Sell up to release £ and rent - good idea?

phingers

Evening all. Sound advice required.

A) OUTGO ON MAJOR DEBT
We currently have two mortgages (our house and a second left to us) and credit card debt.
The repayment amount on these debts is £1,850 per month.
Mortgage 1 should be paid in 20 years, mortgage 2 in 16. Credit card debt - could take a little longer, only minimum payments each month and all on 0%, moved around when necessary to next 0% offer (we have A LOT of credit cards)

PROPERTY 2 INCOME
There is a rental income of £600 per month on house 2.

A-B
Therefore net outgo (major debts) = £1250

We are considering selling house 1, value £320,000, paying off both mortgages and clearing the credit card debt, all of which will leave £65,000 to be invested and then used for university fees x2 in a few years.

We will then rent a house for £900 per month, part funded by the rental income from house 2 (£600 per month), net cost £300 per month.

So we are £900 per month better off.

At present we have no spare cash. We do not go out, we don't have Sky TV, we don't play the lottery and we have two old cars which are a must as we work in different towns. We have reduced our outgoings to the bare minimum. Don't get me wrong, we want for very little but we have no luxuries. And don't get me wrong (part 2), I know we are way better off than many.

OR

We remain in this house. The mortgage on this and second house are repaid in 20 years at which point we would be have a very comfortable retirement with cash to spare.

But is it better to have a little more flexibility now whilst we are (just) young enough to enjoy it and can give our children a little more and not tell them that school trips are out of the question and perhaps go on holiday as a family...? And just have a little bit more fun than we do right now?

I don't know the answer but my feeling is that option 1 is better for the NOW, which is probably better than option 2 which is better for the THEN - but who knows what is around the corner. Live in the now or do what's best for the future?

Any words of wisdom or some monetary facts much appreciated. TY.

monty-doggy

If you don't have luxuries how have you built up all that credit card debt? What's to stop you doing it again?
I understand you want money now but those properties could secure your children's future, and your own.
Renting is far more expensive than buying in most cases.
Can't you release some equity to clear credit cards and keep both houses?

toastking

What about an option C - whereby you sell up and get the £65k spare cash and use that to get a mortgage on a new buy to let.

Your own house would be debt free and if done right, you'd have no extra outgoing but would also be paying off that 2nd house over the next 20-25 years?

I believe if it was me I would do that, but if it was between A and B I'd still sell up as you would release a lot of the burden and could save considerably each month AND afford a better life for you and the kids.

BitterAndTwisted

How much would realise by selling the rented property and how much are you seeing in rent after you've paid income tax on it? Also, with a buy-to-let mortgage it doesn't make any financial sense to pay that mortgage off as you can offset the interest against the rental income for tax purposes. Are you both working so using up both annual tax-free allowances?

It doesn't make much sense to me to sell only the property you live in just to go into rented yourselves while retaining the let one.

Annie1960

How much equity do you have in each of the properties?
What is your household income?
How old are you and your partner? Do you both work? Do you both have pensions?
It seems bizarre to sell one house and go into rented. Why not sell the property you rent out instead? Hence question about how much equity you have in each property.
Also, what is the current total mortgage on each property? Just giving monthly figures is not enough to make a decision.
You give a valuation for property 1, but not property 2.

More information may get you some better recommendations.

phingers

monty-doggy wrote: »

If you don't have luxuries how have you built up all that credit card debt? What's to stop you doing it again?
I understand you want money now but those properties could secure your children's future, and your own.
Renting is far more expensive than buying in most cases.
Can't you release some equity to clear credit cards and keep both houses?

Hi -ty for your reply. I will have a think about the equity release but just to answer your question about the cc debt, I was out of work for a long time and we were fortunate (?!) to have the credit cards just to pay the bills every month.

phingers

Annie1960 wrote: »

How much equity do you have in each of the properties?
What is your household income?
How old are you and your partner? Do you both work? Do you both have pensions?
It seems bizarre to sell one house and go into rented. Why not sell the property you rent out instead? Hence question about how much equity you have in each property.
Also, what is the current total mortgage on each property? Just giving monthly figures is not enough to make a decision.
You give a valuation for property 1, but not property 2.

More information may get you some better recommendations.

HH income £3k pm
Both 40, both work FT; wife has work pension, me none
House 1 equity approx. £175k
House 2 (rental) equity approx. £45k
House 1 mortgage £600pm
House 2 mortgage £700pm (BTL)

Thank you for your questions - I wasn't sure how much or how little info would be needed.

PasturesNew

I'd always go with "own one house outright"... whether that means moving into your rental and paying off the mortgage, or selling them both and buying a different one for cash.

That way all your income every month is yours, without worries of whether you've got a tenant/not, whether you've got a job/not.

Annie1960

So your income is £3000 pcm.
At present you have a BTL which earns you £600 pcm, but costs £700 in mortgage payments. Presumably you also have other costs for this such as repairs, insurance etc. You are getting deeper into debt every month with this.

I would get rid of the BTL. You have £45k equity in this (less after selling costs).

I would use this to pay down some of the cc debt to make it more manageable. From what you say, I think you are paying £550 pcm on cc debts (is this correct, I've tried to work it out from what you say). You do not say how much your cc debts are in total.

I would try to make the monthly cc payments more manageable, but also try to pay some of the £45 into a pension fund for your future.

Have you and your wife also got a good NI contribution record, as this will affect your state pension?

The last thing I would do is sell the home I live in and move into rented, but maybe your method of making decisions is different from mine. I am assuming that there is no major structural work that needs to be done on your home?


So your income each month will reduce by £600 rent, but your outgoings will reduce by £700 mortgage. You will also have the £45K to try to reduce your cc debts (not enough information to know how much these are) and if possible try to set up a pension.

peter3hg

BitterAndTwisted wrote: »

Also, with a buy-to-let mortgage it doesn't make any financial sense to pay that mortgage off as you can offset the interest against the rental income for tax purposes. Are you both working so using up both annual tax-free allowances?

That doesn't really apply though if they are getting rid of both mortgages. It makes no sense to pay £500 a month interest on a property just so you can save £200 in tax (for example).

BitterAndTwisted

In the OP's first post they didn't mention getting rid of both mortgages, only selling the property they live in and paying off the mortgage on the one they let.

That was before revealing that the let property is an albatross around their necks because it's currently making a loss.


It's the let one they need to get shot of, not their home