Rent our small house out to rent larger house – Stupid idea?

mr_eggs

This may sound a stupid idea and want peoples opinions..

I think I know the answer which is sit tight until we pay off current debt, but my dear wife wants to have a go at the following.

Rent our current house out that we own and rent another larger house so we will have the space for another child (currently have a 2 1/2 year old)

Current mortgage £100k left

Current house value about £125k

Secure loan (first plus) against house £21k left

Current monthly mortgage payment £591.00 per month

We also have another personal loan £341 a month which ends in 20 months time.

The main problem we have and which is stopping us moving into a larger house, is due to our current debt we cannot save up for a deposit.

My wife has it in her head renting the current house and renting the large house is the way to go.

Her reasoning is if it all goes pair shaped we are still on the housing ladder and could move back.

Any thoughts or advice welcome.

Tixy

Things to consider
Will you mortgage provider allow you to rent out your property? If they do will it mean paying a higher APR?

Will any rent you can get for your property cover the mortgage, building insurance, fees for finding a tenant etc?

If you have a void period if your owned home can you afford to pay the mortgage, the rent on a new place and all other outgoings? Bearing in mind you could be locked in to your tenancy.

Do you want to become landlord's and are you ready for all that entails?

Personally it wouldn't be something I would even consider in the situation you have described. How big is current property? Does your 2.5yo have their own room currently? why could they not share with potential younger sibling for the next say 5 years? Or at the very least for the next 2 years until your loan is paid off - maybe you could reassess then?

hazyjo

Presuming you're not considering moving to a cheaper area, where does your missus think the extra money is coming from to pay the outgoing rent compared to the money coming in?

That's an awful lot of debt. I would be concentrating on getting some of that cleared first!

You can't just move in and out anyway - you might rent something, which would prob be for a min of 6 months. What if your house remains empty? How will you pay the mortgage and rent? What if tenants trash it? Have you looked into all the implications and responsibilities of being a LL? I wouldn't touch it with a bargepole unless I absolutely had to.

You'll also need a certain amount of equity in your house. You will also prob either pay a fee or have to switch to a BTL mortgage - pricier than 'standard' mortgages. There are many other expenses...

Jx

somethingcorporate

Sounds like you already have a lot more debt than the full current value of your house.

Would renting a bigger house actually put you in a better position financially? I doubt it.

If you are racking up a lot of debt with small outgoings, increasing your outgoing will increase your debt.

DannyboyMidlands

Just digging yourselves deeper and deeper. Madness.

Pay off the debts like you suggest. There are no short cuts.

And, appologies to your wife, but the "still on the ladder" stuff is nonsense. You have no equity so are barely on it now.

If you're unable to pay off the debts I don't see how you can rent out the small house and from that income pay tax, cover void periods, damage, maintenance and rent on a larger house.

HeadAboveWater

:rotfl:
If it is a stupid idea then my OH is in the same category as your wife (no offence!) I've been having the exact same debate with him for over a month!

Only differences are, our current house is in just OHs name, small mortgage left on in, neither of us have any debt, and OH has some savings.

I stuck with my argument (ie. if I'm forking out for rent I'll never be able to save for a deposit!), and now, finally (I hope!), he's given up on the renting idea!

LE3

why do you need a bigger house? Can you not cope with the one you have at least until some of that debt is paid off?

Cryptononymous

mr_eggs wrote: »

This may sound a stupid idea and want peoples opinions..

I think I know the answer which is sit tight until we pay off current debt, but my dear wife wants to have a go at the following.

Rent our current house out that we own and rent another larger house so we will have the space for another child (currently have a 2 1/2 year old)

Current mortgage £100k left

Current house value about £125k

Secure loan (first plus) against house £21k left

Current monthly mortgage payment £591.00 per month

We also have another personal loan £341 a month which ends in 20 months time.

The main problem we have and which is stopping us moving into a larger house, is due to our current debt we cannot save up for a deposit.

My wife has it in her head renting the current house and renting the large house is the way to go.

Her reasoning is if it all goes pair shaped we are still on the housing ladder and could move back.

Any thoughts or advice welcome.

I know someone who has done this and they are happy doing it, if you have secure jobs and do not feel it will stress you too much then its not such a bad idea. Obviously you need to factor in the possibility of someone not paying the rent and poss gaps in tenancy if you change tenants. Ideally you should have at least 6 months worth of savings although again it is not essential but obviously more risk involved.

People will say you should pay off the debt first, which is of course logical, but that does not take into account you or your wifes feelings, so ultimately you and your wife can only decide.

Personally I would stay put, put all efforts into paying off debt as quickly as possible and create some decent savings and also consider that a bigger house or "better things" does not necessarily mean a better life maybe if you really have to have another kid then sharing is actually probably nicer for kids and allows them to bond :-)

somethingcorporate

Short term personal feelings are all well and good but if it is to the detriment of their mid-long term financial health it could be a really bad idea.

There is no potential upside here aside from a bit of additional space, there are quite a lot of risks (including a very remote one) that could involve them losing their home.

mr_eggs

firstly thank you all for taking the time to reply, this site really is amazing!

I agree with you all, we have stable jobs and are paying the debt off, I think my wifes 'clock' is ticking louder and another child is sort of taking priority over the more important debt. we've lived the life and now paying for it BUT taken steps to get it under control. our 2 bed semi would be ok for a second child just need to persuade her. stay put, pay off the personal loan, then save for deposit and hopefully by then our house equity will get rid of secured loan. it will but hard but hey ho!

thanks again.

merry Christmas.