To keep as buy-to-let or sell for smaller mortgage?

rich_leeds

Me and my girlfriend would like to move into a shared property. We both own properties which would perform well on rental market but it is unfeasible to live in either property together.

My property (A) is worth £215000 with £60000 remaining on mortgage and I have £35000 in savings. Hers (B) is £160000 with £119000 remaining and no savings.

Potential rental income is £850 per month for mine, £750 for hers.

The property we want to purchase is £300000 and our joint income is £78000 with middle of the road living costs.

Would we be better off selling both? Keeping both as buy to let? Or keeping one as buy-to-let?

The prospective method we had in mind was to release equity in property A e.g. £40000, for mortgage of £100000. And to sell B and combining my savings, equity released from A and £40000 from sale of B for deposit on mortgage of prospective purchase.

jonnygee2

Would we be better off selling both?

Essentially, you have some existing assets, and you need a plan for managing them. The answer probably depends on your attitude to risk and investment.

Letting properties has risks that owning outright doesn't. Tenants can default on rent or you can suffer voids. It also takes time and effort to manage and using an agent only partly mitigates this, while also eating into returns. You need to understand the laws about being a landlord before you let out property. The rental market is also at threat from increasing regulatory interference. Then there's stamp duty for second homes, of course!

But, obviously, property has proven a relatively successful investment vehicle for many. So you can't rule it out.

Personally, I prefer to keep my money in investments outside of property, like stocks and shares. I understand these much better (as an assert class) and they are also a lot less hassle. So in your situation I would sell both and move the excess into investment funds, filling up pensions and ISAs as much as possible.

But, I'm not you, nor I am a financial advisor! However, it normally isn't hard to create a few excel sheets which model various outcomes and come to a decision. I suspect in your case, the maths would work as such that if you had a significant tenant default or void, you could end up having to sell the investment house in a hurry, which is a very significant risk.

Jane_B

If I were in your shoes, I would use my savings for the next property move, and let out yours. your girlfriend would need to sell her property to fund the new joint purchase.

That keeps the calculations simple, and if she has no savings, she would need to sell anyway to go joint for the move. You as you have savings do not need to, plus your mortgage is smaller, so more viable.

But do your research, being a landlord is not easy, and you need to ensure you instruct agents you trust etc.

need_an_answer

Keeping properties and renting them out will mean that you become LL's.Some people adapt to it and others not so easily.

A couple of things I would mention is going down the rental route do you plan to self manage or agent manage?

If agent managing you may need to factor in 10% of the income from rental as costs in agent fees on both properties.

You'll need consent to let from each mortgage provider and could possibly need to swap the mortgages to BTL if the provider felt it was going to turn into a long term proposition.

If both "rental properties" are leasehold then you as LL's will still be responsible for management/service charges on the properties so this needs to be factored in together with your mortgage payments as expenses that you cant pass to the tenant. In effect letting fees ,management fees and mortgage will be deducted from the projected rental amounts you've given..

Add in running maintenance on the rentals for things that break or need replacing,possible voids between tenants when you will need to pick up the utilities such as CT etc,extras charged for tenancy agreement preparation,inventory check in and other associated costs For things like a gas safety certification on each property if applicable annually and you may find that the figure left at the end of each month that's due back to you both is not as great as you once hoped £1600 may well be your projected rent each month over the 2 properties but after all the deductions you may decide that for a couple of hundred pounds that you are likely to actually receive its best to just sell both properties.

If you then buy somewhere together whilst you still own the rentals you'll need to factor in the additional stamp duty on the new joint purchase.

That figure alone could wipe out any profit from the rentals in the first year and beyond.

Pixie5740

Jane_B wrote: »

If I were in your shoes, I would use my savings for the next property move, and let out yours. your girlfriend would need to sell her property to fund the new joint purchase.

That keeps the calculations simple, and if she has no savings, she would need to sell anyway to go joint for the move. You as you have savings do not need to, plus your mortgage is smaller, so more viable.

But do your research, being a landlord is not easy, and you need to ensure you instruct agents you trust etc.

Who would pay the higher rate of SDLT in that scenario? Both of them or just the OP because (s)he gets to keep a rental property?