Buy to let for 2 years worth it?

theronkinator

Hi, I'm looking to buy a house within the next 2 years, I've got £35k saved but unfortunately don't earn enough to buy in an area I'd like with good transport links.


My sister is having issues with her landlady and is potentially looking to move, I said as a joke I'd buy somewhere for her to rent, thinking about it, is it that daft an idea? She doesn't need to live in the area I'd like to live so the houses are cheaper.


So looking objectively, is there much benefit buying a house to let to someone for around 2 years, the rent will cover the mortgage and a little extra, my thinking is that it's 2 years worth or mortgage payments and hopefully the value will increase. After that time I can sell it and hopefully buy my own first house (I should earn more by then).


Is this reasonable logic or am I missing something, if it works out well would I be better buying my own and keeping this one? I have ~£35k cash (increasing at £1000 a month), I earn £1500 a month after all mandatory deductions (large pension, student loan, travel), I spend about £250 on other necessary expenses and £250 on miscellaneous.


I'd need around £100-120k mortgage as I'd be looking at £150k max (£145-150k is about average for the area, rent I'd be getting would be about £550 a month, so I can cover the mortgage without the rent anyway if needed.


Thoughts?

anselld

Depends entirely what happens to house prices over the next two years.

There are a few other issues...
Most BTL lenders don't like buyers who don't already have a residential property.
Most BTL lenders don't allow rent to family
If you keep the BTL you would incur the new 3% SDLT surcharge on your own purchase.
Do you really want to be a Landlord? There are a lot of other responsibilities besides paying the mortgage.

Pixie5740

As well as all the issues mentioned above the costs of buying and selling a property in a 2 year time frame will probably exceed any gains you make (assuming the value of the property rises). You'll have SDLT to pay, survey, solicitors fees x 2, estate agency fees, income tax on the rent received, CGT when you sell. Then there's the repairs and maintenance, gas safety certificates, EPC certificates and all the other costs of letting property. Property is a long term investment, not something you do for 2 years. You'd be better off putting your money in a high interest savings account (or 2 or 3) for 2 years.

HappyMJ

theronkinator wrote: »

Hi, I'm looking to buy a house within the next 2 years, I've got £35k saved but unfortunately don't earn enough to buy in an area I'd like with good transport links.


My sister is having issues with her landlady and is potentially looking to move, I said as a joke I'd buy somewhere for her to rent, thinking about it, is it that daft an idea? She doesn't need to live in the area I'd like to live so the houses are cheaper.


So looking objectively, is there much benefit buying a house to let to someone for around 2 years, the rent will cover the mortgage and a little extra, my thinking is that it's 2 years worth or mortgage payments and hopefully the value will increase. After that time I can sell it and hopefully buy my own first house (I should earn more by then).


Is this reasonable logic or am I missing something, if it works out well would I be better buying my own and keeping this one? I have ~£35k cash (increasing at £1000 a month), I earn £1500 a month after all mandatory deductions (large pension, student loan, travel), I spend about £250 on other necessary expenses and £250 on miscellaneous.


I'd need around £100-120k mortgage as I'd be looking at £150k max (£145-150k is about average for the area, rent I'd be getting would be about £550 a month, so I can cover the mortgage without the rent anyway if needed.


Thoughts?

Speaking as a landlord myself. It's not really worth it.

You have £35k cash. You should be earning at a minimum 3% interest on all of that earning £87.50 per month. You are contributing an extra £1,000 to that pot on which you should be earning 6% in regular savers which will add an extra £5 per month in interest for every month that you add £1,000 to the pot.

My house is worth about the same as the one you are proposing to buy and I get £600 rent for it which is a 5% gross return on investment which is a fair rate for the area. There are costs incurred against that income such as those mentioned in the last couple of posts. My profit ends up being £30 per month. Is it really worth it for £1/day. There's quite a lot of work involved in owning and managing a property none of which is paid. You are gambling on a capital gain which over two years is a real gamble. I would only look into property investment if you are looking to keep the property for at least 10 years. Doing that though will prevent you from buying a house you want to live in without incurring an additional 3% SDLT which will wipe out all of your hard earned profit.

kinger101

Buying a house for a period of just two years is never sensible, particularly if a mortgage is involved. Getting a buy to let property is madness.

The max LTV on a BTL is 75%, and given you'd have around £32K deposit (after you've paid all the fees), this isn't enough for a £145K-£150K home. And it doesn't leave you any money to fix anything.

Pixie5740

If you haven't already, open an HTB ISA and put some of your £1k a month savings in it (assuming you will be a FTB).

theronkinator

Thanks, looks like it's not really worth it then, is it worth it as a long term investment or am I still biting off more than I can chew?


I currently have £25k at 3%, a HTB ISA putting £200 a month in, currently have £1400 at 4% and the rest is basically earning nothing which I'm hoping to address in the next month or so.

kinger101

If you want to keep the money is cash (for a house deposit) rather than riskier investments, the folks on post on the savings board know how to get the most out of it. It takes a little effort shifting money around, but they'll get you well above 3%. From April, there's no tax on the first £1,000 of interest for basic rate taxpayers either, which helps a little.

https://forums.moneysavingexpert.com/discussion/5374614

Dan83

How do you feel about kicking your sister out in the street in 2 years?

theronkinator

Dan83 wrote: »

How do you feel about kicking your sister out in the street in 2 years?

Not really an issue as she's well aware of the potential plan and we've agreed a 2 year minimum (if this goes ahead), she's hoping by that time to be able to get something better by then anyway, unless I was to get somewhere decent and/or leave it longer.


I appreciate the concern though.

Pixie5740

Letting property can be worth it long term but there are better, less hassle investments out there as with letting property it's not only an investment but also a business not to mention someone else's home that you are responsible for. The best BTL returns might not be made in the type of property or area your sister wants to live in.

I'm assuming that as you earn £1,500 net and are able to save £1,000 a month you are still living at home with your parents. If you did decided to do BTL as a long term investment how would that fit in with your plans to eventually fly the nest. Would your parents be happy to continue subsidising you (from your figures it seems you pay next to nothing in dig money) whilst your profit from letting to your sister?