Keep current flat to rent out & buy second propety to live in?

mrginge

The long term view of capital appreciation is all very well, but it's pointless if you can't service the debt.

Your margins look unrealistic at £800 a month. At a grand it's more manageable. You really need to nail down the income potential before going too far into this.

kboss2010

It depends where the flat is. It's feasible if you can guarantee you'll have a tenant at all times and you can rent the place for more than the cost of the mortgage. If you can't or it's in a low demand area, sell it.

I've considered doing this myself when I can afford a flat. I'd be looking to buy a flat in Aberdeen where demand is always sky high and you can easily charge 2x your mortgage payment in rent each month and then relocate down South and rent somewhere in the Central Belt (Edinburgh or Glasgow) where the rent is significantly cheaper even for good properties.

hazyjo

1983JK wrote: »

...and property prices in the area seem stable and have risen steadily even during the crash - that's why we're so keen to keep hold of it. Long term it'd be a great thing to keep hold of.

Just being slightly negative in that I really don't think it's risen a lot in three years. If prices drop again, even just a little bit, you could find it's worth well under what you paid. I don't think there's much wriggle room there at all. Ten percent or so increase isn't a lot - a lot of people were offering that off the asking price in a falling or static market.


Prices in my area (albeit East London) have risen more like 50-75% in the last two years.


Most lenders won't consider borrowed deposits (gifted is preferred) so that may not be included. What sort of equity percentage do you have in your current property? You may need 25% if renting it out (don't hold me to that!).


Jx

dimbo61

Lots of Info missing!!!
Equity in the flat, age of you both? and INCOME.
Buying a big house to have KIDS!!!!
Want to be a Landlord as well ? Do you sleep well at night?
Leasehold flat with service charges each month!
Letting agents taking 8/10% each month to find tenant and look after property.
Are you going to be on call 24/7 ?
Bit of a minefield really

tostaky

hazyjo wrote: »

Most lenders won't consider borrowed deposits (gifted is preferred) so that may not be included.
Jx

can you tell me more about that because i am trying to do that (release equity somewhere to buy something new)?
thanks

Pincher

The tax deductible aspect is really important.
The HMRC will only allow the interest on up to £190k, the initial acquisition cost, as deductible against rental income. If the property value jumps to £500k, you can't get a new mortgage for £400k, and expect to get full deduction for the interest on £400k.


There is a 10% (of rental income) dilapidation allowance as well. Beware that if you claim this, then you can't claim on replacing the sofa and beds, etc.


Ideally, you want to get an interest only mortgage, fixed for at least five years, for £190k, to maximise the tax deductible. If you have a repayment mortgage, the amount owing reduces, so does the amount of deductible you can claim. A house that you do not live in can be sold to pay off the mortgage any time, so there is no need for a repayment vehicle, because the house IS the repayment vehicle.


I have a house that I bought for £170k in 1998, which is worth £750k now. The interest only Buy To Let mortgage is now £170k, so I have taken out all the money I put in initially. Effectively, it is a pure income stream, with no investment from me.


Eventually, the mortgage will mature, so I just have to sell it in good time, pay back £170k, and pay A LOT of capital gains tax, and keep the rest. It's not worth selling early, because the tenant is paying rent for a £750k house, but crystallising the profit and paying capital gains means I end up with about £450k in my pocket, earning 2.0% interest, which is not even tax deductible.


With the right tax efficient structure, the capital gains plus the rental income means I am getting around 10% a year before tax over the last 16 years.

Pixie5740

tostaky wrote: »

can you tell me more about that because i am trying to do that (release equity somewhere to buy something new)?
thanks

You can't borrow the deposit to buy a property with a residential mortgage. What you could do, depending on how much equity it in your current property, re-mortgage that property to release some equity to put towards purchasing somewhere else. If you live in your current property then you could possibly get a let to buy mortgage to free up some money for your next purchase. A mortgage broker would be able yo help go through your options.

1983JK

dimbo61 wrote: »

Lots of Info missing!!!
Equity in the flat, age of you both? and INCOME.
Buying a big house to have KIDS!!!!
Want to be a Landlord as well ? Do you sleep well at night?
Leasehold flat with service charges each month!
Letting agents taking 8/10% each month to find tenant and look after property.
Are you going to be on call 24/7 ?
Bit of a minefield really

- We're, 32 & 30 years old
- combined pre-tax income of £67k
- We put down £30k deposit on the current flat & have paid off £10k from the mortgage so have £40k equity
- it was valued by agent yesterday to market at £240k and sell at £230k (40k profit at £230k)
- the bigger house isn't necessarily to have kids but guess it's possible they will follow.

Cheers.

1983JK

Pincher wrote: »

The tax deductible aspect is really important.
The HMRC will only allow the interest on up to £190k, the initial acquisition cost, as deductible against rental income. If the property value jumps to £500k, you can't get a new mortgage for £400k, and expect to get full deduction for the interest on £400k.


There is a 10% (of rental income) dilapidation allowance as well. Beware that if you claim this, then you can't claim on replacing the sofa and beds, etc.


Ideally, you want to get an interest only mortgage, fixed for at least five years, for £190k, to maximise the tax deductible. If you have a repayment mortgage, the amount owing reduces, so does the amount of deductible you can claim. A house that you do not live in can be sold to pay off the mortgage any time, so there is no need for a repayment vehicle, because the house IS the repayment vehicle.


I have a house that I bought for £170k in 1998, which is worth £750k now. The interest only Buy To Let mortgage is now £170k, so I have taken out all the money I put in initially. Effectively, it is a pure income stream, with no investment from me.


Eventually, the mortgage will mature, so I just have to sell it in good time, pay back £170k, and pay A LOT of capital gains tax, and keep the rest. It's not worth selling early, because the tenant is paying rent for a £750k house, but crystallising the profit and paying capital gains means I end up with about £450k in my pocket, earning 2.0% interest, which is not even tax deductible.


With the right tax efficient structure, the capital gains plus the rental income means I am getting around 10% a year before tax over the last 16 years.

So in your mind it's not impossible then?

1983JK

hazyjo wrote: »

Just being slightly negative in that I really don't think it's risen a lot in three years. If prices drop again, even just a little bit, you could find it's worth well under what you paid. I don't think there's much wriggle room there at all. Ten percent or so increase isn't a lot - a lot of people were offering that off the asking price in a falling or static market.


Prices in my area (albeit East London) have risen more like 50-75% in the last two years.

Most lenders won't consider borrowed deposits (gifted is preferred) so that may not be included. What sort of equity percentage do you have in your current property? You may need 25% if renting it out (don't hold me to that!).


Jx

You're right, we haven't seen London style property price rises here in Manchester. But surely I don't need to be in London / see 50% year on year growth for this to be feasible?

We had the flat valued yesterday with a realistic selling price of £230k, that's 40k in 3 years - am I mistaken in thinking that's fairly decent?