Debt or no debt?

chrishar

This could go one way or the other. I don't like debt, and to me a mortgage is still a debt. However, there appears to be no alternative where property is concerned-you either have a mortgage and pay interest to the bank, or you rent and pay somebody elses mortgage!

I am sitting on a property right now, with a decision to make.. sell or let.. If I let I wont need an agent as I already have 2 people showing interest. Anyway, these are the scenarios:

1. I rent it out and re-mortgage to buy to let and at the same time release equity and buy another property to live in myself. So I end up with two properties, one let, one lived in. This is the debt option, two loans hanging over my head, but providing the tenants are fine (which I'm sure they will be) and I keep my job, it should all be ok.

2. The completely opposite idea, is sell up. It was a nice feeling when I got rid of all my other debts some time ago (credit cards, loans) and I wonder how it would feel having no mortgage? If I did this I would put the equity from my sold property into savings, and then rent. I would be sure to carry on saving each month, hopefully several hundred. One day I'd hope to buy something outright (in a cheaper area if I had to). This I call the freedom idea.. no debts, no ties......

I know some people might say why one extreme or the other? I don't know, I just feel I can't sit on the fence any longer. I either need to accept debt and throw my arms around the banks, or say goodbye to them and live a life without being their slave (well that's how it feels sometimes). Advice/opinions most welcome!

BitterAndTwisted

Where debt is concerned less is better than more. But none is not always better than some.

Do you own the property you live in now outright?



"If I let I wont need an agent as I already have 2 people showing interest".

This is one of the least important things when deciding whether to embark on going into business as a landlord. Tenants are easy to find. Good, reliable ones a little more difficult.

ValHaller

Not all debt is bad. Borrowing to buy a house is paying rent on money rather than paying rent on a house

nomoneytoday

Not all debt is "bad".

Mortgages, investment into tools and training for example can be seen as "good debt", whereas a PDL to go on holiday isn't..

sstteeww

BitterAndTwisted wrote: »

"If I let I wont need an agent as I already have 2 people showing interest".

This is one of the least important things when deciding whether to embark on going into business as a landlord. Tenants are easy to find. Good, reliable ones a little more difficult.

Here here! Make sure you are also aware of all LL regulations (of which there are many). I think all new LLs should use a LA, for the first year anyway, to make sure you are doing it right. You can then go it alone once you have a bit more experience.

I personally would B2L refinance the flat to get a good deposit for a new house with a low LTV mortgage. If done correctly, the rent from the B2L should cover costs (mortgage, repairs, maintenance, etc.) whilst leaving you with a some profit too. Also, if you compare the mortgage interest you'll be paying on your new house (say a 2 bed semi), I'm sure it would be much lower than renting a similar house (2 bed semi).

This leveraged model is of course is a little more risky than a debt-free sale-up-and-rent model, but no risk, no reward!

BigAunty

BitterAndTwisted wrote: »

This is one of the least important things when deciding whether to embark on going into business as a landlord. Tenants are easy to find. Good, reliable ones a little more difficult.

Indeed, we see many posts by amateur/newby landlords who came unstuck with bad tenants which more experienced landlords and the routine checks by letting agents are more likely to screen out.

whenever a debt ridden tenant posts a query on how they can pass credit checks when their credit record is destroyed or HB claimants struggling to find estate agents to accept their application for a tenancy, they get told to bypass agents and go directly to landlords.

ging84

this is a weird thread

why does it have to be 2 extremes of no houses or mortgages or 2 houses and 2 mortgages

why can't you go with the crazy option of not doing anything at all and stay put, or if you need to move, sell your current home and buy another

chrishar

bitter and twisted - no i don't own outright
stewww - great post thanks.. you explain everything well
ging - as steww wrote, you either take a risk for a potential reward, or you live debt free with less risk and less reward

it appears then that my decision is based on whether i want to take a risk or not. if i do, i could end up with a mortgage free property to live in and a buy to let as an income. if i don't i could risk never owning, as renting may not allow me to safe sufficiently to buy outright. however, i do like the idea of no-debt and saving to buy things instead of the culture of buy now pay later that we live in.

ReadingTim

chrishar wrote: »

bitter and twisted - no i don't own outright
stewww - great post thanks.. you explain everything well
ging - as steww wrote, you either take a risk for a potential reward, or you live debt free with less risk and less reward

it appears then that my decision is based on whether i want to take a risk or not. if i do, i could end up with a mortgage free property to live in and a buy to let as an income. if i don't i could risk never owning, as renting may not allow me to safe sufficiently to buy outright. however, i do like the idea of no-debt and saving to buy things instead of the culture of buy now pay later that we live in.

It's not simply financial risk vs reward though is it? It's hassle, and does the "reward" justify or even compensate for the hassle?

- One BTL isn't enough to retire on, so you're going to have to keep working, and do your lanldlording in your spare time - how much do you value weekends, evenings etc?

- Don't think a letting agent's going to be much use - they provide as poor a service to landlords as they do to tennants. Chances are you'll end up having to do their job for them, while still paying their fee.

- You need to view your BTL as a job and business, and be professional about it - this board is awash with horror stories from and about amateur landlords. Have a read some of them, and see if you fancy facing the sort of problems they talk about.

- Your income will be taxable, so will have to be declared on your tax return, so you'll have to start filling in one of those, which might not be too pleasant a thought if you're used to the easy life of PAYE.

Maybe I'm lazy, risk averse and financially unsophisticated, but unless you have a lot of spare time, energy, patience, DIY/maintenance skills, I can't see how the BTL route works out on a small scale basis now that interest only mortgages and rapidly inflating house prices are a thing of the past, meaning that the rapid flipping/leveraging process of acquiring a BTL empire simply isn't going to happen again.

chrishar

Hi Tim , are you saying that BTL mortgages are no longer interest only? That could be a problem if so.
I would avoid an agent and already have two trustworthy interested parties enquiring about the property.
Maintenance and repairs is nothing throwing money at wont sort out. If the boiler plays up, I will send my plumber round. If an appliance breaks and is out of warranty I will buy a new one. It's only a small place and there isn't much to go wrong.
I've seen British gas advertising for £21 a month a landlord policy covering all the heating and plumbing.
The tax return is new to me so something I'd have to sit down and read, but hopefully not beyond me.
I did a little research on the BTL mortgages and as steww suggested, it does look possible I can borrow more and release the money I need. My calculations show a mortgage of £369 a month (If I include the £1999 fee in this is works out at about £450). The rent I expect around £700 easily covers this.

Yorkie1

BTL can be either repayment or IO.

You say that renting is lower risk. You forget the risk of getting a LL who doesn't do the repairs, or moving you on when you'd prefer to stay put. And with house prices starting to rise again now (albeit in a very patchy way), and ridiculously low savings rates available, who's to say you'd be able to get back onto the property ladder at a standard you'd like to?