Renting my house out to family

CashStrappedTeen89

Just wondering if someone can give me some advice.

I'm nearly in a position to rent my first property out in hopefully the next year pending decoration and works, fortunately my sister wants to rent it and we have agreed on a rough figure on rent to move forward.

Looking on the Gov website I need to do the following -
Inform my lender
Get safety tests done (which I believe I have both Gas and Electric)
Fit smoke and carbon monoxide detectors
Conform to health and safety e.g. nothing structurally wrong and nothing hazardous
Get landlord insurance.

I've only just really started reading up on this but MSE always seems to have people in the know so can anyone advise what else I require moving forward?.

In terms of tax and profit I don't expect there to be any, the agreement with my sister is if she covers the mortgage, insurance and tax then I'm not to fussed with profiting roughly it should save her £50 compared to where she is currently living and is around £100 cheaper than rent in my area P/M.

Could I subsidies tax by advising it is not profiting or do I have little choice?.

Is there anything else I need know that I've completely overlooked?.

Many thanks

marksoton

CashStrappedTeen89 wrote: »

Inform my lender

This will probably be your biggest hurdle.

Pixie5740

If you currently have a residential mortgage then you don't inform your lender, you ask for consent to let which may or may not be granted. The terms of consent to let may prohibit you from letting to family. If you have a BTL mortgage then the terms may prohibit you from letting to family. Assuming that you get consent/are allowed to let to family, and the property is based in England or Wales then read G_M's guide for Tenancies in England and Wales: Guides for Landlords and Tenants.

Two potential pitfalls I can see with your plan are:

1. You're breaking the golden rule of letting by letting to family.
2. People let property to make money but you're just going to be breaking even, possibly not even that once you've factored in tax and maintenance.

Guest101

1: Never rent to someone you wouldn't evict on to the streets


2: Why are you doing this?! Sell up, put it into any highstreet bank account and you'll be making money as opposed to 'breaking even'.


3: if you 'break even' how will you fund repairs, redecoration, replacements?!


This business plan is terrible. Sorry and don't mean to offend you, but I wouldn't touch with a barge pole of any length.

Pricivius

To add to the other points, if you have a repayment mortgage, you can only offset the interest against the income as an allowable expense, not the capital.

So if the rent is £500 and the repayment mortgage is £500, made up of £350 interest and £150 capital, you must declare £150 income (less any other allowable expenses) to HMRC and then pay tax on this sum.

CashStrappedTeen89

marksoton wrote: »

This will probably be your biggest hurdle.

I'm not to worried in the long run as in another year my current deal will have ended so I can remortgage on a different deal.

Pixie5740 wrote: »

If you currently have a residential mortgage then you don't inform your lender, you ask for consent to let which may or may not be granted. The terms of consent to let may prohibit you from letting to family. If you have a BTL mortgage then the terms may prohibit you from letting to family. Assuming that you get consent/are allowed to let to family, and the property is based in England or Wales then read G_M's guide for Tenancies in England and Wales: Guides for Landlords and Tenants.

Two potential pitfalls I can see with your plan are:

1. You're breaking the golden rule of letting by letting to family.
2. People let property to make money but you're just going to be breaking even, possibly not even that once you've factored in tax and maintenance.

Many thanks this looks very useful and will take a look. I will also read up on the golden rule, however she's rented for over 10 years so would consider her a good tenant to have.

Guest101 wrote: »

1: Never rent to someone you wouldn't evict on to the streets

2: Why are you doing this?! Sell up, put it into any highstreet bank account and you'll be making money as opposed to 'breaking even'.

3: if you 'break even' how will you fund repairs, redecoration, replacements?!

This business plan is terrible. Sorry and don't mean to offend you, but I wouldn't touch with a barge pole of any length.

Granted I would not throw them in the street, I would prefer to have someone reliable than just anyone. As above my sister has rented for over 10 years.

I don't really have anything in terms of a pension so want to keep this property and possibly more to use as a pension pot.
I won't exactly break even in so many words my mortgage for the house is £400 and I have discussed renting at £550.
Redecoration would be my sisters problem as all the rooms are fresh plaster, maintenance would be mine but I have so far had a full rewire, brand new heating system and a lot of major works so the only major thing on the horizon is a new roof. I would obvious keep a little per month to account for anything to go wrong.
She is pretty decent with this though and does pay for a lot herself, this won't just be a family agreement a contract will be made.

No offense taken, I want the good and bad and need the information, I appreciate all the input.

Guest101

CashStrappedTeen89 wrote: »

I'm not to worried in the long run as in another year my current deal will have ended so I can remortgage on a different deal.



Many thanks this looks very useful and will take a look. I will also read up on the golden rule, however she's rented for over 10 years so would consider her a good tenant to have.



Granted I would not throw them in the street - Then you shouldn't rent to them. You probably will anyway, I would prefer to have someone reliable than just anyone. As above my sister has rented for over 10 years. - Yes to a LL willing to evict her if necessary. Not your brother who'll let her off the rent.

