Best way to raise money for improvements to second home

Kistelek

I recently inherited a bungalow which we intend to move to once the kids leave school in a few years. In the interim we intend to rent it out but we'd like to do some major works to it (additional bedroom, extended dining room, move kitchen, new garage). I was left enough money to get the architect and planning work done and initial discussion with the architect don't foresee any major issues there but will need to borrow more to complete the works.

We own our current home with mortgage for about half it's value and we both work full time. We're both 55 which I presume will have some bearing on how long we can borrow over. What is the most cost effective option for raising in the region of £50k to complete the works on the bungalow given 1) I don't really want to shell out a vast monthly payment and 2) We can use some of the equity in our current home when we move to settle up all debts.

What I mean by point 1 is I'd rather take something out on an extended term and settle early rather than live in penury until we move.

Mojisola

Kistelek wrote: »

I recently inherited a bungalow which we intend to move to once the kids leave school in a few years. In the interim we intend to rent it out but we'd like to do some major works to it

What if you spend £50k on improvements and then get in tenants who don't look after the property?

Could the property be rented out as it is now - or after basic decorating?

Stash the rental income away and you'll build up a lump sum to put towards the renovations. Do them just before you want to move.

eddddy

I guess the 2 main options are:

- remortgage you current home, borrowing an extra £50k.
- get a BTL mortgage on the bungalow for £50k

It's very unlikely that you'll get cheaper and/or more flexible borrowing any other way.

But obviously, the lenders will look at your ability to repay and "loan-to-value" of the properties.

need_an_answer

how long is it before you want to move in?

I would be tempted if possible to renovate with a view to you being in situ rather than tenants and flip it so that your property is the one that is sold.

Do you have experience in being a LL and are the 2 properties close enough for you to manage without the help of a letting agent?

I may have been in a similar position when I started out as a LL...I inherited a property that needed extensive renovation circa 40k which we borrowed on our current home. although time frame wise we were probably 15 years in age ahead of where you are now,which is why I asked the q regarding when you might want to move to the bungalow...if its within a 5 year frame I would go now and forget the renting!

The plan was never to move to the inherited property so that's where we differ although whilst I enjoy being a LL its never a good idea to think you will make lots of money from it or indeed even try to plan to move back into a rental after tenants.


you need to research the market in your area for what rents well...bungalows are sometimes tricky The rental market is not like the sales market so you really do need to have a very clear timeframe of how you plan to renovate and exactly how long you need to rent for before you want to move in.


You could get really good tenants or you could end up with swaps every year or even a set that don't want to move out when you want to move in.....

Kistelek

Mojisola wrote: »

What if you spend £50k on improvements and then get in tenants who don't look after the property?

Could the property be rented out as it is now - or after basic decorating?

Stash the rental income away and you'll build up a lump sum to put towards the renovations. Do them just before you want to move.

Building work doesn't get cheaper over time and landlord insurance is there to fix it if it goes pear shaped. There is also a quite specific demand in the area the bungalow is in for, for want of a better phrase, executive short term unfurnished lets.

need_an_answer

Kistelek wrote: »

Building work doesn't get cheaper over time and landlord insurance is there to fix it if it goes pear shaped. There is also a quite specific demand in the area the bungalow is in for, for want of a better phrase, executive short term unfurnished lets.

Short term lets is an interesting one.

Through an agent?
If so you'll be paying a lot for management fees and set ups.

Typically I have tenant only with an agent who charges half the first months rent as a finders fee ….that could work out quite a lot if you need to repeat it every 6 months.

Kistelek

The two properties are a 2.5 hour drive apart on a good day. We have two teenage boys (13 and 15) and the schools at that end aren't worth disrupting GCSEs for, hence the delay in moving.

This house is worth about £200k and owes about £100k. The bungalow was valued at £260k for probate. With a little work, £300k and with the work we're planning, nearer £400k so LTV using either property isn't an issue. The improvement in value also has to be considered in terms of capiital gains. I can sell this one and move free of CGT as it's our primary residence. As I said above, there's a somewhat unusual demand for reputable short term unfurnished lets managed by a government agency so we're unlikely to find the radiators and wiring pinched.

So, it comes down to borrowing against the bungalow or borrowing against this house and which is likely to be the most cost effective.

need_an_answer

So you would need to go fully managed with a commute of 2.5 hours

Have you spoken to agents about their charges?


What are they typically quoting you for rental income and then deductions?


"managed by a government agency" umm so you have no control over the quality of the tenant,you simply rent to a third party who chooses whom to house there.


Read the contract you sign with them very carefully,they often hook in much longer than you would like and if maintenance needs doing on the property they are not obliged to consult you over the finish or specification.

Kistelek

need_an_answer wrote: »

"managed by a government agency" umm so you have no control over the quality of the tenant,you simply rent to a third party who chooses whom to house there.

Think medium/high ranking military jumping out of helicopters, not needy homeless. Local tree surgeon who has cleared some trees recommended them after renting out his grandad's house.

But obviously the devil's in the detail and I would read any contract inside out.

eddddy

Kistelek wrote: »

There is also a quite specific demand in the area the bungalow is in for, for want of a better phrase, executive short term unfurnished lets.

Kistelek wrote: »

So, it comes down to borrowing against the bungalow or borrowing against this house and which is likely to be the most cost effective.

Not sure what you mean by "executive short term unfurnished lets", but standard BTL mortgages will often require that the property is only let on an AST (Assured Shorthold Tenancy).

If you want more flexibility about how you let the bungalow (e.g. AirBnB, holiday lets etc), it might be better to remortgage your main home and leave the bungalow unmortgaged.

(But you'd still need to consider planning consents, insurance etc for the bunglaow)

need_an_answer

Kistelek wrote: »

Think medium/high ranking military jumping out of helicopters, not needy homeless. Local tree surgeon who has cleared some trees recommended them after renting out his grandad's house.

But obviously the devil's in the detail and I would read any contract inside out.

So its still a third party who you will rent to and have little control over who lives in your property.

As a LL I wouldn't touch it but wish you well.


As with many things experience is the key and forgive me for thinking you are lacking it at the moment and possibly unwilling to listen to advice.