using equity to buy another property

alfie45

Hiya, currently we own a £275000 house with £88000 left on the mortgage. We dont have a good pension scheme, so was thinking would an option be to use the equity on our house to buy an apartment and then rent it out? Does anyone have any advice or experience of doing this? Feed back greatly appreciated.:T

opinions4u

What happens if you don't get a tenant?

What happens if the property needs repairs and you can't afford them?

What happens if the property falls in value?

What happens if interest rates rise and rents don't?

How will you ensure you meet your legal responsibilities as a landlord?

How will you manage your tax returns and deduction of interest charged from income?

It's rather an all eggs in one basket pension scheme, funded by debt.

Thrugelmir

Is it a viable investment?

alfie45

Thank you for taking the time to reply and i take onboard all you have pointed out.:)

CLAPTON

presumably you mean you are planning to increase your mortgage?

is your income sufficient to get the larger mortgage?

if so presumably you can afford to pay the mortgage whether or not the flat has tenants or not?

how much do you need?
what are typical rents for similar properties?
do you want the hassel of being a landlord?

widj

The key points foe me are:
Will the rent *more than* cover the mortgage cost?
(I.e. will it be in profit if not, find another investment)

Will this profit be sustainable over the long term?
(if the mortgage cost/rental return may fluctuate, consider having an exit strategy to prevent you getting stuck with something that's no longer viable, taking residual value of the rental property, change in mortgage cost (rate change or lump repayments) and changes in the rental market)

molit

it can be done- the thing to do is to work out the figures, and work out what risk you are willing to accept...this includes the time elemt as well


as others have said, think of it purely and simply as a business - expected incomes, outgoings, etc. I've done it on a small scale, although not through the traditional route, and it is certainly a long term investment..

PM me if you want any futher information

neverdespairgirl

alfie45 wrote: »

Hiya, currently we own a £275000 house with £88000 left on the mortgage. We dont have a good pension scheme, so was thinking would an option be to use the equity on our house to buy an apartment and then rent it out?

Don't forget that "use the equity" in this instance means, "borrow more money". You aren't actually using the equity itself unless you sell up, you are borrowing against the equity.

Conrad

neverdespairgirl wrote: »

Don't forget that "use the equity" in this instance means, "borrow more money". You aren't actually using the equity itself unless you sell up, you are borrowing against the equity.

Using equity can make business sense. Look, equity gains are merely pennies from heaven as it were, not earned out of income but just a lucky gift, so why not sweat it.

Way back in Biblical and Shakespearean times there are many references to the merchant who let out property, tis a perfectly valid investment. Many a retired client of mine did perfectly well with buy to let.

I meet with lenders all the time and they tell me thier B2L portfolios have performed far better than other lending sectors such as shared equity and often better than standard resi mortgages.

neverdespairgirl

Everything you say might well be true, Conrad.

It's still the case, though, that in this instance the OP is considering borrowing against the equity, rather than releasing it.

GMS

Having equity does not mean it is there to be spent. As has been pointed out any borrowing against the equity needs to be affordable.

OP if you are happy with the payments and the risks involved then it could well be a possibility for you. Would you consider raising the deposit on your own home and taking a BTL mortgage on the property? Less risk against your residential property and a BTL mortgage to offset interest against tax.

You may be best speaking to a broker to see how to proceed. Do you have an income at present?