Buy to let and rent

chrishar

Being a single guy in my mid 30s I like the feeling of not being tied down and having freedom so for myself I am happy to rent a room or flat.

However I also want to have a long term plan with my finances and eventually have financial freedom.

I have one property at the moment let out but I have 140k equity in it. I am considering buying another to let with approx 30-40% equity in each so I have two rental incomes. I would probably have both as repayment so they are eventually paid off.

Is this do-able or a stupid idea? I have had a look at buying a property for myself to live but I just dont feel like I want to commit to one location and be stuck there. With renting I can move a lot easier, but still have a property or two being paid off?

agrinnall

Having rental properties financed with a repayment mortgage isn't generally a sensible idea because a proportion of your payments is not eligible to offset against tax (only interest is allowable). Otherwise what you suggest is probably do-able.

booksurr

agrinnall wrote: »

Having rental properties financed with a repayment mortgage isn't generally a sensible idea because a proportion of your payments is not eligible to offset against tax (only interest is allowable). Otherwise what you suggest is probably do-able.

so what? OP is looking for an income therefore the less he is paying in interest the more income he will have

people should remember that a tax tail of 20% should not wag the dog if the objective is to maximise 80% income now, not later

pathtofreedom

As long as you factor in things like extra stamp duty costs at the start, and understand the tax changes being phased in over the next few years, you'll just have to work out a business plan really. If you ended up with voids in both, as well as all your insurance and gas certs etc due all at the same time, do you have a big enough emergency fund to cover all of that and not get yourself into trouble?

brit1234

agrinnall wrote: »

Having rental properties financed with a repayment mortgage isn't generally a sensible idea because a proportion of your payments is not eligible to offset against tax (only interest is allowable). Otherwise what you suggest is probably do-able.

Rubbish, repayment is most sensible. There is wide spread fraud with landlords not having repayment vehicles with interest only. They are clamping down on it and raising taxes with clause 24 which those highly geared landlords are complaining that it will bankrupt them.

If you have a repayment mortgage you own the property outright at the end. You can't get better security than that.

agrinnall can you tell me what repayment vehicle you have got for your interest only mortgages?

chrishar

Is there any where else I could invest 140k and gain a monthly income as well as capital gain?

I have one good tenant already and another friend of my sister who is looking for a place to rent.

theartfullodger

Don't rent to relatives, friends or friends of either (IMHO).

Only rent to people you will be very happy to evict, in full glare of family christmas, local paper, TV coverage..

jamei305

brit1234 wrote: »

Rubbish, repayment is most sensible. There is wide spread fraud with landlords not having repayment vehicles with interest only. They are clamping down on it and raising taxes with clause 24 which those highly geared landlords are complaining that it will bankrupt them.

If you have a repayment mortgage you own the property outright at the end. You can't get better security than that.

agrinnall can you tell me what repayment vehicle you have got for your interest only mortgages?

For a buy-to-let it is perfectly acceptable to have the sale of the property as the repayment method. This is normal practice, interest-only mortgages are the norm for buy-to-let properties. Obviously it's different for residential mortgages because the mortgagee still needs to live in the property after the mortgage term is over so needs a repayment method.

HappyMJ

chrishar wrote: »

Is there any where else I could invest 140k and gain a monthly income as well as capital gain?

I have one good tenant already and another friend of my sister who is looking for a place to rent.

Don't ever let to friends of family..

It's good business sense. If your sisters friend can't pay do you go all the way through with an eviction with bailiffs putting him/her and their family on the street? Your sister won't be happy with you.

I would also only have an interest only mortgage on the BTL. You can use the interest as an expense and any spare money you have if any you can invest elsewhere.

kinger101

brit1234 wrote: »

Rubbish, repayment is most sensible. There is wide spread fraud with landlords not having repayment vehicles with interest only. They are clamping down on it and raising taxes with clause 24 which those highly geared landlords are complaining that it will bankrupt them.

If you have a repayment mortgage you own the property outright at the end. You can't get better security than that.

agrinnall can you tell me what repayment vehicle you have got for your interest only mortgages?

There isn't a one size fits all. You don't even know at what rate the OP pays tax. It all depends on

(a) how everything is financed
(b) what the interest rates are
(c) what alternatives are there to repayment of the debt that has financed the property
(d) how liquid are those alternatives if interest rates suddenly increase
(e) what level of risk you want to take

There's nothing difficult in working out the interest element on either mortgage, so that's not important.

Not relevant to the OP, but interest rates being equal, I'd never repay the debt on a rental property before that on my own home.

kinger101

chrishar wrote: »

Is there any where else I could invest 140k and gain a monthly income as well as capital gain?

I have one good tenant already and another friend of my sister who is looking for a place to rent.

People usually invest for capital or growth. You might find funds that do both, but they're probably the worst of both worlds. The capital gains are not certain on property either....at least not over the short term. If you want capital growth, look for FTSE 250 companies or smaller. FTSE 100 companies are mature and don't tend to grow further, but pay you get a better payout in dividends instead.

The big difference with the stock market is generally, there isn't bank leverage (other than some of the debt on the companies accounts). But there are riskier funds that are leveraged.

If you're a higher rate tax payer, why not put some into a pension? Tax relief at 40% now, but taxed on 15% on exit if you're a basic rate tax payer on retirement. (25% tax free lump sum, 20% on rest).