

Are you emotionally attached to the house? Are you happy that others may not treat it in quite the way you do?

Those are only a few questions you need to ask yourself at the outset and don't imagine that it's just easy money.

Good luck.

I'll add another (long) question...

How would you feel if you had the tenants from hell, who trashed your former family home, who didn't pay their rent, who forced you to go to court to evict them from your former family home, who caused grief for your former neighbours who had to complain to you endlessly about it?

I mentioned family home deliberately, because you'll always see it as having been your family home (because it was) as opposed to an investment property you have no attachment to. I know of cases where LLs renting out former family homes would get upset at furniture being moved from one room to another.

Oh and then you'll need to: deal with HMRC for taxes, sort out gas safety certificates, ensure all upholstered furniture is fire retardant, sort out LL insurance etc...

franklee

yorica wrote: »

Does anyone out there think this pipe dream is a possibility?

Pipe dream till it's at least properly costed which your post is miles off.

It seems common to look at current mortgage payment vs rent. Really that tells you little to nothing of how well your investment is working for you because you have forgotten to account for the equity in the property based on what you think is a current realistic valuation of the property. The money could be earning you interest in a savings account or other investments (for example, not suggesting you do that other than using the example to to see that the money locked up in a house has value), used as equity in your new home to reduce your new mortgage etc. All things that need weighing up before you decide what money is allocated where.

A second common thing is to fail to mention the interest rate on the mortgages. It's costing you £330 a month repayment now but is that a temporary low tracker at 2% or a ten year fix at 5% or what? £330 a month is meaningless to us on it's own.

A minimum start would be house value, suggested mortgage deposit and mortgage interest rates for both properties. Plus money allocated up for moving, running the rental, etc. Plus of course how the payments look each month you've partially done this with rental income, but outgoings, letting agent fees etc.?

Also why does selling a house cost 20K? I thought it's buying with the stamp duty that's expensive, selling is estate agent fees (what 1-2% or so) and solicitors fees no more than a few K. How do you get to 20K?

yorica

Thanks for the insights.

A few more facts: My current house is worth 200k. I bought it for 90k in 2000 and I have a tracker mortgage - BoE base rate plus 0.5%. My outstanding mortgage is 65k.

I have completely detached myself from my current house as I see it as a way to improve my family's life and give me the stepping stone to a better house. I have rented it out before when I went travelling a few years back. Unfortunately it was trashed but I've definitely learnt from it.

My master plan (such as it is) is to eventually move to Japan for a few years with both my first/current house rented out and my future house also rented out so it will provide us with an income whilst we are away.

The new/future house costs 275k.

G_M

You've also failed to take into account the cost of switching your (currently low) mortgage to a BTL, or at the least paying for CTL.

Read all the links on this post to familiarise yourself with everything that's involved, and read the book too.

molit

right, I've done what you wanted to do, and yes it is possible.

This is my suggestion, firstly, have a chat with a mortgage broker - explain exactly what you want to do. Work out if you are likely to get consent to let on your current house. If so increase your residential mortgage to take account of the tax benefits. The get consent to let from your provider -0 you might have to wwait a few months, but a decent mortgage adviser can do that.

my currnt consent to let with alliance and leicester/sdantander is £95

Then move forward. BTW there are a lot of poeple on tyhis board who will just say sell, and try and persaude you to...

silverchair

zappahey wrote: »

Is it your dream to be a landlord?

Can you afford to cover any rental voids, non-paying tenants, to carry out significant repairs when bad tenants trash it, etc?

Are you happy to be called on Sunday evenings to carry out emergency repairs?

Are you emotionally attached to the house? Are you happy that others may not treat it in quite the way you do?

Those are only a few questions you need to ask yourself at the outset and don't imagine that it's just easy money.

Good luck.

Not just having to repay if bad tenants trash it. Do you have the money to do normal repairs due to wear & tear. I know if there was a hassle with getting repairs done from our landlord we would just move as theres plenty of other rental properties. Its a business which may make you money but in return you need to do your bit of being professional & getting things fixed. We get on very well with our landlord due to this. I also agree with the above that it is no longer your home. Would you be OK with that.

80schild

Ourselves we were seriously considering BTL remortgage instead of selling for a low price (and losing our inheritance money repaying negative equity). We have come to the decision to cut our losses and sell (although we lose a lot in negative equity, we are getting our purchase property also well below market value!) much for the reasons outlined by other posts on this thread!
I would speak to an estate agent and see what they think they could get realistically for your house in the time scale you need-I expect it would be far more than what you owe on your mortgage if you would be looking at £900 a month rent!