Confused buying a second home

lozmoz

Hi All

I really need some advice.

I am in a very fortunate position of owning my own house without a mortgage. I am 35 and live on my own and I work full time. I am quite an ambitious person and my dilemma is whether to buy a second home for rental purposes. I have already done a bit of research and decided that I need to buy one that is a small terrace house that is of around £90k in order to get a decent return but I have some questions.

Is it best to wait and save a deposit first, I do have savings but would need to save more for this so wouldn't be able to purchase until a year or two.

Or do I just go ahead now and if so would it be best to remortgage my own house in order to be able to purchase the house? Or do I just go and get a normal buy to let mortgage. What are the tax implications of remortgaging or just getting a buy to let? I have been told that there would be different tax implications if I remortgage than if I were to get a buy to let mortgage? So which is best?

Or should I abandon the house idea and just put my cash in savings accounts. I currently save my cash ISA allowancse each year. I have been told that with a house I need to ensure that the rental return is more than what you get in a savings account in order to make it worthwhile.

Very confused so some advice would be most welcome.

Debt_Free_Chick

Have you considered all the rules, regulations, duties and obligations that landlords have?

lozmoz

No not yet. I thought I would check out my options in terms of whether it is a good investment idea first. If I decided to go ahead then I would look into what being a Landlord entails.

kingstreet

You'll need a deposit of at least 25%.

You have the option of remortgaging your current property to raise the whole purchase price, or remortgaging to raise the deposit and then raising the rest on a BTL product on the property to be let. If you're in no hurry, saving to raise the deposit should be your preferred option.

The tax treatment is exactly the same. It doesn't matter how the money is raised, you can use interest on any mortgage raised for the specific purpose of purchasing the asset on which your letting business will be based, to offset against the rental income. You need to be able to demonstrate to HMRC that all the money raised was for that express purpose.

You may feel it too risky to place the finance on your current home as that puts the property at risk should you be unable to meet the payments on the BTL property.

As DFC has asked, are you sure you want to be a landlord with all that entails?

lozmoz

Yes if its a good investment then I would be interested in being landlord. But that's where I am confused - is it worth it or is it just as worthwhile putting money in saving accounts instead. I am trying to decide on which way I should go

kingstreet

lozmoz wrote: »

is it worth it or is it just as worthwhile putting money in saving accounts instead

It's impossible for us to tell you that until you give us a proposition to consider.

We'd need to know the purchase price and rental income to be able to establish the yield. Then you'd need to factor-in the costs of letting and the tax position to see if it would be worthwhile for you.

Debt_Free_Chick

lozmoz wrote: »

Yes if its a good investment then I would be interested in being landlord. But that's where I am confused - is it worth it or is it just as worthwhile putting money in saving accounts instead. I am trying to decide on which way I should go

Here's a summary of Landlord's responsibilities. Notes the extra factsheets on the right hand side of that page.

It's difficult to make a financial assessment, without factoring in the time, hassle and cost of being a landlord. In addition, you would have to make an allowance for voids - periods when the property is not let e.g. gaps between tenants; periods when there's low demand (?). You also need to make an allowance for tenants who don't pay the rent, when do a runner and you can't trace them or they can't pay etc etc.

The hassle factor is a big unknown

lozmoz

Thanks guys. I think more research is needed so will investigate but thanks for your help so far its much appreciated

Debt_Free_Chick

lozmoz wrote: »

Thanks guys. I think more research is needed so will investigate but thanks for your help so far its much appreciated

You might want to browse this board and look at some of the "Landlord is a nightmare" and "Tenant is a nightmare" threads. They'll certainly give you an idea of what's possible!! :eek:

James_N

lozmoz wrote: »

Yes if its a good investment then I would be interested in being landlord. But that's where I am confused - is it worth it or is it just as worthwhile putting money in saving accounts instead. I am trying to decide on which way I should go

Sensible question. Do not be put off - quality houses and running a letting properly can make you significant money.

If you buy a pea-in-a-pod flat in a city centre (for instance) in a city centre flooded by such developments, you may well lose significant amounts of money, and be left with an empty flat. If you choose to buy (variously) an expensive, good quality property located somewhere with high demand / something cheap WITHOUT major structural problems (that you can renovate with normal skills using mainly effort and time) or something in a really sought after area - then you may both get a better return than any other type of investment and make money on increasing value. It really is about location, condition and price.

If you do buy, consider making an election of principle residence against future disposal.

Any increase in value will be smaller than the spectacular rises of previous years, but generally good portfolios show small rises despite the wish-fulfillment brayings of the HPC "community".

Kynthia

As the others have said, the return would have to be VERY good as it's a lot less work to put your money in a savings account. People used to do it even with a low return because they assumed the property would increase in value a lot as well. However any sale would be subject to full CGT.

You need to have a reserve of funds to deal with voids, non-paying tenants and maintenance issues such as a broken boiler or washing machine. You also need to factor in the costs of finding and managing tenants, tax, landlord insurance and gas safety certificate.