rent out my place and buy another

Flyboy152

JimmyTheWig wrote: »

You are right. I don't know. He might find the money in an envelope at the side of the road. Or he might be able to get this buy-to-let scheme to work.

But these are (some of) the reasons why I think that it is unlikely...
* He is in significant debt.

Which can be cleared by releasing equity from his property. This will reduce his outgoings, as secured rates are considerably cheaper than unsecured rates.

There is a credit crunch on. I can't see a bank being prepared to lend him significant money.

That very much depends on the lender's criteria.

* I've heard many buy-to-letters on these boards who have got themselves into trouble because the costs are more than they anticipated. If they can't manage it then I'm not sure that the OP can when he is also looking to raise extra money to pay off debts from it.

And yet we have seen just as many who have been successful.

* If he takes out a mortgage on his home now to then let it out, the debt was clearly not used to purchase the property and so interest on the mortgage will not be tax deductable, so he will be paying tax (possibly at 40% if he is a high earner which I believe some have wondered)

In which case, he isn't doing too badly and it will go towards his ability to pay.

If he isn't a higher rate payer, then the tax relief lost wil be less. It also depends on how much he is intending to borrow.

on most of the rent that he receives. If others are struggling to make a profit on a buy-to-let when the rent they receive is tax free (due to offsetting the mortgage interest against profits) then I can't see how the OP will manage and pay tax on it.

As I said, just as many have been successful at it.

JimmyTheWig

Ok, so lets assume that the OP could get a mortgage for £200k. This gives £25k to clear the debts (I'm assuming that this is what is needed from the first post as it is what the bank suggested he borrow - but I might be wrong; this might be the banks minimum amount to lend as a mortgage) and £175k to buy a house, including costs.

At 5% interest, this would cost around £833 a month interest only.
If you exclude the £25k for the debt repayments (you could argue that he's currently paying these anyway) then borrowing the £175k would cost £729 a month, at 5% interest, interest only.

Lets assume the the OP, even with the extra income of the rent, will be a basic rate tax payer.
After income tax, the rent on his place will bring in between £700 and £760 a month.

That leaves, if we ignore the debt repayments added on to the mortgage, something between a shortfall of £29 and a profit of £31 each month.
That is before we take into account any agent fees, insurance, other landlord costs.


I'm sure it _could_ work. The OP might get someone to lend him that sort of money at a better interest rate than that. House prices may shoot through the roof in the next couple of years and he could sell at a huge profit.
But I doubt it. If I was the OP I wouldn't spend any more time considering it.

Flyboy152

JimmyTheWig wrote: »

Ok, so lets assume that the OP could get a mortgage for £200k. This gives £25k to clear the debts (I'm assuming that this is what is needed from the first post as it is what the bank suggested he borrow - but I might be wrong; this might be the banks minimum amount to lend as a mortgage) and £175k to buy a house, including costs.

At 5% interest, this would cost around £833 a month interest only.
If you exclude the £25k for the debt repayments (you could argue that he's currently paying these anyway) then borrowing the £175k would cost £729 a month, at 5% interest, interest only.

Lets assume the the OP, even with the extra income of the rent, will be a basic rate tax payer.
After income tax, the rent on his place will bring in between £700 and £760 a month.

That leaves, if we ignore the debt repayments added on to the mortgage, something between a shortfall of £29 and a profit of £31 each month.
That is before we take into account any agent fees, insurance, other landlord costs.


I'm sure it _could_ work. The OP might get someone to lend him that sort of money at a better interest rate than that. House prices may shoot through the roof in the next couple of years and he could sell at a huge profit.
But I doubt it. If I was the OP I wouldn't spend any more time considering it.

You are conveniently forgetting the loss of the expense of his current debts. If his current debts are costing him five hundred a month, he could be as little as four hundred pounds a month better off. At the very, very worse, he will break-even, today. Then take into account future asset appreciation and rental inflation.

JimmyTheWig

Flyboy152 wrote: »

You are conveniently forgetting the loss of the expense of his current debts. If his current debts are costing him five hundred a month, he could be as little as four hundred pounds a month better off.

But he could acheive this with a £25k mortgage that the bank suggested.
I know that it's not often a good idea to replace unsecured debt with secured debt, or to replace short-term debt with long-term debt, but that would be happening with the buy-to-rent scheme, too.

That's why I took off the £25k for the debt from my final interest calculations (which gave a profit between -£29 and +£31 per month) as that could be used for the debt in either case and so doesn't give a fair comparison.

henryfayols

I think that you should sell your current house & buy another house,wherever you want to live.There are no problem of getting the house but getting the big & good location house.

henryfayols

I think that you should rent out your currrent place & buy a new one.This will be beneficial to you.But see the location,area & the neighbours then do any action.Because,there is no problem of getting a house but getting the good house in the best location is somehow difficult tasks.So,do anything after thinking & planning.