Should I let out and buy again rather than lose money?

hannah1977_2

I was hoping to pick the brains of the posters here.

We bought our flat in 2007 (boo!) and we've recently had twins and are desperate to move to a house with more room.

We look to make a loss if we sell but according to our mortgage advisor we could keep and rent out our flat and buy again.

I'm really keen on this idea but would it be wise?

A similar flat a few doors down is being advertised to let at £1100 per month. We did have a few lettings agents round in the summer and they said £900 a month would be realistic. I don't know if this would have changed. Our mortgage is £680 per month on a SVR and our mortgage allows for as to have consent to let.

We've been advised we could have a mortgage of 140k based on my husbands salary (I've been made redundant but couldn't afford to go back to work anyway) and we have a 15% deposit plus money for fees etc.

Would we go mental being landlords and would we be just taking on too much debt?

I recently read a great thread here where a poster changed his mind about buying a house because of the advice he received and was really impressed with all the help he got.

Werdnal

Becoming a LL is something you should do through choice, not because you feel forced into it for financial reasons.

Have you come across this thread by GM:

http://forums.moneysavingexpert.com/showpost.php?p=41160642&postcount=12

which covers a lot of the do's and don'ts and things you need to know as a newbie LL.

How much would you lose if you sold, compared to how much you could lose if the place was trashed by a bad tenant, or rent dried up and you still had to pay the mortgage on that and your new place.

Only do it if you can deal with the stress and emotion, and the financial commitments of maintaining 2 properties!

hannah1977_2

Thanks for your post Werdnal. The EAs we got round in August said we could look at marketing for 200k and selling for 195k but we bought for 210k and then paid 8k to renew the lease. So including fees we would stand to lose quite a bit more than a trashed flat and some missed rent repayments - could we not insure for that anyway?

I don't really feel forced but I do feel a bit daunted about whether the money would stack up (rent payments to our mortgage?) and dealing with a tenant but its a good area so hopefully tenants would be similar to ourselves...fingers crossed.

I'll defo read that link now. Many thanks

sims01

It really depends on what your views on house prices are.

By renting out and buying a new place, you're essentially doubling down on your exposure to house prices, so increasing the risk of getting into trouble, if those keep falling and/or rates rise.

It also depends on what kind of area the flat is in. If it's in a relatively affluent area with decent transport links and rental demand, renting it out could be relatively little hassle because you're fairly likely to get good tenants. If it's not in a particularly good area, there is a lot more risk.. Although if you can afford to buy a new place without selling the current one, there's nothing really stopping you from keeping the flat and selling it later on, if you're having trouble renting it out.

Also, if you don't have enough savings or income to cover both mortgages without depending on rental income for at least a year, I really wouldn't do it.

Yorkie1

Double check that your lease does in fact permit you to let it out, even if others are doing the same thing.

Werdnal

hannah1977 wrote: »

paid 8k to renew the lease

Have you checked that your lease allows you to let it? Some insist on owner occupier only.

You would also need to declare your rental income for tax, and remember only the interest portion of the payments can be used as an expense to offset any tax you owe, not the capital.

Your additional rental income could also affect any benefits, tax credits etc you may already qualify for, so you must factor this into the equation to see how much better off you would be.

hannah1977_2

Thanks for your replies.

I haven't checked about the lease but when we bought the flat the vendor was renting it out at the time so I took it that this must be allowable. I will contact the freeholder and double check though. It's a good point.

hannah1977_2

Sims01 - would we not be able to get rent protection cover?

It is quite a good area - lots of train and tram links, 20 mins to charing cross or victoria, nice villagey center, quite nice road, lots of young families. I'd live here if we could afford a house here!

hannah1977_2

Werndal -I wasn't really sure we would make any profit or at least I was more concerned that we would manage to comfortably cover costs. I guess I will need to look at how much the tax costs if the difference between mortgage payments and rent income gets used up in fees and maintenance and anything else...we don't really get any benefits except child benefits.

sims01

hannah1977 wrote: »

Sims01 - would we not be able to get rent protection cover?

It is quite a good area - lots of train and tram links, 20 mins to charing cross or victoria, nice villagey center, quite nice road, lots of young families. I'd live here if we could afford a house here!

I thought such insurance generally only covers defaults of tenants while a tenancy is in place, but not voids in between tenancies (have to admit I haven't looked into that recently though). If it's close to London, I doubt you'd have to worry too much about long voids though, if it's in decent repair and priced realistically, but it would still be important to have a decent safety buffer in terms of income or savings, if there are any unexpected larger repairs.

lynneinjapan

Yes, rent guarantee insurance normally only covers a specific tenancy, not voids. There are some agents that will give you a rent guarantee packages that means you never have a month of no income (I believe Northwood does this) but the monthly rent that you actually receive on these packages is lower than it would otherwise be. And once you've got the tenants in situ, you could choose to self-manage rather than have an agent take a 12-17% fee (inc VAT) each month. If you've got good tenants then self-managing isn't difficult. The landlord is ultimately responsible for meeting their legal obligations so you can't rely on the agent to do it all for you; a good agent will handle matters well and advise you as to what needs to be done, but if you pick a bad one and they screw up then it's your head on the block anyway!

Bear in mind that the service charge (assuming that there is one) will have to come out of the rent too - the tenants can't be asked to pay it separately.