Should we B2L?

JollyNolly

Sorry if this sounds hopelessly newbie-ish.

This is the situation - although Mrs JN and I are both working, our finances are on a bit of a knife-edge - with payment for our existing mortgage and other debts, plus normal living expenses we generally only just break even. Our son is in his first year at uni, currently in hall of residence, costing us 4K a year.

So we're toying with the idea of getting into buy-to-let. The idea is that we would buy a terraced house near the uni which son could live in with his friends for the next year or two, thereby hopefully breaking even rather than losing the rent every year. We can probably get about £25K together for a deposit buy surrendering an endowment that we have. We're both in our early fifties.

Is this a mad idea?

lynzpower

where is he at uni?

JollyNolly

Birmingham - does it make a difference?

odLott

JMHO, but I would say no. Even if you can find a lender that will give you the mortgage you want, you would still need to ensure that everybody pays their share of rent, that interest rates don't raise on you (if you don't go for a fixed rate mortgage), that there are no unexpected bills that come in and that you can still manage your own debt. Also, what happens once your son finishes UNI?

Honestly, I think its a lot of risk for potentially very little gain.

Vickicb

I know lots of people that this has worked well for, I shared a house with the son of the owner, my sister rented a room from a friend's parents while at Uni in Liverpool, a colleague of mine has just bought for his daughter in bournemouth. I would think it's probably quite a good idea.

lesleydejager

if things are really tight you would be taking a bit of a risk...there can be a lot of unexpected costs in a property...burst pipes, leaky roofs etc that a landlord has to fork out for.
I don't know what property prices are like in Birmingham but you'll need at least 15% deposit, possibly higher as you are intending to let to students and your insurance premium will be higher aswell. You will also probably need a Multiple Occupancy License (unless English law differs from Scotland in this).

On the plus side, letting to students yields a higher monthly return as you rent each room seperately. But can you trust your son will be able to collect the rent from his friends in time for the mortgage payment? And that they will pay all their bills? Do you want to put that responsibility on your son and have you considered the stress that might put on his friendships? You really ought to have at least a couple of months worth of mortgage payments in reserve in case anything goes wrong, you could get a deposit from the tenants to help with this.

Also, as you say, your money will be appreciating instead of going into a rental black hole...but can you afford to risk something possibly going wrong?

JollyNolly

odLott wrote:

JMHO, but I would say no. Even if you can find a lender that will give you the mortgage you want, you would still need to ensure that everybody pays their share of rent, that interest rates don't raise on you (if you don't go for a fixed rate mortgage), that there are no unexpected bills that come in and that you can still manage your own debt. Also, what happens once your son finishes UNI?

Honestly, I think its a lot of risk for potentially very little gain.

I guess these are some of the things that worry me, too. I thought it's most likely that when son leaves uni we'd sell up, unless either (a) things are going so well we want to continue (!) or (b) daughter wants to take over...

Jonesya

Bear in mind that you won't get a terrace house near the uni for typical terrace house prices - there's a very significant price premium on the houses close to the Uni because the enhanced rental return of the properties is factored into the values. Most of the houses in that area are old terraces so you've got to factor in the maintenance costs particularly if the previous owners have skimped on it to enhance their profit margins.

The houses get cheaper as you move further out from the uni but you lose rental income as students aren't prepared to pay as much due to longer walk, train/bus fares etc.

JollyNolly

lesleydejager wrote:

...But can you trust your son will be able to collect the rent from his friends in time for the mortgage payment? And that they will pay all their bills? Do you want to put that responsibility on your son and have you considered the stress that might put on his friendships?...

I haven't really thought about this that carefully, but I guess I would expect to be collecting the rent, as I don't live all that far away. Presumably it's normal for council tax and water to be covered by the rent, and gas and electricity to be paid for by the tenants as they go??

JollyNolly

Jonesya wrote:

Bear in mind that you won't get a terrace house near the uni for typical terrace house prices - there's a very significant price premium on the houses close to the Uni because the enhanced rental return of the properties is factored into the values. Most of the houses in that area are old terraces so you've got to factor in the maintenance costs particularly if the previous owners have skimped on it to enhance their profit margins.

The houses get cheaper as you move further out from the uni but you lose rental income as students aren't prepared to pay as much due to longer walk, train/bus fares etc.

From what I've seen, a typical terrace costs around £180-200K, so I'd have to find at least £30K deposit - possibly with some help...

scorpio_princess

JollyNolly wrote:

I haven't really thought about this that carefully, but I guess I would expect to be collecting the rent, as I don't live all that far away. Presumably it's normal for council tax and water to be covered by the rent, and gas and electricity to be paid for by the tenants as they go??

Just thought i'd mention that if the occupants of the house are all full time students, Council Tax is not payable.

Sorry, I can't really help any further - all I know is there's quite a few regulations you need to comply with (there's lots of peeps on here that know the rules inside out -i'm sure they'll be along to help soon!)

Good luck!