I don't really have anything in terms of a pension so want to keep this property and possibly more to use as a pension pot. - Assuming the property raises in value. Otherwise literally a bank account would be better. and less risk.
I won't exactly break even in so many words my mortgage for the house is £400 and I have discussed renting at £550. - So £1800 a year (less tax of course, and gas safety, and a reserve fund for new boiler, roof, etc, and landlord insurance, and assuming the mortgage stays the same, which t wont)
Redecoration would be my sisters problem - HAHAHAH no they wouldn't. as all the rooms are fresh plaster - And? After a few years that's not fresh anymore. You'll need to redecorate. , maintenance would be mine but I have so far had a full rewire, brand new heating system and a lot of major works so the only major thing on the horizon is a new roof. - Which would be a fair few years of your 'profit'. I would obvious keep a little per month to account for anything to go wrong. - I'm not sure you'd have a little to leave.
She is pretty decent with this though and does pay for a lot herself, this won't just be a family agreement a contract will be made. - And? Contracts are enforced via the court. So you either are or are not willing to evict her, basically onto the street.

No offense taken, I want the good and bad and need the information, I appreciate all the input.

Now obviously I'm playing devil's advocate, and things could go absolutely swimmingly. But atleast if you prepare for the worst, you wont go far wrong.


Do the maths, if it adds up then go for it.


Good luck.

CashStrappedTeen89

Guest101 wrote: »

Now obviously I'm playing devil's advocate, and things could go absolutely swimmingly. But atleast if you prepare for the worst, you wont go far wrong.

Do the maths, if it adds up then go for it.

Good luck.

Some good points in there, nothing is guaranteed as of yet in terms of renting, either way I need to get it decorated so have time to work all this out and its just that it "sounds" convenient for my sister to rent, nothing more she is happy to stay where she is she just likes my house.
Whatever happens 99% I won't be staying there realistically.
In your opinion what would you do in my position?.
(I realize it may be better to speak to an IFA)

Here's the crooks of it -

I'm 26
Ok-ish wage 20+
Mortgage is solely in my name
Mortgage is currently £400 PCM and is a repayment mortgage fixed until the middle of 2018 iirc
Rent around my area is anywhere from £400-650 depending on house, age and so on.
Mortgage is currently at £74,500
Last property value was £92,500 - £95,000 with it being considered as requiring full refurbishment as major works had been done and it was at bare walls stage (me and my ex split which is why it went on the market)
As I have done most of the works I estimate around a 10K investment so far.

Estimated prices in my area are from 80K-160K depending on house and spec (we have some new builds opposite around 10 years old that have fetched on the higher end) but they are pretty much identical in front print to my house and the older houses like mine range upto that as we have houses that are 2 bed upto 5 beds on the street / area.
Mine is -
4 Beds
Semi
Big Garden
separate garage
shared drive
will be complete within a year to a very good standard.

Pixie5740

I'm guessing that if you can buy a 4 bedroom house for under £100k then the property market isn't particularly buoyant in that area. You may have spend £10k doing up the property but that doesn't translate to the property being worth £10k more.

Taking the most recent valuations then you will be looking at a gross rental yield of between 5% and 8%. If you could actually achieve £650 in rent for your property then it might be worth doing, especially if you are tied into your mortgage rate until 2018 (I shall add the caveat that I am not qualified to give financial advice in any way shape of form) and your lender will give you consent to let.

Where do you live just now? Is there any chance you would move back into the property yourself and maybe get a lodger?

Guest101

CashStrappedTeen89 wrote: »

Some good points in there, nothing is guaranteed as of yet in terms of renting, either way I need to get it decorated so have time to work all this out and its just that it "sounds" convenient for my sister to rent, nothing more she is happy to stay where she is she just likes my house.
Whatever happens 99% I won't be staying there realistically.
In your opinion what would you do in my position?.
(I realize it may be better to speak to an IFA)

Here's the crooks of it -

I'm 26 - So soon there could be kids (if there aren't already?)
Ok-ish wage 20+ - Not enough to pay both the mortgage and rent and anything else?
Mortgage is solely in my name - You've not mentioned a partner/spouse, so is that a consideration?
Mortgage is currently £400 PCM and is a repayment mortgage - When you get CTL, the rate may stay the same, but they will expect it to become BTL within a certain period, which will almost certainly be higher. fixed until the middle of 2018 iirc - It wont be if you're switching from residential to commercial
Rent around my area is anywhere from £400-650 depending on house, age and so on. - Will you be renting?
Mortgage is currently at £74,500
Last property value was £92,500 - £95,000 with it being considered as requiring full refurbishment as major works had been done and it was at bare walls stage (me and my ex split which is why it went on the market) - Does your ex have an interest in the property? did he/she pay any of the mortgage? even if via 'rent'
As I have done most of the works I estimate around a 10K investment so far. So possibly 100-105k valuation?

Estimated prices in my area are from 80K-160K depending on house and spec (we have some new builds opposite around 10 years old that have fetched on the higher end) but they are pretty much identical in front print to my house and the older houses like mine range upto that as we have houses that are 2 bed upto 5 beds on the street / area.
Mine is -
4 Beds
Semi
Big Garden
separate garage
shared drive
will be complete within a year to a very good standard.

If you can give a bit of background, I'd tell you what I would do. BUT I don't believe that property is the best investment option

marksoton

CashStrappedTeen89 wrote: »

I'm not to worried in the long run as in another year my current deal will have ended so I can remortgage on a different deal.

You're missing my point. You'll need a BTL mortgage. Which means you'll need a very good LTV for a start.

Then there are very few lenders who will give you one of those and allow you to let to a relative.