BTL First Property, or Buy for Home

Alex92_2

Hello,

Bit about me; I am 20 years old and living in Surrey. I live at home with my Dad. I manage to save circa £1k per month so far and have around £20k in savings to date. Ideally, when I am older I really (more than anything else) want to get onto the property ladder and have several BTL homes that I would rent out to trustworthy people. My grandparents have 5 houses that they let out and know a bit about doing this.

The area I live in is quite expensive. Infact the town I live in, 370k will buy you a 1 bedroom flat. Therefore, I will have to move slightly out of the area. I have found a gorgeous 3 bedroom flat thats relatively new build and ticks all the boxes, but is is £350k advertised, so a bit out of my budget for a deposit so far. I would estimate i'd need around £40-45k in savings before looking into this.

My dilemma is, that I dont know whether to save up a bit longer (2-3 years minimum) and risk the house prices going up, or whether to buy a 2-3 bedroom Terrace house in a cheaper busy town that would cost around £190k and rent it out, whilst living at home.

The pros of this would be, I get to use the rent money to pay off the mortgage, get onto the property ladder as early as possible, still live at home and save around £1k from salary (whilst putting some of this savings for paying off the mortgage) and then in 4-5 years time, buy a house for either me to live in and keep the rented property, or sell the rented property and have an extra lump sum to use as a deposit, e.g. 60k or so.

The 190k property I would estimate at around 1200PCM. I would avoid paying letting agents as it is only 10 miles away from where I work from.

Would it be best for me to save up a bit longer and buy a more expensive property for myself to live in? Or would it be better to buy something to rent out now - if i can?

The only drawback of saving up is that, say the house price is £350k NOW, in 3 years time if property value increases, then it may go to something like £380-400k. This would mean that ill have to spend an extra 30-50k and i'd be at a huge financial loss.

What do you think I should do, if I want to get onto the property ladder as early as possible. My long term goal (10 years or so) is to have a house that I live in, with 3-4 other houses that I rent out. If I am lucky enough to get this far, i will look into holiday homes, ski appartments/apartments in france and rent those out when i'm not staying there - that is my long term goal anyway.

So, £20k in savings account generating interest (not much, but some), saving £1k a month, living at home, 20 years old, perfect credit rating, extremely good job security, £24k per year salary before tax. Also, my dad said that he would act as a 2nd buyer and not pay anything, meaning that I would be able to borrow more as it takes into account his company/salary. If he acted as a garantor (sp) it doesnt mean that I would be able to borrow any more money. What would be best. There is no rush to move out and I'm not sure if I'd like the pressure of a girlfriend moving in and paying rent for half of the house as she would probably expect marriage and kids soon after (ha!)

Cheers,

Alex

Werdnal

See similar thread here from earlier today:

https://forums.moneysavingexpert.com/discussion/4243753

same advice applies to you.

Alex92_2

Cheers. Just read it through. Seems a little different seeing as that chap has zero deposit.

I'm not saying in my OP that I want to buy X amount of houses now and rent them out, that is like a 10 year plan. Interesting about the residental mortgage before BTL mortgage.

This brings me onto a new question.

Would it be better (financially) in the long term to;

A) Buy a £200k house is a bit of a dump area, but an area that has good travel links to London and is very popular, 2 bed terrace house.

Or

B)Buy a VERY nice, newly converted (under 10 years old) terrace house in a much nicer town, closer to london, good travel links, still big town, 3 bedroom place that costs £350k.

Pros of A - Quicker to pay off mortgage, lower deposit needed.
Pros of B - Much nicer property, can see myself living in it for a longer time and would want, as the house price is more - When house prices inevitably go up, the price of B would gain much more than A.

Notmyrealname

Ideally you'd not pay the mortgage off. You'd get an interest only and pocket the difference between the monthly payment and the rent. When you get a repayment mortgage, the monthly mortgage payment ends up being not far off the rent and you pay tax on the capital portion of the mortgage repayment as if it were income so you can actually end up over the year having to find money from elsewhere to pay the tax bill.

Fire_Fox

Relocate up north, so much cheaper.

Alex92_2

Notmyrealname wrote: »

Ideally you'd not pay the mortgage off. You'd get an interest only and pocket the difference between the monthly payment and the rent. When you get a repayment mortgage, the monthly mortgage payment ends up being not far off the rent and you pay tax on the capital portion of the mortgage repayment as if it were income so you can actually end up over the year having to find money from elsewhere to pay the tax bill.

£500 - Mortgage Repayment (interest only)
£1200 - Rent
£1200 - Savings each month

Considering the above figures (used as example only), why would I want to only pay the mortgage bill off each month at £500 if I could potentially do the full Rent money £1200 and say £500 of my personal savings from salary and pay off £1700 in a month. That way I would get the mortgage paid off quicker. Is it because property is a long term investment, so it would be better to pocket the difference between rent and mortgage repayment, add that to my savings each month and use that money to pay for a deposit on another place? - Or better yet, pay off/contribute towards the mortgage on my own place?

