Are we mad!! Mortgage free or buy to let??

AnotherJoe

Wizimum you say you've done the financial analysis. But I think you've only done half, the BTL half, and even then when its come up negative, you decided to go ahead purely on the basis of hope "property prices will rise and rents will rise" rather than any actual analysis.
The half you haven't done is the analysis of pension as an alternative, perhaps because of your massive misconception that "pensions pay savings rates" or similar totally off ball misunderstanding.
Did you consider that that £300 you put into subsidisinga tenant (madness) would only cost you £240 or even £180 to put into a pension instead (yes that's right £300 in a pension for best case £180) and that's money in not money out ! One scenario you give away £300 the other you save £300 but it cost less than £300. And you chose the former!!
Added to that is the risk. One house, one bad tenant could wipe out literally years of profits (or in your case even worse losses) . What do you think a Corbyn government would do to rents? Allow you to charge more? Make the tax treatment for LL's easier?
I've seen others here with similar plans of using BTL instead of a pension but at least theirs had the upside of making some profit to start with.
To steal a phrase from elsewhere this is the worst idea since some Trojans said "hey look at that lovely horse let's bring it inside"

need_an_answer

OK so I'm back today having had a night to sleep on this one...

The bit the another Joe refers to about "rent rises and property prices increasing is what I've been mulling over" and I'm not sure that you have done enough research into the BTL aspect of this.


So you've put in your offer on what I assume to be a leasehold property. Have you had the management pack that details service charges for the complex or building?

Present service charges are what?

How much have they increased in the past 5 years?


Is there a forward budget plan for the next 5 -10 years that covers projected maintenance of communal areas?


Those could be vey good questions to get answers to before you commit yourself to this long term.

You will also need to make sure that the property you are purchasing can be sublet,I have seen many complexes that insist on no subletting or quite hefty charges for consent to let...There are some large management companies that I wont name but insist on £120 for every tenant change or a global 5 year licence costing £500. these charges would be payable on top of your monthly service charges

I mentioned earlier that I'm a LL and have several leasehold properties and whilst they were by no means "mistake purchases" there is always the doubt that we could have ploughed our money into a collection of fewer freehold rather than leasehold where you have little control over whats charged back to you

Why?....well yes you can increase rent payments annually as a LL although whether that is good practice to squeeze every penny from your tenant is debatable,we tend to review rents every 2 years and increase not always to full market rent but a good tenant is far better than change in tenant and a void.

What does however go up annually is the service charges on the properties and there are times where the service charge over time actually negates any rent rise.

I looked at a couple of the properties we have and on a freehold one where we have no service charges we have increased the rent steadily over the past 6 years by £50 a month through various tenancies over that period.
On one of the leaseholds that we have owned for a similar time frame the rent has increased by £80 per month in that time but the management service charges have also increased very much in line with that...by £60 so to be reliant on a rent increase isn't always that practical when forecasting

Basically rent increases don't give you more money,the reality of it is that they get used to generally upgrade properties and usually end up in the sink fund for voids and unexpected bills for upkeep.

I agree that by holding the property over time the equity increases in it but the reality of that is it only increases on paper and will only come to fruition when either your family home or the rental are sold...none of us know what the future holds and even myself at the moment can say I have £x of equity but its just a number that could very easily dip if the point we need to sell coincides with a dip in the market overall that wipes 30% off of property prices!


I am a great advocate of BTL but I also believe that its extremely difficult when you only have one property,you do need a couple that will help piggy back eachother in times when the income is nil but the outgoings remain constant!


If you start with negative income coming in to the tune of £300 per month I think its going to b very difficult to come back from that and in a few years time you may end up resenting your decision to take this route.

Even a 5 year fixed mortgage deal can lead you into a false sense of security . Absolutely the right thing to be doing and fixing a rate but without knowing how the interest market will change and its likely to go up as rates are low at the moment if you don't also make capital repayments on the mortgage separately its likely to be that when the fixed rate expires the payments will be even more than they are now and suddenly your £300 that you subsidise becomes £500 per month just to pay the mortgage.

Its interesting that your other thread has picked up straight away that anything you go into that generates a loss of £300 per month is always going to put a strain on things going forward.


lookingstraightahead touches on a subject in their post which might become relevant in the future to you...your children...

If they want to go to university and you were perhaps in a position to help them with their living costs for example wouldn't it be better to be subsidising them £300 per month rather than an unknown tenant who rents your property...I know who I'd be supporting given that scenario.
Lots for you to consider....

capital0ne

You're mad - BTL isn't as lucrative as it was, rules and regs are tough now, do you actually know what you have to do? You don't just get tenants, give them a tenancy agreement and keys ans then sit back.

