Become A Landlord???

birdy1010

Age: 32
Live in #200K house with no mortgage

Ideally I......

Want to move to #350K house (#2K per month mortgage)
Want to rent out current house for #1K per month fully furnished, thus leaving new house with a #1K per month mortgage

I have...........

#20K in savings (to cover "problems")

Shall I sell and move, or rent out (for investment purposes) and move???

Advice would be much appreciated!

Doozergirl

I don't know where you are to compare but smaller 1/2 bed houses and flats (not new build, please!) rent for proportionately more than larger properties. At least look at the % yield you will get from your house and see if you can find better elsewhere.

I wouldn't rent it out fully furnished either, assuming you'll need even more furniture in a bigger house! You won't get much more money and your stuff will dwindle away to worthless, unlike the house which is always worth something!

I'm not really one for BTL at all at the moment. Like any investment, it's something you should really buy into when it's cheap.

birdy1010

I live in a 2 bed in Essex (Hutton, Brentwood).

Whatever house value I chose to move to, wouldn't keeping this property be a wise investment rather than a millstone around the neck??!

As this house is paid off, my yield % is only based on the new property mortgage, no?

mystic_trev

If you want to become a Landlord why not stay where you are? Remortgage your home i.e. 90% and purchase some Investment properties using the £180,000 for 20% deposits and you'll have a Property portfolio worth £1m.However, if there was a Property "correction" you could become bankrupt quite quickly!

Doozergirl

birdy1010 wrote:

Whatever house value I chose to move to, wouldn't keeping this property be a wise investment rather than a millstone around the neck??!

I don't know why you are assuming this? Investment values can go down as well as up and they've been going up for a very long time now! Some properties will provide you with a better income than others and it is without a doubt that on your current house with a yield of 5% before any mangement' outlay, you will be paying more in interest on your next home than you will be bringing in rent. It should not be all about capital gains because there's no guarantee and you really should protect yourself against further rate rises by at least not subsidising the rent right now.

birdy1010 wrote:

As this house is paid off, my yield % is only based on the new property mortgage, no?

Yield is based on the current value of the rental property.

scrummy_mummy_2

What is your objective longer term?
If you want to have a stash of cash and leave it to your relatives, you (currently) won't pay CGT (capital gains tax) on the profits from your own home (subject to inheritance tax levels of course!) whereas you will on 'investment' property (even though a gearing ration applies you'll still have to pay 20ish percent (I think!))...so you always need to plan a portfolio which allows you to pay this CGT when you divest....usually at least one or two houses worth if you have a reasonable portfolio.

When deciding on what to do, decide upon your exit strategy first...what is it you want to happen at the end of the process..leave money for kids, leave loads for you to whittle away before you die?
Once you have decided this...this will inform your actions now.

birdy1010

The objective is;

Buy new house
Eventually pay that off with payments, overpayments and rental monthly income contribution
Continually collect rental income to have a spread portfolio of ISAs, pensions, property, etc
If I do eventually sell, I accept CGT is applicable
Alternatively, keep it until I would sign house over to kids, survive the 7 years IHT law and hand over property to them

sound plausible??

birdy1010

The reason to move now is to get on the 4 bed property ladder for the possibility of future kids, as we currently have a 2 bed.

Sell up???

scrummy_mummy_2

You still haven't described your objective...you have described your tactics to get somewhere you still haven't clearly described!

The kind of thing you need to decide is:
Do you want your property decision to provide your children with as much capital as you can as tax free as possible upon your death?

Do you want your property decision to provide a pension/supplement to your pension for yourself? with little or nothing left for the kids once you die?

Do you want your property decision to make as much money as you can as quickly as you can? say in the medium term (5 to 10 years)

How long do you want all this to take? 5, 10 15, 25 or more years?

Whatever it is you need to make it specific, measureable, achievable, realistic and time bound.
EG: My objective for being a landlord is as follows:
In 2032 when I retire I want an investment vehicle (I decided to purchase property in 1997) that will provide an income in todays terms of approximately £2000 PCM to supplement my other pension arrangements and sustain me until my death. Upon my death, my children will inherit the portfolio minus any CGT and inheritance taxes due upon the properties.

This means that I want the money for myself and that any mortgages need to be paid off before retirement age and that the properties will then go to my kids once I am dead...but...that they will have to sell at least one of them to pay for death duties (not my problem cos I'll be dead obviously!)

I dont mean to be condescending, but how you want to get out of being a landlord and under what circumstances should make the decisions for you....oh, and the numbers need to work too but I don't think you'd have too much trouble with that in your position, although yields are really low so not such great investments as they once were at the minute...

birdy1010

Fair play! You're not being condescending, I promise!

My objective was not specific enough, but it is exactly based on your proposed portfolio - provide retirement funds along with other investments, then leave to kids upon death.

I was unspecific based on me HAVING to sell the house in future, and, if so, incur the CGT.

Should the rental income NOT dictate my new proposed mortgage......


(FYI - this property is in my fathers name at present, soon to be paid off by him and given to me - no IHT applies if he survives 7 yrs - then I can go for a first-time buyers mortgage in the hope that they agree a #350K mortgage with the rental income offsetting huge mortgage!)

scrummy_mummy_2

Ok....now you are out of my territory.
I think what you are proposing doing is something called a let and/to buy mortgage where you let your prime residence and secure a mortgage on another home based on the rental income (still investment not personal mortgage) but I don't know if it qualifies if you don't live in it at all...pressumably you are living in the house that your dad is paying off? If not and he continues to live there I'm not sure that's OK with tax laws and exemptions???
We were going to do a let and buy mortgage once...it still carries a preimum as do BTL mortgages, but I know they exist. It allows you to do what you say, but I don't know the full ins and outs...as I also don't know the full ins and outs of whether or not you can mortgage a property whilst your father is still alive (and living there?) if he has gifted it to you...just in case he passes away BEFORE the 7 year thing.
Sounds like you need some sound professional tax and mortgage advice.

I have used https://www.themoneycentre.co.uk before...I have no vested interest in them but they were helpful and may be able to help you make some choices?

Good luck...I hate all the tax stuff, it's so complicated!..I guess if we all understood it we'd all be able to get round it so it's in the Government's interest to make it difficult eh?