Buy to let question.........

freddiecider

We have an inherited property which is mortgage free and we let it out. It is worth around 135 k and rents for £585 per month.

We are thinking of buying another property to rent out. The property we have seen costs 100k and would rent for £550 per month.


We would like to use some collateral from our inherited property........we would take 50k out of the inherited property and then have a mortgage for 50k on the new one we want to rent out. What I would like to know is, do we then have mortgage repayments on 50k or 100k?


Apologies for my ignorance.

Chippie

£100k. £50 k on each property. Assuming you go interest only and at an interest rate of 6%, you'd be paying £500 per month. If you allow 10% of rental nome to cover voids and maintenance you'd have a monthly income of around £520 per month assuming you manage them yourself. What would they rent out for as multi-let's? This is normally far more lucrative than renting out the whole property to one family although in some cities if Article 4 applies you'll need planning permission to do this. There's lots of options but without knowing more its hard to advise. Good luck.

mrginge

You would have two mortgages for 50k each

Chippie

I would also add that if you're that uncertain of things I'd probably take advice from an experienced investor before doing anything. There's a lot of money to be made in the current property market IF you know what you're doing. Getting it wrong could be a disaster. I've trained for years to develop my property investment skills, it's not to be taken lightly.

monty-doggy

Why would you go interest only? Surely repayment would be better to clear the mortgage off?

G_M

freddiecider wrote: »

.....we would take 50k out of the inherited property
So you borrow £50K
and then have a mortgage for 50k on the new one we want to rent out.
So you borrow another £50K
What I would like to know is, do we then have mortgage repayments on 50k or 100k?
Now let me think: 50 + 50 is ... errr...£50K


Apologies for my ignorance.

If you borrowed another £50K (say against your little brother's house in France) then you would have mortage repayments against a total of £25K. The more you borrow, the less your repayments.

(are you sure you should be in business? I'd love to see your tax returns!)

Chippie

monty-doggy wrote: »

Why would you go interest only? Surely repayment would be better to clear the mortgage off?

That depends. If it's a long term investment and you've no intention of selling, interest only gives the best cash flow. Ultimately property investment is about cash flow, buying the right property below market value, refurbishing, remortgaging to get your money out and moving on to the next one. Well, that's my strategy anyway, but you must know your area and your strategy in depth first and then research it to death. Then and only then should you invest.

freddiecider

Oh okay. Partner seems to think that the repayments would simply be for the 50k mortgage. He thinks that the other 50k that we would take as collateral does not effectively have a mortgage on it. I'm confused?????

Werdnal

monty-doggy wrote: »

Why would you go interest only? Surely repayment would be better to clear the mortgage off?

HMRC only allow mortgage interest payments as an allowable expense on taxable rental income. If you have ra epayment mortgage (or any portion of the monthly payments that are not interest), you cannot deduct that amount to reduce the amount of tax payable.

As OP is plannng 2 BTLs, they will no doubt be receiving enough rent to be liable for tax.

scottishblondie

freddiecider wrote: »

Oh okay. Partner seems to think that the repayments would simply be for the 50k mortgage. He thinks that the other 50k that we would take as collateral does not effectively have a mortgage on it. I'm confused?????

No, he is wrong. You would have 2 mortgages for 50k, one one each property. Payment would be due on both of them.

Chippie

G_M wrote: »

If you borrowed another £50K (say against your little brother's house in France) then you would have mortage repayments against a total of £25K. The more you borrow, the less your repayments.

(are you sure you should be in business? I'd love to see your tax returns!)

No need to make someone feel bad about asking a question. The only stupid question is the one you don't ask. Mind you, your maths isn't that great either by the look of things! :D

So 50+50+50 = 25????????:eek: