Should I buy a flat to rent out?

mike1237

My wife and I are in the fortunate position to have a substantial deposit (£45,000) to buy our first house in York. We will be looking to buy a house for around £200,000 and plan to use all of the money as a deposit, as all the legal fees etc will be paid for from other funds.

However, I can't help but wonder whether it would be a good idea to use about £10,000 of the deposit to buy a flat in the North Yorkshire area for around £40,000 and rent it out. In doing so, we will have a small, but regular income and something for our retirement.

Would using the £10,000 for a BTL seriously increase our monthly payments on the house we plan to buy for ourselves. If so, would it be better to leave it where it is?

BitterAndTwisted

Erm, ten grand won't be quite enough of a deposit for a Buy-To-Let mortgage.

Has becoming landlords always been part of your long-term investment plans?

What sort of yield would you be looking at from this hypothetical £45k property? It might not be worth the trouble.

In a lot of circumstances less debt is better than more...

TBagpuss

I personally wouldn't do it. I would buy the house you want, and make efforts to save until you have a 'cushion' of savings of 4-6 monhs worth of income. Then save for a deposit on a buy to let if that is the type of investment you want to make.

You would need to look into he realities of renting - check out what you might expect to receive in rent, how much your mortgage payments would be, and what kind of income you might expect. Remember that you will have to allow for the costs of maintaining the property, getting gas and electricity safety checks, advertising it (or paying an agency) and will also need to budget for void periods when you may have to cover the mortgage without any rental income.

Bear in mind that if you tie money up in a rental property you cannot get at it easily and quickly, so it is likely to be sensible to build up other, more readily accessible savings first.

In terms of how much difference it would make to your mortgage on your home, that depends on the rates you are getting - given that having a deposit of £35k rather than £45K on a £200K purchase means that you deposit drops from being above 20% to below 20% - this may well change the products and rates you are eligable for.

When you sit down and go through the numbers, be pessimistic. Consider what would happen if you needed major repairs on either property, if you tenants who defaulted on the rent or had a 6 months void period, or if you or your partner had a fall in income, and consider how well you could manage. that way, you will be in a position to make a more informed decision.

But in your shoes, I would spend some time living in the new property first. Get a feel for the running costs, for what you need to spend on that property, and how much you can save while paying the mortgage, and then re-think.

N1AK

mike1237 wrote: »

Would using the £10,000 for a BTL seriously increase our monthly payments on the house we plan to buy for ourselves. If so, would it be better to leave it where it is?

No it wouldn't 'seriously' increase your payments, in my opinion. The combination of £10k more debt and a higher LTV would likely add less than £50 a month in interest. Use a mortgage calculator, there are plenty online, to see the numbers.

It's taken me a couple of months of casual reading and mulling it over, and another couple of weeks of more intensive research and calculating, to work out whether buying a BTL property is worthwhile for us. The answer was 'yes' but is based on a 25 year timeframe and spreading our assets and it didn't hugely beat just investing in a S&S ISA tracker fund and doing nothing else. Why do I mention all this? Because everybody's situation is different and you couldn't possibly inform someone well enough on a forum that they could make an accurate decision.