Renting at a loss (future gains in mind)

mstr

Hi,

I looking at moving after buying my house for the wrong reasons, I have the deposit and funds to buy another house so don't need to sell this house for that.

I was looking at renting it out quite a while back ( I guess like many people think about ) but the rental ( I'm looking at the council as they are quite keen and offer a 3 year contract ) is going to be about 50 - 70 quid lower than the mortgage ( not final figures but close ).

I really want to be hands off as possible and they offered a tempting idea.

The shortfall is a problem and my thinking is as they pay the bulk of the mortgage i should not be to long before it equalizes. Also they are effectively the landlord as they explained they have all the insurances so I save a little on that. I would still be liable for boiler or shower breakdown etc ( if by the tenants they would do the repair).

Is this a crazy idea, has anyone rented on a loss for a couple of years with hope that it worked out ? I called the mortgage company and just need to fill out a consent form for renting but I cant applies for a fixed rate mortgage if they give consent just tracker so if rates sharply increase in the next 3 years.......

Crazy as a fox?

Thanks :-)

suziemoon

I rent out a property at £100 a month less than it's worth now because the tennant has been in there 3 years but is a reliable payer and it's paying down the mortgage for me which will be my pension in the future. It's not all about making money short term - I always hope that things work ou in the end

Pixie5740

Who will be your tenant? The council or the person living in the property?

If you have a repayment mortgage then only the interest is deductible when calculating your profit. So if you're currently including the capital repayment in your current calculations you might find that you are actually find that you're making a profit rather than a loss when you only include the interest.

mstr

Hi, yes that is what i was thinking and with the council they are going to be reliable ( or I hope ). Thanks !

camptownraces

Letting your place to the council for three years IS a crazy idea,whether you expect to make a profit or not.

You will have absolutely no control over what kind of tenant they choose: these may be anti-social problem tenants who have had to be moved from other premises, big problems may ensue with your neighbours which would have to be disclosed in a potential sale later. You won't be able to do anything about this, because they won't be YOUR tenants causing the problem.

Don't expect the place to be returned vacant at the end of the 3 year term. Don't expect it to be returned in a condition remotely similar to the existing condition. Saying you are to be responsible for repairs to the boiler and the shower gives a hint that the council doesn't envisage they will have responsibility for any of the normal upkeep of the property. What if the roof leaks, or a problem arises with condensation, damp or mould: Will the council fix that?

If the proposed council rent won't cover the mortgage now, why do think it might do so later?

mstr

Hi Pixie5740,

The council is the tenant, they pay regardless if its occupied or not and handle all problems ( including eviction if needed ).

It is a repayment mortgage, interesting I will look into that thanks!

Pixie5740

Then it's quite possible you'll have a commercial tenancy with the council and the council will have an AST with their tenant.

You'll need to check that your mortgage lender is giving you consent to let on a commercial tenancy and you'll also need to ensure your insurance covers you for commercial tenancies. (If indeed it is a commercial tenancy that you'll have with the council.)

mstr

Hi camptownraces,

Your right I don't have any control over the tenants but privately or not there is a risk. A

The house is will be returned in the same condition ( minus wear and tear ) the house will be just unfurnished and maggy and white ( or carpets or flooring ) basically council standard.

rent payments go up every quarter ( or reflect the market so might stay level ) but the mortgage will come down.

But yeah there is possibility of bad neighbours.

Thanks

mstr

Pixie5740 wrote: »

Then it's quite possible you'll have a commercial tenancy with the council and the council will have an AST with their tenant.

You'll need to check that your mortgage lender is giving you consent to let on a commercial tenancy and you'll also need to ensure your insurance covers you for commercial tenancies. (If indeed it is a commercial tenancy that you'll have with the council.)

Thanks will post these to the council officer, I've not looked at this stuff yet
Cheers

Hoploz

What makes you think you would prefer to rent to the council than private tenants? You'd probably get the higher rent to cover your costs and the letting agent can manage it. You'll have more control over what goes on.

I've had several rental properties over the past 16 years and have had long term tenants in situ for 2-3 years at a time quite often, it's quite normal for people to rent for the long term if it's a half decent property. We have hardly had any dead periods in between, and have only ever had one problem tenant who stopped paying, but even then I sent one solicitor's letter and he moved out. A lick of paint a weekend later and it was ready to go again good as new.

G_M

A commercial tenancy?

Even if your mortgage lender permits this (unlikley) you'd be mad.

Maintain control and let he property via an AST to tenants you choose yourself, and can evict yourself if need be.

yes, there may be voids; Yes there is always a risk (as any business vnture) but your rent will be higher to compensate and you'll maintain control.

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