is a property renting making no money better than a small investment ?

samredleaves

I'm now on the third month with no tenant and its seriously stretching the family finances, I'm not actually sure what will will do if we go another month without renting it out. unfortunately the city is flooded with cheap rents so it is very competitive. I wont be going back to work full time for another 3 years as I have a young dd so I have another 3 years of worry ahead of me !

Really, the question is should I sell ?

dp doesnt want me to because he is very cautious, however due to the maintence fees i am making only £40 a month on the rent .

I think if I sell I could make £19,000, if I pay off my debt I would be left with 15,000 to reinvest, would this be better than holding onto the property till i'm 50 and the mortgage then is paid off and I will benefit from either an income from the rent or selling it ?

I reallly dont know what to do and I would appreciate any help ?

dunstonh

dp doesnt want me to because he is very cautious, however due to the maintence fees i am making only £40 a month on the rent .

If he is very cautious I would expect him to want you to sell rather than have the high risk mortgaged buy to let you have currently.

would this be better than holding onto the property till i'm 50 and the mortgage then is paid off and I will benefit from either an income from the rent or selling it ?

The thing with risk based investments is that you never will know until you get there which option is best. You are only making peanuts currently (is that before or after tax?) on the rental income and that is a time when mortgage interest rates are very low. You say supply is an issue with many cheap rents. You also say your partner is very cautious (although perhaps doesnt realise that mortgaged buy to lets are high risk). So, you need to decide if the risks and potential reward are worth it.

samredleaves

hi thanks for replying, my mortgage is the same as when I lived there, its a tracker

Jegersmart

I am not sure what "dd" and "dp" mean....?

What are your living arrangements now?

J

samredleaves

do you think that makes a difference ?

samredleaves

sorry thats dd-daughter and dp-partner i posted in another forum and copy and pasted.

I am living with my partner and two children, our house is in my partners name, I am not working so unlikely to get another mortgage

Jegersmart

Well I would have to echo dunstonh's comments to a large degree, if you are very stretched financially then any debt will pose a risk. In other words if you haven't got the income between you to cover the mortgage of the rented out flat every so often then you are considerably stretched. Is there no way to cut your own cost of living to make it possible? As also mentioned, interest rates are very low now, when they eventually rise you may have an even bigger problem, although your partner may also earn more in that period.

It is impossible to know which will be better in the longer term, however if you are at the stage of almost defaulting if another renter doesn't materialise within a short period then it is clear that *something* needs to be done.....

Why does your partner think it is low risk to try to keep a property you cannot afford? What happens if property prices fall and interest rates go up?

J

samredleaves

Why does your partner think it is low risk to try to keep a property you cannot afford? What happens if property prices fall and interest rates go up?

yes thats why I have helped him realise that as an investment its not great but he keeps on reiterating that most of the time we have a tenant and that come when I'm 65 I'll appreciate the rental money as pure profit and also the sale of it if thats what we decide to do

I think we wouldnt default on the mortgage, just sorn the car or find other ways of paying it but I thin tere must be other ways of investing £15,000 thats better than this surely !

samredleaves

I just feel like we're living on the edge because of this flaming flat

Jegersmart

Sorry to hear that, I can imagine the stress.

Having someone else pay your mortgage (with any luck) is of course a very good thing, but at the same time you cannot put everything at risk in order to have that (in my opinion). Having said that, if it is possible to tighten your belts and put some money away for periods that you have no tenants then that might be a solution but only you can know what it will cost you in terms of "quality of life".

J

dunstonh

A mortgaged buy to let is high risk as if you fail to make the repayment they can repossess the property and then come after you for any loss that cannot be recovered from the sale of the property. Ultimately, that could result in you losing your own home. Geared investment (whether conventional investments or property are high risk). In the short term, the performance of a conventional non-geared investment has no impact on your day to day living. The performance of the mortgaged property does (i.e. tenant fails to pay leaves you a shortfall and if finances are tight then you struggle. what if the tenant doesn't pay for 6 months?)

and that come when I'm 65 I'll appreciate the rental money as pure profit and also the sale of it if thats what we decide to do

By the time you repay the mortgage you would have paid around 2.5 to 3 times the amount you borrowed for it. Quite possibly paying more for the property than you end up selling it for. The rental income will go someway to reduce that and you may well see a profit. However, it is not pure profit. You already pay income tax on the rental income. You can deduct mortgage interest from it but you wont have that when the mortgage has gone. There will also be capital gains tax on the sale proceeds.

A single property is unlikely to be enough. Typically 6 or more properties are usually needed if you plan to be self sufficient on rental income and cover dead periods, refurbs etc.

I think we wouldnt default on the mortgage, just sorn the car or find other ways of paying it but I thin tere must be other ways of investing £15,000 thats better than this surely !

All the people that have lost money on property thought the same way. The next 30 years are unlikely to be like the last 30 years when it comes to property. But with no crystal ball, who knows. Personally, I would focus on your capacity to afford the risks you are taking. Maybe run some stress tests on your home finances. Three scenarios should suffice. 1 - what happens if you get no rental income for 6 months. 2 - what happens if tenant trashes the place and you need say £8000 to run repairs. 3 - what happens if tenant trashes the place after not paying you for 6 months