Rental Opportunity

treets

We have an option to buy a small house. The intention would be to let it out. I'm pretty good at diy so maint would be my responsiblity.

Rent covers the mortgage. No surplus. We have a potential tenant (old friend, very reliable).

Long term we end up with a house that has been paid for by someone else - to either continue the rental option (we then get an income - in lieu of a pension) or sell. I accept CGT may be payable.

Anyone see any major flaws in this? We pay very little over the long term, but build a small 'pension pot'.

Thanks.
T.

SteveCat

Go for it! Providing the work if any that has to be done is affordable. Look at it long term though, as you have done obviously by mentioning your pension. If you mortgage don't tie yourself for too long with the deal, give yourself the freedom to move if you have to. And lastly I would advise any Property Investor to always look at the Tax situation with property and certainly Capital gains. You usually have to pay it but with the right advise it can be minimal, don't fall into the trap of unessacary borrowing from your investment either, remember the CG liability is from the price you purchased your investment from to the price it sells. You cannot off-set any borrowing from the Property you may decide to make.

advent1122

treets wrote:

Anyone see any major flaws in this? Thanks.

Friend decides he does not want to rent it no more.

You end up with something you cant rent, cant afford the mortgage on and if we get the "predicted" house price crash, something that is worth less than you paid if you have to sell in a hurry.

treets

advent1122 wrote:

Friend decides he does not want to rent it no more.

You end up with something you cant rent, cant afford the mortgage on and if we get the "predicted" house price crash, something that is worth less than you paid if you have to sell in a hurry.

Thanks for the replies.
Some bits I left out - appreciate your comments though:

Its very rentable - 3 bed semi, vvgc, right next to a hospital.
We've got no mortgage - so a period of no rent would not be an issue.
Long term investment (15yrs+).

Jonesya

Well if it were me the things I would be considering are:

-What's the rental income for that type of property, realistically, and what's the supply/demand situation for rented accommodation like in the local area? Are rents rising or falling?

-How much to budget for maintenance and if the rent only covers the mortgage would I have the funds to cover maintenance and possible unforeseen costs that may arise.

-If the tenant left then how long could I afford to pay the mortgage for whilst the property was vacant. Plus other costs like water rates.

-If interest rates rose would the rent still cover the mortgage and if not how much would I have pay out of my own income - would I have the funds available.

SteveCat

treets wrote:

Thanks for the replies.
Some bits I left out - appreciate your comments though:

Its very rentable - 3 bed semi, vvgc, right next to a hospital.
We've got no mortgage - so a period of no rent would not be an issue.
Long term investment (15yrs+).

Please remember also to not cut corners with the 'friend' many, many we come across do and it ends in disaster. Treat them as though you have never met over this and do things properly, you will then never see each other on Tenants From Hell. If you would like anymore advice or help then PM me, we have a number of things we could do to help with your situation.

treets

Jonesya wrote:

-What's the rental income for that type of property,
How much to budget for maintenance
If the tenant left then how long could I afford to pay the mortgage for whilst the property was vacant. Plus other costs like water rates.
-If interest rates rose would the rent still cover the mortgage

Jonesya - thanks.
Rental - high demand area
Maint - down to me. Can do most things. Just refurbed so should be ok for a while. Know the owners, done lots of work on it already, so I know its pretty good.
No prob with paying mortgage plus other costs
We had a mortgage when rates were 15%+ !

treets

SteveCat wrote:

Please remember also to not cut corners with the 'friend' many, many we come across do and it ends in disaster.

We've got a Tenant agreement - both reviewed it and happy to sign.

Will PM

clutton_2

do remember that if you get 3 nurses/doctors/individuals in as tenants you will need to register the house as a HMO (house in multiple occupation under the 2004 Housing Act) - failure to comply risks £20,000 fine. If a family rents it, these regulations do not apply.

i have been a LL for 6 years, and i would NEVER let to friends - its fraught with difficulties.

SteveCat

clutton wrote:

do remember that if you get 3 nurses/doctors/individuals in as tenants you will need to register the house as a HMO (house in multiple occupation under the 2004 Housing Act) - failure to comply risks £20,000 fine. If a family rents it, these regulations do not apply.

i have been a LL for 6 years, and i would NEVER let to friends - its fraught with difficulties.

Are you saying 3 people regarding the HMO or more than 3 i.e. 3 nurses a Doctor plus individuals?

If its just 3 i'm pretty sure that is NOT accepted as a HMO.

clutton_2

the original Act was very clear indeed, but local authorities have interpreted it in many and various ways - best thing is to ring up your local council HMO officer and ask. The Act uses "households" as a definition - so one single person is a household; so is a couple. So a couple and a friend are not a HMO, 3 friends probably are - but as i said phone the local council.