It's time to make a major decision (advice needed if possible)

witm8

Hi,

Me and the wife are at quite a major cross-roads in our lives.

Our current situation:

Age: Both 39.
Children: 1 (aged 14)
House: Yes, 3 bed mid terraced, recently valued at £350/£360k
Mortgage: about 116k left to repay

We have recently been left ½ of another house, which is in need of some pretty major renovations – 3 bed, end terrace, Victorian, off road parking, double garage at rear, large garden. Current value £350k but after extensive renovations + extension, estimated value £600k – Road ceiling price £650k

We can purchase the other ½ of the house, giving us 100% ownership for £175k

Current outstanding mortgage £116k, with £721/month repayments.

I get paid - £3,375/month wages (£2,541/month after tax)
Wife only works part time, and gets paid – around £1000/month – I don’t actually know.

Current savings: Need to check – but probably somewhere in the region of £70k / £80k

SO:

Option 1:

Purchase the other ½ of house - £175k
Do major renovations - £60k estimate from our savings.
Move in and live there.
Tidy up current house, put on rental market.
Rental value is £1,600/month where we are for our house
Messing around with some figures:

• £116k + £175k in total borrowing = £291,000 in total on the two houses
• = £1,881.00 monthly repayment on both houses mortgage (25 years)
• = £1,600.00 monthly rental income.
• = top up of £281 per month – yet this is still a saving of £441 per month
• 'Own' 2 properties
• Decent Rental yield

Option 2:

Purchase the other ½ of house - £175k
Sell our current house, £350k
Do major renovations – 60k estimate (from sale of current house) - actually more as if we were to sell our house I'll splash out big-time.
Pay off all remaining debts
Have 1 really nice house, and be mortgage free.


Part of me wants to do option 1 and have 2 houses, have the rental income etc, the other part wants to do-up the new house really nicely - sell the other house, and be mortgage free by 40.


I know that my figures are pretty general - but if you were in my position, what would you do, and why?


Many thanks

pinkteapot

It all comes down to whether you want to invest in property, and have the work that comes with being a landlord. Also remember that the yield won't be quite as high as you think as you'll have some vacant months.

If you sell your house and live mortgage-free in the big house, you'll have spare cash each month to save/invest in other things (non-property). Cash savings aren't a good long-term option so you'd be getting into stocks and shares ISAs and other investment vehicles.

Personally I'd go for option 2 and put my spare cash into other things, but only because I've got zero interest in being a landlord. That's just a personal preference though and you may feel differently.

If you go for option 1, you'll need to convert the mortgage on your current house to a buy-to-let one, which may have a higher interest rate than you're currently paying. Just something to factor into the maths.

lee111s

I'd go option 2 personally Mortgage free at 40 with a lovely house. Early retirement, imagine the life you're going to have!

Mojisola

witm8 wrote: »

Option 2:

Purchase the other ½ of house - £175k
Sell our current house, £350k
Do major renovations – 60k estimate (from sale of current house) - actually more as if we were to sell our house I'll splash out big-time.
Pay off all remaining debts
Have 1 really nice house, and be mortgage free.


Part of me wants to do option 1 and have 2 houses, have the rental income etc, the other part wants to do-up the new house really nicely - sell the other house, and be mortgage free by 40.


I know that my figures are pretty general - but if you were in my position, what would you do, and why?

I would go for option two but build in the cost of renting somewhere to live for the time that the worst of the building work is being done.

fairy_lights

Option 2, without a doubt.
I would rather have a lovely house, mortgage paid off and spare cash every month than have the hassle of being a landlord.

ReadingTim

When you say "We can purchase the other ½ of the house, giving us 100% ownership for £175k" do you mean that the option is available (presumably buying the other beneficiary out), or that you've actually ascertained that you can borrow £175,000 for the purposes you outline?

I ask because unless you can actually borrow the money, neither option will happen!

witm8

Thanks for the replies, and if I'm being honest I think that option 2 would be the best. I'm not sure if I like the idea, and associated possible hassles, of being a landlord.


Being mortgage free, and with that extra income, my/our lives would become so much easier, and dare I say it, much more enjoyable.

ReadingTim wrote: »

When you say "We can purchase the other ½ of the house, giving us 100% ownership for £175k" do you mean that the option is available (presumably buying the other beneficiary out), or that you've actually ascertained that you can borrow £175,000 for the purposes you outline?

I ask because unless you can actually borrow the money, neither option will happen!

Yes, I mean that we have the option, and have verbally agreed with the other beneficiary, to buy their half of the house as they are not interested in renovation etc, and would preferr a one-off chunk of money. This option would involve buying their half with the sale of the house that we're currently in, and using the remainder for renovation etc.


Thanks

nubbins

I would be be getting a BTL/remortgage/consent to let on current property of approx 260k (75%) and extracting 145k from it. Together with the savings I would purchase other property outright with a good chunk to start getting the work done. In effect you would have no mortgage payments because someone else we be paying them on your current home.
It really comes down to the landlord bit but I always like to hold onto property if I can and its not that hard if you get good tenants.

In 10-15 years both these properties could be worth 1.2 - 2 million squid :beer:

AdrianC

£60k doesn't sound like it'll go very far towards "pretty major renovations", unless you're planning on doing all the work yourself.

Lord_Baltimore

Option 2 end of; I'm not even going to bother commenting on option 1.

witm8

AdrianC wrote: »

£60k doesn't sound like it'll go very far towards "pretty major renovations", unless you're planning on doing all the work yourself.

I am going to do quite a lot of stuff myself, but it also helps no-end that my Uncle runs a building firm and wants to project manage the build for us. My other uncle is a carpenter, my cousin is a tiler, my other cousin is a plumber - basically I've got most tradesmen covered within my family.


We've already spoken to the architect who's a friend of my uncles who's coming up with some plans (we are officially paying him, £1000 in total for drawings, planning permission etc).


If this makes sense: As it's an end terrace, victorian property (ie long and narrow) we're going for a side return extenstion on the kitchen, and taking some internal walls down at the back to make the kitchen/diner 8m x 5m, leaving the front sitting room as is, and also the rear sitting room (we don't really want to knock them through) including a downstairs utility room. Putting another floor on the single story out the back (on top of the old toilet) for a new bathroom upstairs as it currently has 2 toilets/shower rooms downstairs. On-suite in the main upstairs room, and including a corridoor at the top of the stairs to the extension at the back. New raised kitchen floor, stripping every internal wall and having them skimmed, new wooden flooring downstairs, slate flooring in the new kitchen diner.


Oh, and about a year ago the whole front of the house was sandblasted clean, but it did loose quite a lot of cement between the bricks, so I'd like that re-pointed.

I was thinking that 60k should cover most of that. I think that there's going to be a couple of pretty decent RSJ's involved.


No? Am I completely out of the ball-park with that then? Bloody hope not or the Mrs will go mad She had to sit down when I said that I was going to spend around £60/70k on the extension.