LET TO BUY (not Buy to Let) - pros and cons? Surely cant be too good to be true?

krazyhorse

Hi Guys

Firstly, apologies if I am posting in the wrong room, I hope I am in the right place.

My situation: i'm the hubby, lovely wife + boy and girl, ages 6 and 4.

Colleague situation : hubby, wife, 2 girls and 1 baby boy.

My colleague used to live in a 2bed house, but when his son arrived they had to move to a larger 3 bed house (3 double bedrooms), with larger garden, kitchen and driveway. The main reason for his move was he needed more bedrooms and more space for his family, which is understandable. He bought his 2bed home approx over 10 years ago for £170k, now it's worth about £350k. I think over the 10 years or so, he built up about £50-60k equity in that property.

He then LET TO BUY his house, telling me he put his old house on an interest only mortgage - £500pcm. He now rents that house for £1200pcm to a small family, so is making £700pcm profit a month.

He then bought a new 3 bed house elsewhere for his growing family for £355k. I think combined salary of him and his wife are £70k. Mortgage on his current new home I think is approx £1k pcm.

As I have a boy and a girl, eventually, they'll want their own rooms. they're still "babies" but I am thinking ahead. We want to move into a larger home, colleagues situation got me thinking.

I have about £160k equity on my property, I bought my home 3 years ago for £235k, I borrowed £90k so that I could do bits and bobs to house.

I did ask my colleague to fully explain to me HOW mathematically, he was able to do LET TO BUY to work for him in his favour but he said "mortgage broker worked it out for me and it made sense".

My salary is weak, £35 compared to him as my wife doesnt work, she looks after kids and the home. But when our daugter goes to school full time, she is up for getting work to boost our income.

I'm a bit dubious about becoming a landlord, I dont want the added stress in case I have nightmare tenants, but how can LET TO BUY, work for me?

Can someone explain the maths for me - e.g. There's a 3bed £400k house we like close by in nice area, good school and links - how can I afford to move into the £400k house and rent out my old (current 2bed) home for e.g. £1000pcm and still afford to live?

p.s. I am currently paying £380 pcm for my current mortgage.

theartfullodger

Sounds like bog-standard Buy 2 Let to me... Go speak to some B2L brokers... easy to find with google or use tame ones at RLA or NLA..

re

He then LET TO BUY his house, telling me he put his old house on an interest only mortgage - £500pcm. He now rents that house for £1200pcm to a small family, so is making £700pcm profit a month.

No he's not...
a) Tory government bringing in reducing taxx-relief for B2l mortgages...
b) There are (many) other expenses: Insurance, fees, repairs, travel, estate agent commission:
c) Tenants don't always pay rent: Nor do agents..


No offence but you sound very naïve in this area: PLEASE beware of any clown flogging a get-rich-quick cunning plan...

Pixie5740

Your colleague isn't making £700 profit a month. There are more costs to being a landlord than simply paying the mortgage. What about repairs, maintenance, insurance, annual gas safety inspections, void periods, the costs of finding new tenants, income tax?

The income tax one is particularly important for higher and additional rate tax payers as the recent changes could easily turn what was a decent(ish) return into a return not large enough to be worth the hassle or worse still a loss. Then there's also the additional SDLT to take into account when you buy your next home.

If you don't want the stress of being a landlord then the answer is simple, don't become a landlord. Go and invest your money elsewhere.

Guest101

krazyhorse wrote: »

Hi Guys

Firstly, apologies if I am posting in the wrong room, I hope I am in the right place.

My situation: i'm the hubby, lovely wife + boy and girl, ages 6 and 4.

Colleague situation : hubby, wife, 2 girls and 1 baby boy.

My colleague used to live in a 2bed house, but when his son arrived they had to move to a larger 3 bed house (3 double bedrooms), with larger garden, kitchen and driveway. The main reason for his move was he needed more bedrooms and more space for his family, which is understandable. He bought his 2bed home approx over 10 years ago for £170k, now it's worth about £350k. I think over the 10 years or so, he built up about £50-60k equity in that property. - Well presumably he
also accrued £180k in equity on top?



He then LET TO BUY his house, telling me he put his old house on an interest only mortgage - £500pcm. He now rents that house for £1200pcm to a small family, so is making £700pcm profit a month. - well probably not quite given tax, sinking fund, agent fees, repairs etc.

He then bought a new 3 bed house elsewhere for his growing family for £355k. I think combined salary of him and his wife are £70k. Mortgage on his current new home I think is approx £1k pcm. - so is this the 2nd house or the 3rd?

As I have a boy and a girl, eventually, they'll want their own rooms. they're still "babies" but I am thinking ahead. We want to move into a larger home, colleagues situation got me thinking.

I have about £160k equity on my property, I bought my home 3 years ago for £235k, I borrowed £90k so that I could do bits and bobs to house. - excellent

I did ask my colleague to fully explain to me HOW mathematically, he was able to do LET TO BUY to work for him in his favour but he said "mortgage broker worked it out for me and it made sense".

My salary is weak, £35 compared to him as my wife doesnt work, she looks after kids and the home. But when our daugter goes to school full time, she is up for getting work to boost our income. - do you claim all your entitlements?

I'm a bit dubious about becoming a landlord, I dont want the added stress in case I have nightmare tenants, but how can LET TO BUY, work for me? - It depends on the sums, you need a LTV ratio of 70% for BTL. And an income that would cover both mortgages.

Can someone explain the maths for me - e.g. There's a 3bed £400k house we like close by in nice area, good school and links - how can I afford to move into the £400k house and rent out my old (current 2bed) home for e.g. £1000pcm and still afford to live? - I doubt you can.

p.s. I am currently paying £380 pcm for my current mortgage.

The maths isn't too difficult really.


it appears you don't have enough income or savings to have a LTV ratio of 70% + at least 10% for the new property, + 2 mortgage payments on 1 income


now if that's incorrect let us know

Pixie5740

Some calculations on the back of a fag packet show that even if you took all the equity out of your current home (i.e. sold it) you still wouldn't have enough to buy a £400k house on your salary.

Guest101

Oh and you have a questionable credit history - no offence - from less than 4 years ago which wont help

Cakeguts

First of all people tend to think that any house will make a good rental property. It doesn't work like this. To have a successful rental business you have got to have the kind of property that will be popular to tenants. Sometimes these are the same houses as you would buy to live in but often they are not the kind of house you would buy. As a buyer you are more likely to compromise than a tenant will. If there is something about the property that tenants don't like they will go somewhere else. What happens if your house doesn't appeal to tenants is that it will be difficult to let. The ones that are difficult to let have less chance of being let to really good tenants. You want a good tenant because they are the ones who look after your house, pay the rent on time, don't annoy the neighbours and don't damage the property. What you don't want are lots of voids. The more difficult a property is to let the more chance that it will have periods when it is vacant.

A vacant property costs money. You lose the rent for the time it is vacant but you still have to pay the mortgage.

You need to have a think about how you would pay the mortgage if you get a tenant who stops paying the rent. You may also have to renovate the property if the tenant wrecks it and you may not have had any rent for months at that time. If you get letting property wrong it can end up costing you a lot of money.

5557223

Google Let to Buy and you will get a good amount of bed time read. Whether you are able to pull this off, the answer depends on a few variables that need to make sense to the lender.

A good broker is invaluable.