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Buying to let basic advice

I am soon to be faced with a 50% increase in my pension payments and worse terms, later retirement etc... so I've decided when it happens that I am going to pull out of the scheme and use what I would have been paying to do something else.

I am considering buying a budget property with the money by borrowing against my homes equity rather than a buy to let mortgage.

I've seen a few local properties sold at action from repossessions and I could buy them for monthly payments similar to my proposed pension payments. Several had existing long standing tenants with no arrears and the rent would more than cover the loan.

Can anyone give some basic advice and things to consider etc??

I am aware of the risks associated with the rental side itself and the risks posed by tenants.
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Comments

  • Werdnal
    Werdnal Posts: 3,780 Forumite
    Part of the Furniture Combo Breaker
    edited 5 January 2012 at 11:52PM
    Try this for a newbie's guide:

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

    Probably the most linked to post on this part of the forum!

    I personally would never advise buying a property with a tenant as there are several drawbacks, particularly not knowing the terms of their existing contract, all of which will transfer to you as part of the purchase. If they are long standing tenants, you may find their agreements are very difficult to change, you may not even be able to increase their rent, and eviction could be extremely difficult - hence the reason they are sold at auction in the first place as they are difficult to shift on the open market! You may also find that the LL selling with tenants in place, has allowed the property condition to deteriorate - choosing to sell on rather than spend money on repairs. As soon as you buy, you could be hit with a long list of repairs and maintenance needed which as the new LL, will be your obligation to comply with.

    I would prefer to buy vacant, refurb and bring up to a good letting condition and start with your own tenants, who you can vet yourself and get a good tenancy agreement in place to suit your needs and that of the property.

    If you borrow against your own property, you may find it diffcult to use the repayments as an allowable expense for tax on your rental income - I think it can be done but it complicates things. If you took a BTL mortgage on the property itself, the interest on the loan is an allowable expense as it is tied directly to the property so easier to justify.
  • Tucker
    Tucker Posts: 1,098 Forumite
    Part of the Furniture 1,000 Posts Combo Breaker
    I know an existing tenant can have it's draw backs. However if it's a tenant that's been there 10 years and has never had arrears and quite likely to want to stay long term it also has advantages.

    The auction website included the legal docs including the current tenancy agreement so the current terms are there to see.
  • dimbo61
    dimbo61 Posts: 13,727 Forumite
    Part of the Furniture 10,000 Posts Name Dropper Photogenic
    If the rent from the existing tenant can cover the mortgage why did the owner sell the property at auction!
    He/she should be making money and not paying auction house selling fees plus legals.
    Do you know what is required to be a landlord and costs involved
    Keep you pension ( local government by any chance ) and pay the extra 3% each month and enjoy your retirement
  • Tucker
    Tucker Posts: 1,098 Forumite
    Part of the Furniture 1,000 Posts Combo Breaker
    dimbo61 wrote: »
    If the rent from the existing tenant can cover the mortgage why did the owner sell the property at auction!
    He/she should be making money and not paying auction house selling fees plus legals.
    Do you know what is required to be a landlord and costs involved
    Keep you pension ( local government by any chance ) and pay the extra 3% each month and enjoy your retirement

    The company that owned it are in administration and paid double what it is now available for. It's put to auction by the administrators.

    I've an idea what's involved, but the question was to gain advice in general. Fully aware of the need to be insured, have annual gas checks etc.... I'm DIY savvy, built my own extension, so I can handle a tool box, plumbing etc...

    I definitely will not be keeping the pension, guaranteed! Not a chance.

    50% increase, worse return and working till I'm near 70. Harsh, but unlikely I'll get to 70, so why would I want to take that gamble? No thanks. I'll use my future contributions to obtain something I can give the kids as a return.
  • G_M
    G_M Posts: 51,977 Forumite
    Part of the Furniture 10,000 Posts Name Dropper Combo Breaker
    Tucker wrote: »
    I am soon to be faced with a 50% increase in my pension payments .
    LUCKY you. One in a million! Sit back and wait for the payments to start rolling in!

