Advice on BTL / moving out

bored_of_debt

At the moment i'm trying hard to clear my debt, I'm 22 and wanna move out of my parents home.

I've had an idea... hear me out...

I was thinking of buying a property as a BTL so that i'm on 'the ladder' but at the same time move in with my cousin paying about £350 a month rent to him.

That way i'd have a property and someone paying the mortgage for me so i don't get left behind before it becomes imposible to get on the ladder, and I could move out for less than paying a mortgage until I wanted to have a place on my own or with the g/f.

I know there's loads to consider like the current market and whats gonna happen but this would be in approx a year so it's not too relevant right now, just wanted some opionions on the idea generaly...?

Thanks in advance!

epz_2

apart from btl being a really bad idea at the moment you will need substantial deposit 25-30% assuming there is any bank daft enough to give you the cash, you would be best paying off the debt and watching with glee as many of the btl'ers who watched the tv and thought it was easy money get spanked.

pinkshoes

I guess it depends what region you're planning to BTL in! Ideally, you should make sure the rental income is at least 130% of the interest on the mortgage you take out. (i.e. if mortgage interest is £1000, make sure rent is at least £1300).

Do some research on rents in the area, how many rental properties are empty (calculate based on occupation of 10 months a year)

On the other hand, given your debt of £12.6k (!), this might not help you get a mortgage, as you could end up with a very high interest rate (or no one will lend), making the whole thing a financial no-no!!

If you're living rent free or cheaply at home, then you should take advantage of that and pay off your debt first, and then save a sizable deposit.

A £12.6k debt at age 22 doesn't look good!!

bored_of_debt

epz wrote: »

apart from btl being a really bad idea at the moment you will need substantial deposit 25-30% assuming there is any bank daft enough to give you the cash, you would be best paying off the debt and watching with glee as many of the btl'ers who watched the tv and thought it was easy money get spanked.

So would I be better payin my debt of and just sticking my money in a good savings account?

I'm really not too bothered about buying my own place and i'd be happy just renting at my cousins cos it's cheap aswell but always thought that buying was much better than renting?

Thanks, and sorry if i'm asking stupid question that may have been asked before.

pinkshoes

bored_of_debt wrote: »

but always thought that buying was much better than renting?

If the interest on mortgage is (a fair bit) less than what you would be paying in rent, and you intend to stay in the property a few years, then buying is often a better option, but this usually involves a large deposit, so not a suitable option for those in debt.

epz_2

bored_of_debt wrote: »

So would I be better payin my debt of and just sticking my money in a good savings account?

I'm really not too bothered about buying my own place and i'd be happy just renting at my cousins cos it's cheap aswell but always thought that buying was much better than renting?

Thanks, and sorry if i'm asking stupid question that may have been asked before.

yep, think about it, say your debts are about 7% (which is pretty optomistic) then 12k is costing you about £840 a year and also limiting your borrowing capacity and options.

there are always exceptions but my rule of thumb is to pay off all debt, build a emergency nest egg (say 5k) of funds i can access fast if i get the sack etc (though i have a habit of blowing it on cars) and then think about investments.

if you dont have any debts then you are pretty much a free agent and can leave the country, quit you job or just do what the hell you feel like.

by the time you have paid your debts and built a nestegg the housing bubble will be over and you can keep an eye out for the next bubble to make cash out of, im only 28 and already remember the bioscience, dot-bomb and shortly housing bubbles poping so a new one will be along shortly probably something to do with power or food.

epz_2

pinkshoes wrote: »

If the interest on mortgage is (a fair bit) less than what you would be paying in rent, and you intend to stay in the property a few years, then buying is often a better option, but this usually involves a large deposit, so not a suitable option for those in debt.

good point, the interest part of a mortgage is basicly the same as rent except its from the bank and they will expect you to look after the place and chase you down for the money even after they reposess.

motch

looks like you're doing really well in reducing your debts. I'd personally keep on this path for now. BTL at this moment in time to me would be about the worst financial decision anyone could possibly make.

Pez2

Keep it simple and stick to renting.

Even asuming you could find someone to lend you a 100% mortgage, you'd almost certainly be paying a high rate of interest, so the monthly payment on an interest-only mortagage probably won't be much less than what you're getting in rent, and on top of that you've got to pay buildings insurance, repairs, etc. Any periods without a tenant you'd be haemorraghing cash and pretty quickly get back to being 20k in debt and potentialy a lot more. And even if you did manage to keep if fully let, you'd only be paying interest on the mortgage, so you still would'nt own any equity in the property.

As I say, keep it simple, keep plugging away at the debt repayments, and when you're debt-free then start saving for a deposit on a place of your own.

bored_of_debt

Thanks for the responses people, I forgot to mention that I'm not planning to move out until i've repaid my debt in full and your right being 22 and having had so much debt doesn't look good!!

Although on a positive note i've never defaulted or missed a payment and i've finally learned to value money!!

I think the plan should be then,

1, pay off my debt
2, save an emergency fund
3, move in to my cousins if I still want out of the family home
4, stack the cash and study whats going on in the world looking for the next big investment craze.

Think thats right, just people always say that you should get on the property ladder asap lol

Pez2

No, it should read:

1, pay off my debt
2, save an emergency fund
3, move in to my cousins if I still want out of the family home
4, stack the cash
5, work hard
6, stack more cash
7, undergo training to get a promotion/better job
8, stack even more cash
9, keep repeating above
10, stay away from 'investment crazes' and other get rich quick schemes