I'm buying a house. Should I keep and let out my flat?

Chickenlips

I meet a lot of first time landlords through work (insurance claims) and it is not as easy as people expect.

Assume that it is more probable than not that your tenants will not look after your property the way you would and that it will cost you money to sort out. Insurance policies do not pay out for bad tenants or people that live like animals, which can end up costing a lot of money. Most policies will pay out for malicious damage... but it varies from policy to policy: some limit it at an amount that won't cover the loss, or refuse cover for people that are legally on the premises. And, of course, malicious damage is not just someone treating their home badly. Decent cover will cost more - budget for that.

You'll also have to budget for repairs, maintenance between tenancies, and complying with legislation. You'll also need to make sure you're referencing your tenants properly. If you do this poorly, or use a poor managing agent, you could find you now own a cannabis factory (I've been to many after the event!). Again, only some policies cover this.

If you don't like the idea of your property being treated poorly, or are expecting high returns... I would not do it.

Weigh up the costs of everything required (maintenance,
wear and tear, repairs, and all the gas safety testing) and the mortgage versus the rent and see if it is still worth it. It is not an entirely passive income, unless you hire a managing agent (who will eat into your income and may charge an uplift on repairs) - you will need to respond to calls and deal with problems. You may even have an unreasonable tenant or one that stops paying rent.

I find some landlords take it personally when their house is a mess and insurers won't pay. Unfortunately, that's the risk of being in business.

Finally, insurance tends to be more strict for let properties... you are considered a commercial entity and expected to research and understand your obligations as a landlord and what you need for insurance.

Best of luck.

Lisi299

Hi

Lots of pros and cons for keeping the flat, I had the same choice previously when I met my boyfriend now husband and we both had a property each, so decided to sell my house and rent his flat out and got a house together.

This was over 10 years ago it’s still rented now, there’s been ups and downs. We use an agent who vets the occupants. There has been a few dodgys who didn’t pay and had to be evicted however the letting agents sorted it quite quickly but for the most part it’s been ok just stressful. Some work needed between change overs which cost money but as long as you have a pot to cover for repairs etc and unpaid rent in case of problems you should be fine.

I would say do it as long as you are not out of pocket, if it makes you money and has value why sell? But it’s your choice

antilles

I was in a similar situation - moving in with OH - decided to rent my house out. I've got a lot of equity in it and tbh would have no problem paying the mortgage if the tenant stopped paying. Also took out rental insurance which covers me in case the tenant stops paying. I found what I hope are great tenants (credit checks all look great, got great references, they are a local couple who actually live a few streets from me and I had nothing but good feedback on them). Obviously (as someone will no doubt point out shortly) they could burn the house down or smash the place up, but as long as I meet all my legal obligations and have appropriate insurance, I should be OK - hopefully

Obviously there are going to be pros and cons of letting but what made my mind up was that I chatted to a number of landlords who I knew personally and while all of them said it was hard work sometimes, had a moan about tenants, and had lots of ups and downs - not a single one of them said would sell their properties. For me that was enough to convince me it was a good thing to do.

Yes you can buy shares or funds or stuff like that but I have all those and many people prefer the property route.

I'm also am in a similar situation regarding tax brackets - the rental income would push me into 40% tax bracket due to PAYE income - but I believe I can pay additional money into my pension to bring that down.

I think as long as you won't be losing money, you are well organised, use common sense, don't mind dealing with people, and are OK about being a good landlord, and maybe don't mind taking a few calls in the middle of the night and dealing with some cr*p, you should go for it.

If it's any help as well I used Openrent instead of paying an agent - miles cheaper as long as you don't mind doing a lot of the legwork and dealing with prospects yourself. I really enjoyed organising viewings, showing people round, and interviewing them myself which surprised me.

Good luck and let us know how you get on.

Socajam

I agree with Lisi299 and antilles in renting the property out.
Call me cynical and thiss may be shocking to some, but you need to get something in writing that if the marriage were to go South, this property will not be part of the joint estate.
I have lived the life where I had to totally rebuild my life from scratch and it was not easy. Being in love is fine, but when the *hit hits the fan and you are faced with reality, that's another matter altogether.
I have read too many stories on here where women and men have ended up being out on a limb later in life.

getmore4less

andy230uk wrote: »

The flat is now worth £150k-£170k. I have an offset mortgage which is fully offset so I'm paying 0 on the mortagage (0% interest and mortgage repayments are gradually coming off the savings).

I have around £60k in that account which could obviously be withdrawn thereby meaning interest will be payable on the mortgage again.

The rental valuation is £800-£900 per month.

pet peeve this one.

With 100% offset you don't have 0% interest you have £0 borrowing.

Ok got that rant out the way.

£150k-£170k value, £800-£900 rent.

Gross yield 5.6%-7.2% before the extra SDLT which adds to the capital invested

Even with no tax relief you should be able to clear £400 is a month until they stop paying or the repairs start to mount up.

There is also the cash in the offset if that could get you a better rate on the new place by lower LTV depending on the mortgage on the new place that could add to the cashflow depends on the rate of current and new mortgages if that will save anything.

MEM62

foxy-stoat wrote: »

Not for much longer....

Really, how so?

Lokolo

MEM62 wrote: »

Really, how so?

Depends on the tax rate, but interest will eventually only be allowed to be reliefed by 20% (so if you are 40%, you will still pay on the difference).

itwasntme001

Where is the property located? At a minimum it is a 5.6% gross yield which depending on the location looks quite attractive.


I would also consider the following points:


- what are the capital gains on the property? If this is significant enough maybe worth cashing out now assuming don't have to pay any/much capital gains tax? Unless you think the property may appreciate in value enough for the risks and effort you are taking?


- Can you get good tenants in the area you are in? Makes a big difference IMO. So much so that even though yields can be high, i would never buy in a bad location that attracts bad tenants - not worth the hassle. You will find actual/realized yields in such areas to be lower as you factor in voids, non payment of rents, more costs then assumed etc.


- Maybe worth selling the property into a ltd company to reduce income tax given you are in the 40% bracket. May not cost that much if capital gains are low. Alternatively contribute more into pension to bring yourself into lower tax bracket with room for the income from the btl to also be taxed at 20%. But contributing income taxed at 20% may not be worth it or even possible (to maintain living standards).

AdrianC

Work backwards.

1. If you owned the house, and were looking to invest the equivalent cash to the flat equity, would you want to do so by starting a residential letting business?

2. If you decided you did, would THAT be the property you would choose?

itwasntme001

AdrianC wrote: »

Work backwards.

1. If you owned the house, and were looking to invest the equivalent cash to the flat equity, would you want to do so by starting a residential letting business?

2. If you decided you did, would THAT be the property you would choose?

This would also need to consider the taxes, transaction costs etc that were paid and that will have to be paid if he decided to sell the flat.