First Time 'Accidental' Landlord

toddy111

I have a hypothetical scenario that I wanted to ask some experts about.


I currently don't own a property and live with my parents. I wanted to know if anyone can forsee any potential issues with the following plan:


I buy a 1 bedroom flat for £50,000 and live in it for 1 year or so*.



I then move out of this flat for personal reasons (let's say that I needed to take care of an elderly relative) and back into my parents house, and request to switch this mortgage to a BTL mortgage and rent the property out.



I save up a new deposit and buy a house of my own at around £100,000. I would then continue to rent out the flat that I purchased earlier.



*I would be using a Help To Buy ISA to get the bonus for my deposit for the first property and understand that it is a legal requirement to live in this property rather than buy it with a view to renting it out.



My thinking behind this is that doing it this way around is likely to be much more affordable than buying myself a house and then trying to afford a rental property later.


Does anyone forsee any issues with this? In particular, could it be an issue to get my own residential mortgage if I have a BTL mortgage? I would have thought it would have had little impact if the rent is covering the mortgage? This isn't really about instant profit for me, it's more like a retirement plan. I'm happy to lose a bit of money if I own a £50k flat at the end of it!


** I know that aspects of this plan seem potentially fraudulent. This is hypothetical as I suspect that I might need to take care of my mother at some point in the future and this seemed like a good way to get on the ladder and not be tied down witha huge mortgage straight away.**


Thanks in advance

G_M

or to put it another way:


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Now read:


** Tenancies in Eng/Wales: Guides for landlords and tenants This thread is intended to provide information to both landlords and tenants relating to Assured Shorthold Tenancies (ASTs) in England and Wales.

Topics covered:

* Repairing Obligations: the law, common misconceptions, reporting/enforcing, retaliatory eviction & the new tenant protection (2015)

* Deposits: payment, protection and return

* Ending/renewing an AST: what happens when a fixed term ends? How can a LL or tenant end a tenancy? What is a periodic tenancy?

* Rent increases: when & how can rent be increased?

* Repossession: what if a LL's mortgage lender repossesses the property?

* New landlords: advice, information & links

* Letting agents: how should a landlord select or sack?

* Lodgers: advice & links for landlords & lodgers

toddy111

Thanks G_M



That was a typo. Now fixed :rotfl:

toddy111

AFF8879 wrote: »

Anywhere where a flat costs £50k probably isn’t going to be an area where you could attract reliable, paying tenants anyway...and hence would need to factor in void periods in the rent (during which you would still have to pay both mortgages), damage and so forth.

I'm in Manchester so perhaps prices here are a little lower than where you are? I've spotted a 1 bedroom flat for £50k. Apparently similar flats are being rented for about £395/month. Obviously i'm not going to make a fortune on this but as I said, it's really about the long game. I don't mind losing some money short term. I would also consider a guaranteed rent scheme to avoid voids but need to do some more research in this area...

MystArch89

Someone else might correct me but if not mistaken the help to buy ISA would not be valid as u have a BTL mortgage, thus essentially u already have a property and it is not your first one?

Pixie5740

toddy111 wrote: »

I have a hypothetical scenario that I wanted to ask some experts about.


I currently don't own a property and live with my parents. I wanted to know if anyone can forsee any potential issues with the following plan:


I buy a 1 bedroom flat for £50,000 and live in it for 1 year or so*.



I then move out of this flat for personal reasons (let's say that I needed to take care of an elderly relative) and back into my parents house, and request to switch this mortgage to a BTL mortgage and rent the property out.



I save up a new deposit and buy a house of my own at around £100,000. I would then continue to rent out the flat that I purchased earlier.



*I would be using a Help To Buy ISA to get the bonus for my deposit for the first property and understand that it is a legal requirement to live in this property rather than buy it with a view to renting it out.



My thinking behind this is that doing it this way around is likely to be much more affordable than buying myself a house and then trying to afford a rental property later.


Does anyone forsee any issues with this? In particular, could it be an issue to get my own residential mortgage if I have a BTL mortgage? I would have thought it would have had little impact if the rent is covering the mortgage? This isn't really about instant profit for me, it's more like a retirement plan. I'm happy to lose a bit of money if I own a £50k flat at the end of it!


** I know that aspects of this plan seem potentially fraudulent. This is hypothetical as I suspect that I might need to take care of my mother at some point in the future and this seemed like a good way to get on the ladder and not be tied down witha huge mortgage straight away.**


Thanks in advance

Which part of your plan is accidental?

I know it's possible to purchase flats for £50k in Manchester just like I could purchase a £50k flat in Glasgow but I wouldn't. It would be in a dive of an area. What kind of tenants would your £50k BTL attract? Is there sufficient demand for £50k BTL properties or is the market fairly saturated? Have you read any of the other the million and one threads* on the forum from people asking about their plans to get into BTL?

If you couldn't afford to purchase a home and then a BTL further down the line why do you think you can do it the other way around? What's the difference other than spunking your FTB SDLT relief and HTB ISA bonus on the less expensive property?

What other retirement plans have you made?

Why will you assume the role of your mother's career? Do you have experience of being a career?