I have a hell of a lot of researching to do with regards to mortgages and the differences between interest only and variable etc, but i'm hoping if I keep my eyes and ears open and ask lots of questions (as stupid and ignorant as they may sound) I will learn a lot and it will put me in a better position.

Fire_Fox wrote: »

Relocate up north, so much cheaper.

All my family is down south though, my job is down south and if I ever moved up north, moving back south afterwards would be very hard, financially speaking.


Thanks for the help guys.

lessonlearned

Alex92 wrote: »

Hello,




p
The 190k property I would estimate at around 1200PCM. I would avoid paying letting agents as it is only 10 miles away from where I work from.



So, £20k in savings account generating interest (not much, but some), saving £1k a month, living at home, 20 years old, perfect credit rating, extremely good job security, £24k per year salary before tax. Also, my dad said that he would act as a 2nd buyer and not pay anything, meaning that I would be able to borrow more as it takes into account his company/salary. If he acted as a garantor (sp) it doesnt mean that I would be able to borrow any more money. What would be best. There is no rush to move out and I'm not sure if I'd like the pressure of a girlfriend moving in and paying rent for half of the house as she would probably expect marriage and kids soon after (ha!)

Cheers,

Alex

You are in a good position and I would say go for it. I've known several young people do this - very successfully. One of them now owns half a dozen BTL's and still lives with his parents.

Why not - everyone is happy.

In fact my youngest son is currently saving for a deposit - he aims to do just this.

He still lives me and we get on just great. I am happy for him to live here (at a peppercorn rent:rotfl:) for as long as he wants/needs.

I really don't see why young people are criticised so heavily for wanting to remain living in the family home and saving their money.

I know that sometimes you have no choice - you have to move where the jobs are but as my son says why throw money away on rent if you don't have to. (He did try it and decided he'd rather have money in his pocket and enough left over to put some into the bank rather than being constantly broke).

Stay at home - keep saving that £1k a month and then put it into a BTL. Then you can bank the rental profits towards your next deposit.

If you buy first and then try to save up a second deposit for a BTL it will take you a lot longer.

Alex92_2

lessonlearned wrote: »

You are in a good position and I would say go for it. I've known several young people do this - very successfully. One of them now owns half a dozen BTL's and still lives with his parents.

Why not - everyone is happy.

In fact my youngest son is currently saving for a deposit - he aims to do just this.

He still lives me and we get on just great. I am happy for him to live here (at a peppercorn rent:rotfl:) for as long as he wants/needs.

I really don't see why young people are criticised so heavily for wanting to remain living in the family home and saving their money.

I know that sometimes you have no choice - you have to move where the jobs are but as my son says why throw money away on rent if you don't have to. (He did try it and decided he'd rather have money in his pocket and enough left over to put some into the bank rather than being constantly broke).

Stay at home - keep saving that £1k a month and then put it into a BTL. Then you can bank the rental profits towards your next deposit.

If you buy first and then try to save up a second deposit for a BTL it will take you a lot longer.

I was under the assumption from other threads on here that it was near impossible to get a BTL property if you are still living at home without a residental mortgage or property in your name?

I dont see the problem either with it, infact in works quite well. I know my Dad would get very lonely if I were to move out and it is also very handy having me around as I do chores and bits around the house and garden for him. Also pay him rent, but it's pretty much just enough to cover the food for the month, same as your son by the sounds of things. Get on with him great too, hes a friend.

A guy I work with earns 1600 a month after tax, he is renting a ground floor flat in the area where that 190k property is and paying £950 for the month with his girlfriend, for a 1 bed place. He said after hes paid for food, bills, rent and everything else that comes with moving out, he has around 300 quid at the end of each month for saving. He moved out before he had any savings and is not pretty much 'stuck' renting. I DO NOT want to be in this situation at all.

Summary -
So if I can get a BTL mortgage without having to own a residental mortgage, it would be a solid bet to buy the 190k place and rent it out on interest only mortgage.
If I cant get a BTL mortgage, then best buying a house that is slightly out of my budget, so that when property prices inevitably increase, my property will generate me the most revenue.

I would be looking at needing around a %20 deposit atleast for a BTL mortgage though, correct?

lessonlearned

Not sure but I think it's currently 25%.

I suggest you see a good broker and have a chat.

I think having your dad as a guarantor would be a big help.

Alex92_2

lessonlearned wrote: »

Not sure but I think it's currently 25%.

I suggest you see a good broker and have a chat.

I think having your dad as a guarantor would be a big help.

An independent mortgage broker? I think my Dads mortgage is with halifax and he said he could speak to them and see what they suggest with me.

lessonlearned

No harm in trying both.

The Halifax know your father and if he is acting as your guarantor then that might carry some weight. Of course they will only be able to offer Halifax products.

An independent broker will have the whole market at their fingertips and therefore can offer a choice. There will mostly likely be a charge if you do use them to arrange a mortgage however the initial consultation should be free.