Need bigger house, keep existing and rent out or sell?

Homersimpson

Hi,

We need to buy a bigger house due to an expanding family.

Our current house is a 2 bed bungalow, morgage free in good condition, current value around 250K.

We are looking at around 300K for a larger house.

We have around 100K available as cash to use for a bigger house (leaving us with some cash in reserve)

We therefore have two choices, sell our current house, buy a bigger one and continue to live mortgage free or keep our current house, rent it out and take out a mortgage on a new house.

Over the time the rent for our existing house will pay most of the morgage on the new house so the question is whether this is a good idea?

We would use an agent to manage the property and then there would of course be tax to pay on the income.

Would a BTL mortgage on our current house be better, can we offset any of the tax on the income against this.

I'm just look at this as a high level idea at the moment to see if its feasible.

I appreciate the yield on the existing house isn't great but I want to keep hold of it if I can.

tom9980

2 bed bungalows generally not the best type of property to let but this does vary depending on area.

You realise you have to pay extra stamp duty? That's pretty much a years rent alone.

Using an agent significantly reduces profit and soon as tenant fee bans come into force they will have to charge more for their services. Ultimately you will be legally responsible for their mistakes!

You don't need a Btl mortgage to offset tax it can be your main home mortgage in certain circumstances. There are new rules for tax deductions on landlords than significantly affect higher rate tax payers and those who are close to being one.

Given how much housing pressure has been building landlords are highly likely to see more legislation targeting them in the near future. It will be a top issue at the next election after brexit.

My vote is no to btl investment and has been since late 2015.

Homersimpson

tom9980 wrote: »

2 bed bungalows generally not the best type of property to let but this does vary depending on area.

You realise you have to pay extra stamp duty? That's pretty much a years rent alone.

Using an agent significantly reduces profit and soon as tenant fee bans come into force they will have to charge more for their services. Ultimately you will be legally responsible for their mistakes!

You don't need a Btl mortgage to offset tax it can be your main home mortgage in certain circumstances. There are new rules for tax deductions on landlords than significantly affect higher rate tax payers and those who are close to being one.

Given how much housing pressure has been building landlords are highly likely to see more legislation targeting them in the near future. It will be a top issue at the next election after brexit.

My vote is no to btl investment and has been since late 2015.

Thanks for the response, in particular I wasn't aware of the extra stamp duty.

I guess what I want go do is review my options and make the best decision.i can and not look back and regret it. if my decision were wrong at least I know I did my research and did what was best at the time.

AnotherJoe

Homersimpson wrote: »

Thanks for the response, in particular I wasn't aware of the extra stamp duty.

I guess what I want go do is review my options and make the best decision.i can and not look back and regret it. if my decision were wrong at least I know I did my research and did what was best at the time.

You probably then aren't also aware of the new tax treatment, the new legal restrictions.
Have you compared the financial outcome if you sold it and put the equity into your new house? You'd have much less mortgage to pay so that's a big tax free difference, you'd have a much better LTV so a lower mortgage rate, again a tax free saving. You'd also have zero risk of bad tenants, no voids, no redecorating / refurbishment costs, (more tax free savings) .

Socajam

Homersimpson wrote: »

Hi,

We need to buy a bigger house due to an expanding family.

Our current house is a 2 bed bungalow, morgage free in good condition, current value around 250K.

We are looking at around 300K for a larger house.

We have around 100K available as cash to use for a bigger house (leaving us with some cash in reserve)

We therefore have two choices, sell our current house, buy a bigger one and continue to live mortgage free or keep our current house, rent it out and take out a mortgage on a new house.

Over the time the rent for our existing house will pay most of the morgage on the new house so the question is whether this is a good idea?

We would use an agent to manage the property and then there would of course be tax to pay on the income.

Would a BTL mortgage on our current house be better, can we offset any of the tax on the income against this.

I'm just look at this as a high level idea at the moment to see if its feasible.

I appreciate the yield on the existing house isn't great but I want to keep hold of it if I can.

Me personally, I would not sell the first house, rent it out and use the rent towards the mortgage for the second house.
If further down the road something were to happen, at least you would have a property mortgage free.
My property is rented out with an agent and have been since 1989 - I have only had one bad tenant who did not pay for a couple of months.
Of course agent fees have to be paid, by you get 10 months of rent from the property.
This is something you will have to sit down and seriously consider.

Gwendo40

If you're not even aware of the additional SDLT, then there's a whole lot more legislation, obligations and costs that you're also probably completely unaware of with regards to being a landlord.

vw100

Consider, voids, landlord insurance, gas safety certs, bad tenants, repairs, maintenance, council tax when property is empty, income tax, refurbishment costs, other regulations that are coming such as energy efficiency of the building.

foxy-stoat

Just sell it and buy yourself a bigger house. I do not think you should become a landlord.

Cakeguts

2 bed houses are not really what people want to rent. If they want 2 bed they tend to go for a flat. What is wanted in houses is 3 beds plus. Really the sort of house you are wanting to move to not the one you are moving from.

csgohan4

BTL are no longer a cashcow and indeed are a headache


https://forums.moneysavingexpert.com/discussion/5983050/taking-tenant-to-small-claims-court


https://forums.moneysavingexpert.com/discussion/5956212/need-advice-after-evicted-a-tenant


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


Are you going to be around when you need to take them to a small claims court?


how about if the Agent fails to protect their deposit or upkeep the property, it will still be your responsibility not theirs as the LL

AndyTails

Here's a good way to look at it: Pretend you've sold the bungalow and bought your new bigger house, mortgage free. Do you now want to buy a property and become a landlord, with all the responsibilities that comes with? If so, then is a 2 bed bungalow what the rental market in your area is looking for? (If you don't know, look on rightmove for rentals in your area and talk to local letting agents). Unless the answer to both these questions is Yes, then you shouldn't be considering keeping the bungalow as a rental. (There's the small matter of saving on buying & selling fees by keeping an existing property for rental rather than buying a new one, but I doubt that would be significant.)

Homersimpson wrote: »

I appreciate the yield on the existing house isn't great but I want to keep hold of it if I can.

Why do you want to keep hold of it? Do you want to get into being a landlord, and see keeping an existing property as easier than working out what rental property you should buy and buying it? Or do you have a sentimental attachment to the bungalow? If you do - don't rent it! Your tenants will destroy it (or at least from your point of view they will have done). True, if you sell it the new owner might destroy it too, but at least it won't be your property that you go and see on a regular basis.