    BTL? Why bother if your pension is going to increase that much?

    :T

    (or did you mean pension contributions.......?)
  • Yorkie1
    Yorkie1 Posts: 12,239 Forumite
    Part of the Furniture 10,000 Posts Name Dropper Combo Breaker
    I suspect the latter!
  • brit1234
    brit1234 Posts: 5,385 Forumite
    May be worth speaking to an independent financial expert to take you through the sums and pit falls. It might be highly possible you will be better of with the pension rather than property.

    Are you looking for capital growth? Highly unlikely in the next 10 years.

    Are you looking for strong rental profit? Again highly unlikely despite claims of record rents as other costs eat that up.
    :exclamatiScams - Shared Equity, Shared Ownership, Newbuy, Firstbuy and Help to Buy.

    Save our Savers
  • Tucker
    Tucker Posts: 1,098 Forumite
    Part of the Furniture 1,000 Posts Combo Breaker
    edited 7 January 2012 at 3:32PM
    50% increase in contributions...

    I am 25+ years away from retirement depending how high it gets increased over the next 20 years!!

    Over 20+ years, looking for some capital growth. If the rent offsets the expenditure then I am better off by about £250 a month which would be my future pension contributions. I am hoping over the next few years to have more than one rental property.

    I have a good amount of equity in my house which I am looking to use to finance the first buy. Then later financing against house number 2 to buy number 3 etc...

    I'll still have nearly 20 years pension contributions to boot, but I want eventually to own a small number of properties to either finance retirement or hand on to the kids.

    I know there's risks, but I am a risk taker and would rather have a go at it than take the easy route.

    This current proposed change to my pension is now the 3rd in the last 8 years. I'd rather do something with my equity now, than watch further inferior changes deteriorate the terms and up the contributions.

    I am being realistic when I say this is not going to be the last attack on the pension scheme and it will remain the same now for 25 years. It won't. Time to get out and take control of my own destiny.
  • poppysarah
    poppysarah Posts: 11,522 Forumite
    And how does it affect your tax situation.
    You can only deduct the interest you pay, not any capital.

    If you're a higher tax payer already you might want to take advice.
  • clutton_2
    clutton_2 Posts: 11,149 Forumite
    you may find it diffcult to use the repayments as an allowable expense for tax on your rental income

    simply not true... it is the use to which the money is put, not where it comes from that is the criteria for an allowable expense.

    As a LL of 12 years, i can well understand your plan, and i think it has merit. i would go over to property tribes forum which is a landlord specific forum where there are professionals from all areas of the property business posting on there. If you are going to do this, you need to get a move on.. there is a European proposal in the pipeline to regulate BTL mortgages (currently unregulated). At the moment a lender will grant you a mortage based on teh relationship between mortgage payments and rental income.. normally a 125-130% ratio... But if Europe gets its way next year, the BTL mortage will come under residential regs and you will only get a mortgage based on your salary.

    AT the moment you will need a 25 % deposit to buy a BTL property, and lenders will ask where tge money came from.. they may not be happy with a loan (ie remortgage of your own property) to do that.. but a good whole market mortgage broker can show you the way.

    Paragon issued 50 new BTL products this week, so there is some confidence returning. BTL rents are good at the moment, as there are few first time buyers able to buy, so more folks want to rent.

    I would agree with not buying an auction property first off... they are in an auction for a reason.. and not usually a god one. Your area is a good one for good yields.. but there are some real dogs of districts.. so due diligence is extremely important.

    Once you have researched and chosen an area, near to home if you can, so you can self manage, go to several local agents and ask what sort of property tenants are looking for.. then buy that.. dont buy a house first then look for tenants.


    Read up on PT and ask whatever you want you will get a warm and helpful response there
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