You're both working so what do you do when the tenant calls to say the boiler has sprung a leak and the house has flooded? Or the roof is leaking? Or when they stop paying rent?

All tough things to deal with and time consuming.

Then if you get them out and the place is trashed - well good luck with that, it's up to you to repair, renovate before the new tenants can move in.

So you'll be getting say £800/month rent - less you £300 expenses, less £160 tax (20% of £800) less agent fees £80 (10% of £800), / So your monthly take from the tenants is not £800 but £560, or about £160/week then factor in some un-tenanted time of say 5% £40/month and you're down to £120/wk income. If you're okay with that go for it and let us all know how it goes.

Now I picked a different route, a nice balanced portfolio of shares, worth £700k, paying a nice tax free income of £30k on top of my occupational pension and state pension.

need_an_answer

capital0ne wrote: »

So you'll be getting say £800/month rent - less you £300 expenses, less £160 tax (20% of £800) less agent fees £80 (10% of £800), / So your monthly take from the tenants is not £800 but £560, or about £160/week then factor in some un-tenanted time of say 5% £40/month and you're down to £120/wk income. If you're okay with that go for it and let us all know how it goes.

The OP hasn't given the projected rental payment but has said that at the point of setting all this up and getting a tenant in they as LL's will be paying £300 of their own money each month to support the venture

so income is negative

capital0ne

need_an_answer wrote: »

The OP hasn't given the projected rental payment but has said that at the point of setting all this up and getting a tenant in they as LL's will be paying £300 of their own money each month to support the venture

so income is negative

Good point - I forgot to take off £300 so here are the new figures

So you'll be getting say £800/month rent:
The sums are this £800 - £300 - £160 - £80 - £40 = £220/month or £55/week

Load of hassle for £8 income/day if you ask me.

(less your £300 expenses, less £160 tax (20% of £800) less agent fees £80 (10% of £800), / So your monthly take from the tenants is not £800 but £560, or about £160/week then factor in some un-tenanted time of say 5% £40/month and you're down to £120/wk income. If you're okay with that go for it and let us all know how it goes)

Slithery

Another vote for 'madness' from me too. Take full advantage of the tax benefits that paying into a pension will give you before considering any other form of investment.

AnotherJoe

capital0ne wrote: »

Good point - I forgot to take off £300 so here are the new figures

So you'll be getting say £800/month rent:
The sums are this £800 - £300 - £160 - £80 - £40 = £220/month or £55/week

Load of hassle for £8 income/day if you ask me.

(less your £300 expenses, less £160 tax (20% of £800) less agent fees £80 (10% of £800), / So your monthly take from the tenants is not £800 but £560, or about £160/week then factor in some un-tenanted time of say 5% £40/month and you're down to £120/wk income. If you're okay with that go for it and let us all know how it goes)

You've still missed it (not surprising since its barking) after doing sums along the lines of yours they are losing £300/month ! It's not £300 of expenses, it's net position of being £300 in the red.

Gav75

Another vote for 'Mad' here.


I'm a similar age, and have just had a fairly large windfall. Talked wistfully with my partner about buying a flat and renting blah blah blah, and whichever way we look at it, just paying off our mortgage and increasing my pension is by far the best thing to do.


Way less stress, way less worry, way more security, way more disposable income.


Having rented out property when I was younger, if you haven't done it before, it's like having a second job. Possible bad tenants, damage, tax, disputes, boiler breaking when your halfway through two weeks in Mexico.........you name it, it can be serious hassle.


Is there a chance you could make a profit in the end? Maybe. Is the possibility of a meagre profit worth the stress and financial instability compared to just paying your mortgage off and securing your retirement? No.

capital0ne

AnotherJoe wrote: »

You've still missed it (not surprising since its barking) after doing sums along the lines of yours they are losing £300/month ! It's not £300 of expenses, it's net position of being £300 in the red.

I read it incorrectly, how I don't know, I guess I couldn't believe anyone would pay £300/month to have someone live in thir hous/flat - madness which ever way you look at it

Larac

Personally I would clear the credit card debt and invest the rest of the money across different investment platforms. I have three children - 2/3 went to University and the thresholds for when you start contributing are really low. Not wishing to be critical - and I had a DMP - but if you have a £20K CC debt - it suggests you are spending beyond your means. Highly recommend you address this - as my SIL said - when the government 'assess' your income for parental contributions for SL they don't take into consideration what you are paying out!.