Renting my house out

jamie_128

Hi,

I'm so confused after doing lots of reading so I've turned to here to get some advise from people who have done it. I understand becoming a landlord is less and less profitable these days, but my house is not worth what I am willing to let it go for in this present market (new build development still crawling back value I paid 10 years ago), and I am getting minimal interest even at its current reduced price, the estate as a whole has turned into a rental estate due to location, and my next door neighbour rents theirs out and gets tons of interest very quickly, so I know the market is there.

I want to move this year and it seems renting it out for 10 years or so seems to be the most realistic option at the moment to save me losing thousands of pounds on selling it mega cheap. I know my duty with regards to paying stamp duty for my next property and i am prepared to pay that.


I have a few questions im hoping people can help me with.


1-Lets say my property is valued at 100k by the mortgage lender, i leave 25k in to give me a 75% LTV, when my mortgage is up for renewal and the property price is re-valued at 90k, does this mean i will have to find 10K of my own money to be able to take out another buy-to-let to keep it at a 75%LTV? (My plan is to do interest only as capital repayment would be hard to do financially)

2-As i understand, by 2020, interest payments on your mortgage are no longer tax deductable. I will probably make 3K a year in 'Profit', based on £175 interest only mortage payment (when you add in fee to take out mortgage) and £500 rental income - estate agent fees. How much tax will i have to pay on that 3K? Will i be able to deduct buildings/contents/repairs out of that? (I will still be in a 20% tax bracket)

3-Is there any reasonable insurance that covers you in the case of your tenants not paying and the legal fees to have them evicted etc?

From reading the above I don't even know If its worth it as that profit could be wiped out with repair costs

Any advice?

AdrianC

jamie_128 wrote: »

1-Lets say my property is valued at 100k by the mortgage lender, i leave 25k in to give me a 75% LTV, when my mortgage is up for renewal and the property price is re-valued at 90k, does this mean i will have to find 10K of my own money to be able to take out another buy-to-let to keep it at a 75%LTV? (My plan is to do interest only as capital repayment would be hard to do financially)

75% of £90k is £67,500, so you will need to make sure you have at least £23,500 equity in the property.

2-As i understand, by 2020, interest payments on your mortgage are no longer tax deductable. I will probably make 3K a year in 'Profit', based on £175 interest only mortage payment (when you add in fee to take out mortgage) and £500 rental income - estate agent fees. How much tax will i have to pay on that 3K?

How long is a piece of string?

20% income tax on £3,000 is £600. But don't forget the other things that will bite into your actual income - voids, maintenance, repairs, insurance. Work on £2k-2,500 actually getting to your pocket each year, before tax, so £1,600 to £2,000 after tax.

Will i be able to deduct buildings/contents/repairs out of that?

Yes, of course.

3-Is there any reasonable insurance that covers you in the case of your tenants not paying and the legal fees to have them evicted etc?

Surely it's better to simply pick tenants who won't do that...?

Insurance companies are in business to make money. Their profit comes from the difference between premiums paid in and claims paid out, after paying for all their staff/office/admin/marketing costs. If you think that sounds like a good deal, then you're arguing that you're going to have tenants who are FAR worse than average.

From reading the above I don't even know If its worth it as that profit could be wiped out with repair costs

Now think about how long that income's going to take to just cover the +3% SDLT on your new home.

Crystallise your capital losses, instead of trying to turn them into an unprofitable business.

jamie_128

But you never know if your tenant will become a non paying tenant? You cant predict these things, it works out 40 quid a month for a good insurance.

Is there any point using an estate agent to 'manage' your property monthly? Or are you best just paying them a one off fee to vet a tenant?

As i wont stand to gain much profit would it maybe make more sense to have it as a capital repayment mortgage instead and then at least im working towards paying it off in the future as a future pension etc?

AdrianC

jamie_128 wrote: »

But you never know if your tenant will become a non paying tenant? You cant predict these things, it works out 40 quid a month for a good insurance.

£480/year.

On a property that's likely to see the landlord pocketing £1,600/year.

tom9980

risk/reward

Upside £2.5k (maybe) + House increasing in value over time which given the property is worth the same as 10 years ago suggests its not a desirable property so not that likely.

Downside no rent for 6-10 months (£5k) and tenant trashes the place (£5-10k repairs) + house prices collapse say 20%.

Sounds like a big risk to take to me.

G_M

** Tenancies in Eng/Wales: Guides for landlords and tenants This thread is intended to provide information to both landlords and tenants relating to Assured Shorthold Tenancies (ASTs) in England and Wales.

Topics covered:

* Repairing Obligations: the law, common misconceptions, reporting/enforcing, retaliatory eviction & the new tenant protection (2015)

* Deposits: payment, protection and return

* Ending/renewing an AST: what happens when a fixed term ends? How can a LL or tenant end a tenancy? What is a periodic tenancy?

* Rent increases: when & how can rent be increased?

* Repossession: what if a LL's mortgage lender repossesses the property?

* New landlords (1):advice & information :see links in next post

* New landlords (2): Essential links for further information

* Letting agents: how should a landlord select or sack?

Smodlet

I don't suppose staying put and renting out a room is an option? It might give you a taste of being a LL without much or any of the risk as you would have a lodger rather than a tenant. Of course, you would have to live with them for that to be the case but, if it was not for you, it would be far easier to get them out than it would to evict a tenant.

lookstraightahead

Surely in this current market then you could also buy for less?

jamie_128

if i get tenants insurance this would do away with the risk of tenants not paying or property damage, that would come in at 40 a month, and i just wont go through an estate agent apart from the initial vetting of a tenant, what does an estate agent actually do for the monthly fee?

Another option im considering is to leave 40% of my money in the house for i qualify for a 60% LTV capital repayment mortgage, then i could have my tenants paying off the mortgage and actually have something to show for it in another 17 years?

G_M

jamie_128 wrote: »

if i get tenants insurance this would do away with the risk of tenants not paying or property damage,

read the smallprint. Typically the first 2 months rent are not paid or there is an excess. There's a cap on how long the policy continues to pay. There are conditions on the type of tenant, and tenancy, and on the initial vetting process used.


As for damage- that's what the deposit is for.

muhandis

OP, out if interest, Where did you get this "£40/month" rent insurance premium?

Assuming your tenants pass Openrent's referencing process (£20/tenant) Openrent charges £89/year for insuring rental payments and legal expenses. No excess.

https://www.openrent.co.uk/landlord-rent-guarantee-insurance