Hazards of BTL

Pet50

My daughter obtained a mortgage with us (parents) providing a deposit. Her mortgage was £100,000 and we provided the £50,000. Three years on, she has met her partner and after paying rent to him for a year whilst living in his home, they have bought a house together. They both rent their separate properties. Her property now gives her less than £100 a month income and she has to pay £30 management of the property and after paying 20% tax on her rent received, she is out of pocket. Would you advise her to sell her house as it is no longer an investment?

[Deleted User]

One of the ways a LL can assess worth also includes evaluating any increase in value of the property. But it does seem like this is not a 'profitable' venture for her. She could manage the property herself though, with some research into responsibilities (which she should have done anyway.., the agent is just an agent, the responsibilities are actually your daughter's).

Crashy_Time

Yes, sell , but be quick because a load of other people will be having the same idea is one option, option 2 is hold on if you think property prices have further to move upwards, or if you think there is future value in keeping it. IMO, as stated many times, if you had 50k to burn premium bonds would be a better less stressful option than BTL now, or if you want to stretch a bit, safe/slightly more risky government bonds or a global equities tracker fund of some sort. It comes down to your views on the value that property can create/hold really?

Guest101

Pet50 wrote: »

My daughter obtained a mortgage with us (parents) providing a deposit. Her mortgage was £100,000 and we provided the £50,000. Three years on, she has met her partner and after paying rent to him for a year whilst living in his home, they have bought a house together. They both rent their separate properties. Her property now gives her less than £100 a month income and she has to pay £30 management of the property and after paying 20% tax on her rent received, she is out of pocket. Would you advise her to sell her house as it is no longer an investment?

Has she done everything she legally needs to as a LL?

steampowered

Think of it in terms of opportunity cost. The objective is to find the best home for the money - whether that be in property or in some other form of investment such as a stocks and shares investment.

Imagine your daughter would get (for example) £50k after sale costs and repaying the lender.

The decision is then, if your daughter had £50k cash, what would she do with it? Invest in buy-to-let property, invest in some other type of asset (such as stocks and shares) or take a big holiday?

If the buy-to-let situation isn't working it would probably make sense to put that money into a low-cost stock market tracker, as much as possible through a stocks and shares ISA.

G_M

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eddddy

Obviously, if an investment/business is making a loss, you're better off discontinuing it.

I guess a few things to consider...

• Is the gain in the house's value each year outstripping the monthly losses? (Unlikely I guess.)

• Is it a repayment mortgage, perhaps with a short term? i.e. Is her mortgage balance reducing each month by more than her monthly losses. (e.g. She is out of pocket by £50 each month, but her mortgage balance is reducing by £150 each month. So she's making £100 of hidden profit each month.)

• Is she charging market rent for the area? Is there scope to increase it.

• Could she reduce her mortgage interest by remortgaging (but bearing in mind the new tougher lending criteria)?

• Can she reduce her business costs in any other way?

Obviously, if she does decide to sell, she will have to consider the costs of selling (EA fees, Solicitor Fees, CGT, probable void period).

brit1234

Can't she sell and put the equity into her new home reducing the mortgage costs. Taxation on landlords is going up every year for a further 3 years with the cuts in tax relief. However you may have to be quick with loads of landlords selling up at the moment.

Crashy_Time

brit1234 wrote: »

Can't she sell and put the equity into her new home reducing the mortgage costs. Taxation on landlords is going up every year for a further 3 years with the cuts in tax relief. However you may have to be quick with loads of landlords selling up at the moment.

She is possibly too late to catch the market TBH.

bris

If the property is running at a loss just now wait until the boiler breaks down, or the roof leaks etc. If money is an issue then sell as repairs can run into hundreds if not thousands and there is no warning when it happens.