BTL advice

theguvnor

Hi,

Mentioned to my friend that my fixed rate comes to an end in April. £148k remaining, house worth £230k.

He suggested I increase mortgage to 168k and use the extra £20k along with £20k from him to get a BTL on interest only with him. Could get a 1 bed flat around here for £90k to £120k which would rent for around £650 per month

I know the pitfalls of having no tenant etc and the hassle of running a business but the mortgage repayments would be no more than £150 a month between us.

It would put an extra £100 payment on top of my mortgage each month but I would get more than that back from the BTL,

Am I missing something here?

djphig

In the simplest terms, you're not missing anything.

In more complex terms, there's a LOT to consider, not least having to declare your self-employed earnings to HMRC.

My advice would be speak to a good mortgage broker in the first instance

somethingcorporate

The potential pitfalls of going into business with this friend for very little potential profit buying a single property that may be hard to sell if you need to divest.

theguvnor

xpc wrote: »

To start with there's the 3% stamp duty, fees to purchase the property, income tax, maintenance, service charge and ground rent, and possibly LA fees. Plus all the responsibilities of being a landlord.

The big one for me would be the joint ownership. I personally would only ever do this with a friend in a company with a clear ownership split and plans for the future. What if one needs/wants to sell, gets married (or is married) and subsequently divorced - their 50% could be a matrimonial asset (depending on length of marriage).

I do have BTL property so obviously the additional costs and responsibilities do not put me off, but the joint private ownership would.

EDIT: If doing this through a company there could still be issues regarding ownership and divorce, money issues, etc. But I believe if you have clear plans then it could be more difficult for one party to force a sale - as a director you have to work with the best interests of the company. This would be the main reason I would only do BTL with a friend through a company as in my view it would separate it from 2 friends working together on a BTL to a company that you both have an interest in. In my view that reduces the chances of falling out over the property.

If you are determined to do this and think it is so beneficial, why not release the full amount and go it alone?

Was just seeing peoples opinions. I don't think i'd want to take more money out on the mortgage

Thrugelmir

theguvnor wrote: »

Was just seeing peoples opinions. I don't think i'd want to take more money out on the mortgage

Better to wait until your primary residential mortgage is paid off. Then speculate with what you can afford to lose.

theguvnor

Thrugelmir wrote: »

Better to wait until your primary residential mortgage is paid off. Then speculate with what you can afford to lose.

Thats 25 years off.

I can afford the £100 extra payment on the mortgage and if there was no tenant then i could afford my side of the BTL also.

In my head i'm borring £20k at 2.39% and getting a return of 8%

Unless my maths is all wrong! (it has been known, on plenty of occasions)

ViolaLass

theguvnor wrote: »

Thats 25 years off.

I can afford the £100 extra payment on the mortgage and if there was no tenant then i could afford my side of the BTL also.

In my head i'm borring £20k at 2.39% and getting a return of 8%

Unless my maths is all wrong! (it has been known, on plenty of occasions)

minus expenses, voids, tax...

Thrugelmir

theguvnor wrote: »

Thats 25 years off.

I can afford the £100 extra payment on the mortgage and if there was no tenant then i could afford my side of the BTL also.

In my head i'm borring £20k at 2.39% and getting a return of 8%

Unless my maths is all wrong! (it has been known, on plenty of occasions)

What's your share of the cost of purchasing the BTL property? Arranging the mortgage etc.

What's the interest rate on the BTL mortgage?

At the very least you'll pay 20% tax on the letting profit?

What's your exit route when selling the property? You'll have a void period while the property is empty?


What's the current interest rate on your mortgage? You could pay a £100pm off the mortgage instead. Pay it off years ealier. While putting your feet up.

theguvnor

Thrugelmir wrote: »

What's your share of the cost of purchasing the BTL property? Arranging the mortgage etc.

What's the interest rate on the BTL mortgage?

At the very least you'll pay 20% tax on the letting profit?

What's your exit route when selling the property? You'll have a void period while the property is empty?


What's the current interest rate on your mortgage? You could pay a £100pm off the mortgage instead. Pay it off years ealier. While putting your feet up.

Hi here is my *Very rough* breakdown of costs :

House price £120,000
Stamp duty £3,600
Fees £2,000
Deposit (25%) £30,000
Total Outlay £35,600
Outlay each £17,800
Borrowing £90,000

Rent £600
Agent fee £60
Mortgage payment £200
Insurance £25

Total Left £315
Total Each £157.50
Yearly return (pre tax) £1,890
Return (pre tax) 10.6%
After tax £1,512
After tax 8.5%


My current mortgage rate would be 2.39% for 5 yr fix

Yes I could pay £100 off my mortgage each month but this way I would be earning more than £100.

Again, unless i'm missing something!

Caz3121

theguvnor wrote: »

Rent £600
Agent fee £60
Mortgage payment £200
Insurance £25

you are counting the mortgage payments as a allowable expense which it will not always be (currently 50% allowed)
https://www.moneysupermarket.com/landlord-insurance/buy-to-let-tax-relief/

somethingcorporate

And assuming zero voids, zero maintenance costs, rent paid every month. How do you protect yourself against the realities of being a landlord?