Would this work as a BTL or should I sell

TallGirl

Dear all hope you don't mind helping with this:


I am 45 and I split from my alcoholic husband 1 year ago he is 54 this year. We own a house worth £280K (bought new 20 years ago for £85K) paid off our mortgage completely (thanks MFW).


Ex Dh has lived in the house for 1 year alone paying just the utility bills no agreement between us (he has severe memory loss now due to alcohol abuse).


I am starting a new job in August same place as I am now but moving from a 1 year contract to a different job which is permanent. Salary will be £43K a year.


Next door to us (identical house) rented theirs out for 3 years at £1200 a month (ended this Oct 15 when they came back from abroad). My house is 3 bed with a study and there is an outstanding secondary school 200 yards away so I would say tenants not difficult to get. Location is on the south coast between Portsmouth and Southampton.


Questions for you chaps if you don't mind:
Would I get a mortgage for say £130k to buy him out?
How long would I need to be in my job before I can apply.
When does CGT kick in?


I have a good credit rating with no defaults. My OH is a housing solicitor so I have no worries about the legal side of having tenants and I have the means to do the house up and make it safe (gas etc) for tenants.


Or would you sell it and get rid of the headache?


Just to add I work in Central London so would be unable to buy anything here and my rent is super cheap (£430 a month incl bills) as I am a property guardian so don't feel aggrieved by renting at the moment.


Any help gratefully received thanks

Thrugelmir

Or would you sell it and get rid of the headache?

Being clinical. Do you want to run a business and all the potential hassle that goes with it. Tenants aren't always easy to deal with. Nor will they all dutifully pay up on time.

Crunch the numbers fully. Yield is just over 5% gross. There's maintenance costs and interest to be deducted, then of course tax on any profit. Announced changes to the relief granted on interest also may have a bearing.

AnotherJoe

If you didn't own this house, would you look to be a landlord? If the answer is "no" then why start now? (and FWIW why start with a house at which ex may turn up from time to time causing issues if he knows you own it?)

I suggest a clean break, even if you wish to be a LL, sell this one start elsewhere. You'll no doubt find it problematic enough to sell it in the first place. At the moment he effectively has a free place to live, you'll need to get him out before its even salable.Will he even agree to sell?

I'd focus on that first.

(BTW its a long commute to that school )

amnblog

Yes. you can do this now.


CGT does not apply to your primary residence


Engage a broker to assist you.

TallGirl

Thanks for the super quick replies not thought about him turning up unannounced that is a good point indeed.


Being a landlord isn't my dream but I wouldn't mind it as it would even if it just paid for itself be a nest egg as I said I cannot see myself wanting to buy anywhere near here to live. I know the area and I know it rents well to families but yes nightmare tenants do exist (I am a debt adviser by trade).


As for ex agreeing to sell yes tricky on would have to force I sale I suspect or hope his family can sober him up enough to understand.

Surprised I can apply for a mortgage now with my contract ending 21st July and I haven't even applied for the new job although I am likely to get it as they created it for me.

TallGirl

Things have changed since I last posted so I thought I would update you all. My brother in law who lives abroad contacted me three weeks ago to say he wanted to buy my half of the house and out it all in my ex name so he could life there. Strange I thought but good solution as I wouldn't have the hassle of selling on open market and getting ex out for viewings etc. Well things then changed less than three weeks later.


Sadly my ex passed away and as we were married the house is now mine with no mortgage on it.

I want to rent it out as I cannot buy where I am and in this uncertain market I don't want to sell. I have a few questions hope you don't mind I have looked into lots but there is so much.

Estate agent says £1250 pm which fits with what the neighbours got its a cul de sac 3/4 bedrooms 300 yards from outstanding secondary school. No problem getting tenants

My questions if you don't mind.

How do you work out yield please. obviously I have no mortgage and rent is £1250. I will have to pay tax (I might be higher rate tax payer but not currently working).

Estate agent wants 6% for basic management and finders fee is £200 plus vat. Tempted to go finders only as my other half is a qualified housing solicitor so can do deposits, contracts, per scribed terms, any legal action etc etc. What are your thoughts? Is it w hassle collecting the rent yourself?

As for doing the place up it needs redecorating and I know I cannot claim anything for this prior to let. I want the central heating sorting as it only got half replaces eg timer and water tank still the old one boiler is new. Also want rid of artex in two rooms and new carpets but small cost of this. New cooker and hood needed too just so I don't get anything breaking straight away as those things are from when we bought the house new 21 years ago. Would you find tenants before work is done or get it done?

My ex left me a life insurance and two pensions plus a share in his business so I am going to get an accountant anyway so not too concerned about that side however anywhere easy to look into how much tax I would pay please? Looked but couldn't see any?

Thanks for your comments much appreciated

TallGirl

bxboards

Hello

I think given your circumstances you will pay 40% tax on your rent as you said your salary will be 43k

This is because you are in or around the 40% tax bracket, and your mortgage is paid off.

Regarding the other stuff, I would say if it ain't broke don't fix it, so I would not go looking for work.

Thrugelmir

Gross yield = Rent divided by Property Value multiplied by 100

Rent £1,250 * 12 = £15,000

Property Value = £280,000

15k / 280k * 100 = 5.36% yield

If the agent takes 6%. Then income immediately drops to £14,250. Which reduces gross yield to 5%.

TallGirl

Thanks both much appreciated really helpful and definitely now understand yield a lot better. I've got a second agent coming around Tuesday but I won't rush into anything.

I agree I won't look for work but I know the central heating isn't right and that it needs painting as it stinks of smoke plus the cooker and job is 20 years old so are the two carpets. Lots to do but I'm quite excited about the future.

As for the salary I really don't know yet interview on the 24th and its 28 hours so we shall see.

AnotherJoe

For the tax knowledgable here, can the OP reduce her tax liability on rental income by ensuring she puts enough into a pension to reduce her earnings back to basic rate tax?
OP do you have a pension?

TallGirl

I did when I was working and I will get one when I start a new job so definitely something I'll look into.

Found an estate agent I quite like he can do a corporate let long term no voids and guaranteed rent and any damages repaired (via Royal Navy). Rent should be £1300 if my house is accepted and fees are 8% plus vat so might go with this as the easy options. I can keep stuff in the loft as they wont require this.

I think I've worked the yield out correctly

£1300 rent, £300k house 8% plus vat for fully managed fees and would give a yield of 4.7% but need to take insurance and maintenance off this.