Renting out property with mortgage

hazyjo

Surely if you wait until your property increases in price, everything worth more will increase even more :think:


When you do come to sell it, you will have to boot the tenants out before exchange (most will tell you to give them notice and get them out way before then or it's a huge risk for the buyers to get to that point and then find the tenants won't leave). How will you pay the mortgage during that time? With your savings? What if it takes 6 months to get a buyer and then the average 3 months for the sale to complete? Add that into your calculations.


Personally I don't see how the numbers stack up at all. I have bought and sold in recessions and it's usually done me a favour. Trying to sell and buy elsewhere in a rising market can be a nightmare. People risk getting gazumped (which could mean you have sales fall through and it taking even longer), and it's much harder to buy as there's more competition, prices start increasing and there can be bidding wars. Saying that, I can't see it reaching that point in a year, nor can I see prices increasing that much in the next year.

Storkeyj

Yes but we will be saving money as well as paying off the mortgage? The rent we get will pay most/all of our mortgage and interest payments, our salaries will then be put into savings over the next year as we will have no expenses to pay other than perhaps any repairs on the rented property.

When we are ready to buy our next place.. we will allow plenty of time to remove the tenants and then in between having no tenants and selling it we will pay the mortgage as we do now through our salaries and stop saving so much in those few months that it takes to sell?

What I'm trying to get at is / my point of view is why sell it now for a lower price that what we were expecting to give us a big enough cash equity. Even if we sell in a years time for the same price as we could today we would have saved a lot of extra money as not paying the mortgage and Bill's and also the mortgage will be being paid for via the rent?

Cakeguts

What happens if the value of your flat reduces because the flats become less desirable to live in or there are more new ones being built with help to buy?

Storkeyj

Yup! Another thing to put in the mixer! Caught inbetweeners a rock and a hard place! We have got an offer but its 9k less than what we had lowered our expectation too! It was originally 210, sold for 200, then no interest so dropped to 190-200 have now been offered 186... bottom line was 195.. 🤷!♂️ we bought the place 3 years ago for 185! Maybe even time to change estate agents! Allt he comments have been so helpful so thank you to everyone who has commented!

hazyjo

Storkeyj wrote: »

Yup! Another thing to put in the mixer! Caught inbetweeners a rock and a hard place! We have got an offer but its 9k less than what we had lowered our expectation too! It was originally 210, sold for 200, then no interest so dropped to 190-200 have now been offered 186... bottom line was 195.. 🤷!♂️ we bought the place 3 years ago for 185! Maybe even time to change estate agents! Allt he comments have been so helpful so thank you to everyone who has commented!

Are you going back with counter-offers? When people offer, they usually first expect a no, then come back with a second (or even third) offer. What has your EA said about them and their position?

lisyloo

I would be looking to sell ( and As hazyjo says negotiate).

There are some risks with renting.

You can always have issues with any property (owned or rental) and your budget is very tight.
You could experience voids I.e. empty periods with no rent in between tenants.
You could have bad tenants who (for example) don’t pay the rent.
It could be fine and Most of the time it is, but these are risks you should be aware of.

There is also a risk of house prices changing.
No-one knows and I don’t pretend to but the upcoming brexit is a risk to house prices.
On balance the risk is to the downside (which is good for you) but it’s a risk to be out of the market.

steampowered

Storkeyj wrote: »

just wait until the market strengthens

As hazyjo pointed out, if the market did strengthen, that works against you!

For example, let's say house prices increase by 10%. Let's say that today your property is worth £150k and the property you want is worth £300k.

In that example your equity would increase by £15k; but the cost of the property you want increases by £30k !

However - delaying a move so you can save more money so you can afford a bigger deposit does make sense.

Can anyone advise on any of the above and whether after the taxes and fees we would still come out with any money.

After taking into account letting agent fees, mortgage payments and the costs of being a landlord, the property will probably lose money in terms of cash flow.

However, if you take into account the fact that your mortgage payments will pay off some of the principal owed to the bank, you will probably be making a small profit.

Have you taken into account that many lenders increase the interest rate when giving consent to let? If so, your mortgage payments will increase from the £730 you are paying.

Have you taken into account tax? You say your partner is working part time; is there sufficient personal tax allowance left to cover the rent, or would you be paying 20% tax on the rent.

Comms69

Storkeyj wrote: »

Hey,

Just looking for a little advice! So we have been trying to sell our property however the market isnt giving us the money we ideally need so we are thinking of renting it out for min a year, we are moving into my parents and saving money that way, and dont think we should sell for less now and just wait until the market strengthens as we do not need the equity yet as need to save more anyway to buy somewhere bigger and thinking renting it out and paying off mortgage and also saving all of our salaries instead of spending on Bill's then selling once the market is stronger. - Why not just live there?

Now renting seems very confusing! We have had 7 agents visit to give quotes and advise and every agent has advised it will achieve £850 per month. - ok Our mortgage is £730. - currently. you need consent to let, this may be refused. If not you may be forced into a BTL mortgage I'm trying to figure out all the fees and tax to make sure we are not making a mistake! - since you both work, I assume you have no personal allowance to use. Therefore the tax will be 20% minimum. Possibly higher if you earn into the higher brackets All agents have been around the 10% fee for a full management of our property. - sounds about right. Can anyone advise on any of the above and whether after the taxes and fees we would still come out with any money. Well Fees and tax aren't 100%, so I assume you are including your mortgage payment. in which case no, you will be in the negative. Perhaps even just after the 10% fee and the tax and then we know what we have left to pay out for insurances etc

Thank you so much in advance and hope that all makes sense!!

Of course there are lots of other things you will need to pay for. I think this is a bad idea.


If the tenant stops paying rent you are left covering the mortgage, whilst living with your parents.

SmashedAvacado

Question 1 on this thread ought to have been:

Of your mortgage how much is capital repayment and how much is interest. Ie of the £730 you pay each month, are you repaying back capital or are you interest only. Without that basic information, I don't see how you can properly consider whether this is worthwhile.

Cakeguts

Storkeyj wrote: »

Yup! Another thing to put in the mixer! Caught inbetweeners a rock and a hard place! We have got an offer but its 9k less than what we had lowered our expectation too! It was originally 210, sold for 200, then no interest so dropped to 190-200 have now been offered 186... bottom line was 195.. 🤷!♂️ we bought the place 3 years ago for 185! Maybe even time to change estate agents! Allt he comments have been so helpful so thank you to everyone who has commented!

How old was the flat when you bought it? Was it new or nearly new? If so it is probably still dropping in value to meet the value of any other second hand flat in the area.