*This is only a slight exaggeration. It comes up almost daily.

csgohan4

I hope you have thought this through, are you fully aware of all over heads? Void periods, eviction costs, repair costs??


You are aware of the legal and tax implications?

BTL is no longer a money making scheme of old

Here's when it goes wrong:


https://forums.moneysavingexpert.com/discussion/5896992/evicting-tenants-via-court-and-bailiffs

Annie35

I don't think it's a question of how to be a landlord, more how will the finances work to achieve the plan, right?

1 thought is btl mortgages usually need a 40% deposit, so it may not be possible to convert resi-btl without contributing the 40% . That might be anothet cost to factor in.

2nd thought was don't be worrying about looking 'fraudulent', buy a flat in a year or 2 life changes & you can/want to keep it as a btl, well just do it then! It's not wrong

Red-Squirrel_2

toddy111 wrote: »

I'm in Manchester so perhaps prices here are a little lower than where you are? I've spotted a 1 bedroom flat for £50k. Apparently similar flats are being rented for about £395/month. Obviously i'm not going to make a fortune on this but as I said, it's really about the long game. I don't mind losing some money short term. I would also consider a guaranteed rent scheme to avoid voids but need to do some more research in this area...

Put the link up, I'm in Manchester too and I agree with AFF8879. I bet that flat isn't in a great area.

saajan_12

toddy111 wrote: »

I have a hypothetical scenario that I wanted to ask some experts about.

I currently don't own a property and live with my parents. I wanted to know if anyone can forsee any potential issues with the following plan: - so you're planning to be an accidental landlord? I kknow people use the phrase when they chose to be a LL but didn't plan this from the outset, but even that doesn't apply to you.

I buy a 1 bedroom flat for £50,000 and live in it for 1 year or so*.

I then move out of this flat for personal reasons (let's say that I needed to take care of an elderly relative) and back into my parents house, - will you actually be living there at all if youre moving back home so soon? If anyone questioned that e.g. due to claims you make for your ISA, council tax, CGT etc, lots of factors are considered including permanence, electoral role, where you receive post, proximity to work / schools.. and request to switch this mortgage to a BTL mortgage and rent the property out. - they may / may not grant you a BTL mortgage when its the only property you own.

I save up a new deposit and buy a house of my own at around £100,000. I would then continue to rent out the flat that I purchased earlier. - why not just do that now rather than using up your savings to date and starting again. By the time you've saved up enough deposit to support 150k in purchases, the house price may have increased. Also, you won't have first time buyer status to be able to use certain schemes, first time buyer SDLT, and in fact you'll be liable to the extra 3% as its your second property.

*I would be using a Help To Buy ISA to get the bonus for my deposit for the first property and understand that it is a legal requirement to live in this property rather than buy it with a view to renting it out. - if you rent it out as soon as 1 year after purchase, it may look like that was your intention all along.

My thinking behind this is that doing it this way around is likely to be much more affordable than buying myself a house and then trying to afford a rental property later. - why? You'd be wasting your first time buyer status on a cheaper home. Total you're still saving the same amount for deposits for the two properties combined.


Does anyone forsee any issues with this? In particular, could it be an issue to get my own residential mortgage if I have a BTL mortgage? - It could be an issue to get the BTL in the first place if you don't own another property to live in. I would have thought it would have had little impact if the rent is covering the mortgage? This isn't really about instant profit for me, it's more like a retirement plan. I'm happy to lose a bit of money if I own a £50k flat at the end of it!- why is this the best retirement plan compared to a pension / other investments: the flat will be
- demanding (ie with legal responsibilities, repairs etc) -
- unreliable income (eg if tenants stop paying or you have a void)
- potential for high costs (eg boiler breaks, tenant causes damage, 3x deposit penalty if you make a mistake with protection)



** I know that aspects of this plan seem potentially fraudulent. This is hypothetical as I suspect that I might need to take care of my mother at some point in the future and this seemed like a good way to get on the ladder and not be tied down witha huge mortgage straight away.**

Thanks in advance

A BTL property is a form of investment, but not the one I'd choose to fund my retirement as it is demanding and has unreliable income / costs. If you still want to buy a flat, why not do it after you purchase a home to live in. Pros:
1. you can save your money staying at home rather than the extra move, remortgage etc.
2. use help to buy schemes on the more expensive house
3. get first time buyer SDLT benefit on the more expensive house
4. Pay second home 3% extra SDLT on cheaper flat rather than house (ie £1500 rather than £3000).
5. Two mortgage applications (resi for house + BTL for flat) not Three (resi for flat + BTL for flat + resi for house). This will save one set of conveyancing fees, survey fees, application fees etc.

Cakeguts

I am a landlord and we let properties in the Greater Manchester area and I would not consider buying anything costing as little as £50k because the area would be so bad that no one would want to live there. You would never get any decent tenants they would all be the ones who couldn't live anywhere else because they had been evicted from all the decent areas so you could expect to have the flat vacant for a lot of the time and when not vacant being wrecked by the tenant.



To get good tenants who look after your property and who stay there (everytime a property is vacant you lose money) you have to pay a lot more for your property than £50k. I would guess that a £50k flat would be an ex local authority one in a really bad area?