Buy To Let, £60k House - £425 Rent

Aletank

There's a house For Sale for £60k, I know the tenant in the house, he pays £425 a month rent and would like to keep on renting it.
Would this be a worthwhile investment ?

I have my own mortgage for my home, currently worth about £140k with the mortgage being £40k at 2.5% from Nationwide. I have made about £15k overpayments that i could claw back if needed.

Thanks for any advice/info

Aletank

Melson_Nandela wrote: »

>I know the tenant in the house<

If you mean the tenant is a friend, then don't do it.

Yeah, he is a work friend and the odd pint in the pub of a weekend.
I understand what your saying - business/friends etc

Notmyrealname

If the valuation is £60k, at best you'd only get around £45k mortgage. The interest rate will be a lot higher than the 2.5% you pay on a private one and there's typically around £2k fees excluding solicitors.

Interest only mortgage would be around £200 a month interest payments and if you're wanting to take money out of it, I would go this route and just make capital payments as and when. If you get a repayment mortgage then you'll not have a lot left over per month but will still pay income tax on the repayment part of the mortgage as only the interest is tax deductible, i.e:

Rental income: £425 x 12 = £5100

Mortgage payment (Remortgage): £350 of which £200 is interest: £4200

Tax deductible amount of mortgage repayments: £2400 (200 a month interest x12)

Profit for tax: £2700 and not £900 as many people mistakenly assume it would be even though you've only actually put £900 in your pocket after paying a repayment mortgage.

Zero_Sum

Notmyrealname wrote: »

If the valuation is £60k, at best you'd only get around £45k mortgage. The interest rate will be a lot higher than the 2.5% you pay on a private one and there's typically around £2k fees excluding solicitors.

Interest only mortgage would be around £200 a month interest payments and if you're wanting to take money out of it, I would go this route and just make capital payments as and when. If you get a repayment mortgage then you'll not have a lot left over per month but will still pay income tax on the repayment part of the mortgage as only the interest is tax deductible, i.e:

Rental income: £425 x 12 = £5100

Mortgage payment (Remortgage): £350 of which £200 is interest: £4200

Tax deductible amount of mortgage repayments: £2400 (200 a month interest x12)

Profit for tax: £2700 and not £900 as many people mistakenly assume it would be even though you've only actually put £900 in your pocket after paying a repayment mortgage.

or he just remortgages his own place for an extra 60K, then pay cash, LTV will still be under 75% so should keep the good rate. Yes he won't be able to offset tax against interest, but as you point out the rate on a BTL mortgage would more than 20% higher anyway, so wouldn't see the tax benefit.

honey1

Zero_Sum wrote: »

.... Yes he won't be able to offset tax against interest, but ......

If OP can show (to HMRC) that the re-mortgage was used to purchase the rental property, then the interest element of that re-mortage can be offset against tax. Since the dates of re-mortgage and property purchase will coincide, this should not be difficult.

Mortgage does not have to be on the rented property, but the money must be used on the rented property.

nollag2006

Rental yield of 8.5% is very good. I get about 6-7% on my properties.


Easiest option is to remortgage your own home at the 2.5%, if you can.