is it still worth buying a second home to let?

djdaface

So I was 21 when I came up with my life plan, save for a house that i would live in but renovate and make suitable to be a let accommodation and keep for my retirement fund, seemed like the best option as pensions were falling all around. So I scrimped and saved and bought an investment rather than a first home, paid extra on the mortgage and lived in the house for 7 years paying off large chunks of the mortgage with overtime money whilst making it suitable for renting out.

the 10-12 year plan has all been boiling up to december this year, going smoothly and requiring dedication throughout the best years of your life( in theory)

But alas Young working class people like myself are not what the government want as of April this year, it would appear WE are the ones driving property prices and rent up so we should get penalised, but your exempt if your an investor hmm. Anyway enough of my life story, I am stuck on the decision now as to whether this is still the right play to make? Buy a second property to be my long term home and my current to be my retirement fund paying itself off for the next 25 years.

Does anyone have much experience with this, taking into account the reduction in taxes and the 3% purchase addition is it still a solid move to make? Im just slightly of the opinion it is, but part of me now things maybe I should just sell and move to a nicer property and be done with it

house prices in my area are around £500k so this figure is pretty daunting

thanks chaps

djdaface

Probably should have added the plan that is I own 60% of the house and have some savings for fees it is either to move or to remortgage and take 20% out to buy the second home

Guest101

Can you pay for both properties - if your rental is empty or your tenants don't pay rent?


If not, then that's your answer.

Hoploz

Compare the rental income to the expenditure (eg mortgage + agents fees, and the extra stamp duty payable) and check whether it puts you into reasonable profit. Then consider price changes likely in the next 20/30 or whatever years.

Personally I prefer to put my money into properties - i have no 'pension.' I know if worst comes to worst, chances of coming out with minimum what I've put in are 100% with property - who knows where a pension fund may end up with all the misinformation and mismanagement over the past 20 years. And most likely with my properties I will have a big capital increase over the long period on top. And long term when the mortgages are paid off I can choose either to cash in and sell, or keep renting out for a monthly income.

djdaface

I could live without rent although it would hardly be considered a life

I would get aprox £1800 a month for the current house,
btl mortgage = £950-1000 on a 25 year repayment after taking 20% out

I looked at it as the cost to sell the house is aprox 2.8% of its value with agents fees and costs vs the cost of keeping the house would be 3% of the value of the second home, unfortunately the second home is likely to be worth more than the existing property making it cost about £4,000 more to keep the house over selling.

Unfortunately i dont know much about the tax side of things to work out what my profit would be after tax to find out how many years profit this is likely to be, I estimate the pretax profit to be around £5000 a year assuming the property is only let for 11 of 12 months to allow contingency

Guest101

djdaface wrote: »

I could live without rent although it would hardly be considered a life

I would get aprox £1800 a month for the current house,
btl mortgage = £950-1000 on a 25 year repayment after taking 20% out

I looked at it as the cost to sell the house is aprox 2.8% of its value with agents fees and costs vs the cost of keeping the house would be 3% of the value of the second home, unfortunately the second home is likely to be worth more than the existing property making it cost about £4,000 more to keep the house over selling.

Unfortunately i dont know much about the tax side of things to work out what my profit would be after tax to find out how many years profit this is likely to be, I estimate the pretax profit to be around £5000 a year assuming the property is only let for 11 of 12 months to allow contingency

Just some basics:


£1800 rent
£300 tax (BR payer?)
£1000 Mortgage
£180-240 (Letting agent managed?)
£30 maintenance (monthly contribution towards one offs - Gas safety etc)
£100 sinking fund


a profit of £110-190 a month (I accept the tax could be different too, as there are some tax deductibles)


Lets say it's £250 a month profit - £3000 a year.


But if you have a void or tenants don't pay, it takes 4-5 months to evict, you are making no profit.


I'm unclear, how much equity you have, but would you make more than £3000 a year with some low risk investment?


Do you want to be a landlord? Do you understand the legal implications?

