First time landlord advice

Moneygrabber89

I was wondering if I could have some advice from others on here about becoming a first time landlord.

I have recently sold my house and downsizing due to a breakup. I stand to come out with £20k after paying deposit on new house.

I was wondering if this would be worth investing in another property. (I live in Durham so house prices are relatively low for just on outskirts in good rental areas)

I would be looking at doing this on an interest only mortgage. Is there a way to put down less than 20% deposit? If I were to put down 20% it would be approx. 15K and rent would be approx. 450pm and mortgage repayment interested only approx. £60

This would initially leave me 5K rainy day fund.

Any advice would be great.

saajan_12

Moneygrabber89 wrote: »

I was wondering if I could have some advice from others on here about becoming a first time landlord.

I have recently sold my house and downsizing due to a breakup. I stand to come out with £20k after paying deposit on new house.- have you thought about fees (solicitors, mortgage application, surveys, EA, removals, etc?

I was wondering if this would be worth investing in another property. (I live in Durham so house prices are relatively low for just on outskirts in good rental areas)

I would be looking at doing this on an interest only mortgage. Is there a way to put down less than 20% deposit? - typically BTLs need 25% deposit. Speak to a broker if you need something specialist, but you won't have much choice / interest could be high due to the limited choice you have. If I were to put down 20% it would be approx. 15K and rent would be approx. 450pm - thats a 7.2% gross rental yield - are you sure that's correct? Note you'll have to take off repairs costs, advertising costs, GSC fees etcand mortgage repayment interested only approx. £60 - that's 1.2% interest - are you sure for a high 80% LTV, BTL mortgage (usually higher than residential)? Doubt that would include application fees so 1-2k for that.

This would initially leave me 5K rainy day fund. - would quickly be eaten up by solicitors fees, EA fees, mortgage applications, surveys, etc

Any advice would be great.

Your figures seem optimistic, so I'd check those. Don't forget day 1 costs which will quickly eat up your 'spare' £5k. I expect you'll also struggle to get a <25% deposit BTL mortgage at such a low rate.

In your place I'd save up a bit more to increase the deposit and have a rainy day fund AFTER fees. Also use that time to check your yields - sounds pretty good with the leveraging up.

steampowered

£20k is nowhere near enough to start investing in property, particularly as you are going through a major change in your life circumstances.

Doing this would mean taking an enormous risk of bankruptcy if there were problems with the tenants or interest rates go up, not worth taking given you probably wouldn't be making much money on the property at all. You'd have hardly anything set aside for contingencies and your residential property sounds like it is already fully leveraged.

You'll be much better off saving that £20k. You can invest it into a stocks & shares ISA if you want to get a better return than available from bank accounts - stocks & shares have risk attached but much less risk than the plan you are describing.

I would wait until your financial position is more stable before rushing into BTL.

Moneygrabber89

Oh man!

That's such a shame as I didn't think id become bankrupt as would be making easy £300 a month as long as somebody occupying

Slithery

I'll add the usual comment...

Don't even think about becoming a landlord until you've read the following thread and all of the links it contains.

Only after this will you be ready to start planning your new business.

Tenancies in Eng/Wales: Guides for landlords and tenants

need_an_answer

Moneygrabber89 wrote: »

Oh man!

That's such a shame as I didn't think id become bankrupt as would be making easy £300 a month as long as somebody occupying

And in the months that someone is not in occupation,how much will it cost you?

Moneygrabber89

about 60 a month + 80 council tax which isn't too bad is it.

I know some people who have rented like 10 years so hit lucky on that then £££££

need_an_answer

Are you self managing or using an agent?

and will the property be leasehold or freehold?

Moneygrabber89

self-managing mate and would be freehold.

properties in this area only approx 60k for 2 bedroom and checked average rent approx 450 for 2 bedroom

interest only mortgage would only equal approx £60 a month

steampowered

Moneygrabber89 wrote: »

Oh man!

That's such a shame as I didn't think id become bankrupt as would be making easy £300 a month as long as somebody occupying

Your sums do not account for letting agent fees, cost of fixing things in the house, void periods or the tax you'll pay.

Also, you haven't accounted for interest rate rises, which are very likely in the near future. The longest fix I can find on a BTL mortgage for a £60k mortgage on a £80k property is a 6 year fix, for that you'd pay £140 a month on an interest only basis. Shorter fixes are about £80 a month but that's likely to go up when interest rates do.

What I would be worried about is a situation where interest rates rise - meaning you are paying more on your residential mortgage and more on your BTL mortgage, but not getting any more rent.

If you compound that with a situation where you lose your job or the tenant stops paying rent. If you do not have other savings to draw on, you could easily find yourself in a situation where the money runs out.

A lot of landlords who took on as much debt as possible ended up in that situation in the last recession and lost everything.

I'd just be careful. BTL is fine if you do your sums properly, but if you are going to be taking yourself up to your eyeballs in mortgage debt, you need to understand the risk you are taking - and either reduce your mortgage debt levels or put a decent amount of money aside.

need_an_answer

And you have experience of self managing as a Landlord?