Bluebirdman_of_Alcathays

If you're a basic rate taxpayer you pay 20% tax on profit. Higher rate 40%. Bear in mind only the interest component of the mortgage payment is tax deductible - the capital payment is not. If you are a higher rate tax payer, then the interest deduction is further restricted, although it's complex as rules are being phased in over time. I would advise using an accountant certainly for the first year.

djdaface

I guess I should look at the equity as the amount I would release from my current property.

£60,000

Hmmm so about a 5% return on investment with moderate risk (But also the increase in property value) but the first two years written off for initial fees and setup costs.

Fine being a landlord, I am currently a live in Landlord and have rented to many lodgers in the last 6 years, its the next step really as I do not want to live with other people any more.

Its a tough call really, 5% return is possible to earn relatively easily in low maintenance investments, but if the property markets increase like they have over the last 25 years, in the next 25 the point of the property is to increase in value and pay the mortgage off and as long as it makes 0.1% profit its performing as it should do right?

Yes I would definitely use an accountant at the beginning, pretty sure it would pay for itself over time

Guest101

djdaface wrote: »

I guess I should look at the equity as the amount I would release from my current property.

£60,000

Hmmm so about a 5% return on investment with moderate risk (But also the increase in property value) but the first two years written off for initial fees and setup costs.

Fine being a landlord, I am currently a live in Landlord and have rented to many lodgers in the last 6 years, its the next step really as I do not want to live with other people any more.

Its a tough call really, 5% return is possible to earn relatively easily in low maintenance investments, but if the property markets increase like they have over the last 25 years, in the next 25 the point of the property is to increase in value and pay the mortgage off and as long as it makes 0.1% profit its performing as it should do right?

Yes I would definitely use an accountant at the beginning, pretty sure it would pay for itself over time

I suppose the main thing to remember is if you rent it out, you have to detach emotionally from it, it wont be your home anymore.


Read up on legislation - as it's still on your shoulders even if you have an agent. If you're comfortable, go for it.

ejv

djdaface wrote: »

house prices in my area are around £500k so this figure is pretty daunting

I was considering this, but..stamp duty will be around £30K.:eek:

Does HMRC repay the surcharge, if we sell the first house within 3 years of taking the second mortgage?:o

wolfplayer

Well imo the houses are priced at £500K+ because BTL investors have been buying up so much supply, outbidding FTBs and others who would prefer homeownership, and turning them into renters.

So I am happy about the SDLT surcharge giving home-stealers something to think about.

Section 24 is even better. Really it's more of a greed-tax, and hopefully it's going to begin bankrupting swathes of BTL investors.

Hopefully many BTL investors will also lose their primary homes, having to sell them, in order to settle their tax debts and have to become renters themselves.

However 'invest' if you want to with another house. Every time I look at the forum it seems no one has clear idea just how clever S24 is. Roll on 2017 to 2020.

djdaface wrote: »

So I was 21 when I came up with my life plan, save for a house that i would live in but renovate and make suitable to be a let accommodation and keep for my retirement fund, seemed like the best option as pensions were falling all around. So I scrimped and saved and bought an investment rather than a first home, paid extra on the mortgage and lived in the house for 7 years paying off large chunks of the mortgage with overtime money whilst making it suitable for renting out.

the 10-12 year plan has all been boiling up to december this year, going smoothly and requiring dedication throughout the best years of your life( in theory)

But alas Young working class people like myself are not what the government want as of April this year, it would appear WE are the ones driving property prices and rent up so we should get penalised, but your exempt if your an investor hmm. Anyway enough of my life story, I am stuck on the decision now as to whether this is still the right play to make? Buy a second property to be my long term home and my current to be my retirement fund paying itself off for the next 25 years.

Does anyone have much experience with this, taking into account the reduction in taxes and the 3% purchase addition is it still a solid move to make? Im just slightly of the opinion it is, but part of me now things maybe I should just sell and move to a nicer property and be done with it

house prices in my area are around £500k so this figure is pretty daunting

thanks chaps