Buy a property to rent out or not

greatcrested

Mumoffourkids said:

greatcrested said:

I second the advice to invest - somewhere where your money is not tied up (unit trusts/ISA unit trusts can be sold instantly. Property cannot).

You also avoid all the risks of letting (eg tenant from hell - you've seen them on TV and read about them here!), though granted investing has risks too, though the current downvalue in the market makes it a good time to buy!

And you avoid the work, time and stress.

And later (how old are you?), as more of your kids leave home, you'll be able to consider buying a smaller property for your old age......

Thank you for your advice. Unfortunately I’m already 42, and with the youngest two children being only 3 and 5, I’m going to have to wait a long while for those two to move out, by which time it might be too late for me to buy a property. But I do understand your advice about investing elsewhere. I will research some more.

I did not suggest waiting till all your kids leave home - just enough of them to allow you to downsize...

42 is a good age to invest. It leaves long enough (10+ years) for your investment to grow while leaving flexibility over your choice of time when to sell eg when the market is high.

Another option is maxing out your pension contributions. A very tax efficient way to plan ahead as the government thows in 25% (I think!).

Mumoffourkids

Lover_of_Lycra said:

• How much money do you have to put down as a deposit?  
• How much are you looking to spend on this rental property?
• How much can you let this type of property for?
• Who is your target tenant?
• What rental yield do you expect to make?
• How will you manage the property from a distance?
• Will owning a BTL have an impact on any benefits you claim such as tax credits?

If you owning your own home is a priority for you have you looked into shared ownership or casting your net wider and moving to a less expensive part of the country?  Like the others on this thread I'm not sure that renting your home whilst owning a BTL elsewhere is going to give you the desired outcome.

Thank you for your reply. These are all very good questions to think about and if I did go down the BTL route, I would thoroughly research these.

I have looked at the shared ownership route, unfortunately the area I live in, there a) aren’t many properties with 4 bedrooms for sale and b) I wouldn’t get approved because I don’t earn enough for the calculations they do for a property big enough. I have looked into this as I have owned a shared ownership property before and I would be happy to own again. I guess if I was earning more then this would be an option.

I do not wish to move again, my kids have already moved from France back to England and are settled in this area so moving to a less expensive area is not an option at the moment.

I think I will be researching a lot more and looking into other investments and upping my income to try and get a shared ownership property.

[Deleted User]

Mumoffourkids said:

Lover_of_Lycra said:

• How much money do you have to put down as a deposit?  
• How much are you looking to spend on this rental property?
• How much can you let this type of property for?
• Who is your target tenant?
• What rental yield do you expect to make?
• How will you manage the property from a distance?
• Will owning a BTL have an impact on any benefits you claim such as tax credits?

If you owning your own home is a priority for you have you looked into shared ownership or casting your net wider and moving to a less expensive part of the country?  Like the others on this thread I'm not sure that renting your home whilst owning a BTL elsewhere is going to give you the desired outcome.

Thank you for your reply. These are all very good questions to think about and if I did go down the BTL route, I would thoroughly research these.

I have looked at the shared ownership route, unfortunately the area I live in, there a) aren’t many properties with 4 bedrooms for sale and b) I wouldn’t get approved because I don’t earn enough for the calculations they do for a property big enough. I have looked into this as I have owned a shared ownership property before and I would be happy to own again. I guess if I was earning more then this would be an option.

I do not wish to move again, my kids have already moved from France back to England and are settled in this area so moving to a less expensive area is not an option at the moment.

I think I will be researching a lot more and looking into other investments and upping my income to try and get a shared ownership property.

I don't know if or which benefits you might be claiming, you might not be claiming anything at all, but if you are be aware of what impact your savings have on your eligibility.  For example, if you are on Universal Credit, your entitlement starts to taper once you have 6,000 in savings and once you reach 16,000 you are entitled to nothing.

https://www.moneyadviceservice.org.uk/en/articles/how-do-savings-and-lump-sum-pay-outs-affect-benefits#which-benefits-are-affected-by-savings

It's a shame that shared ownership isn't a suitable option.

AdrianC

Mumoffourkids said:

The only issue I have is the security of not owning your own home. But I would have to get over that.

But buying a property to let won't be "owning your own home", either. You cannot afford to buy your own home - you said that in your original post. You do not earn enough, and you cannot save enough equity. To be perfectly honest, with seven mouths to feed from one part-time income, I'm surprised that you can save anything.

You would be buying a business asset for your residential letting business. It may or may not be a profitable business. It will certainly not be a zero-hassle one, and it will certainly be one you're paying somebody else to manage for you.

Without being a home owner, can you even get a BtL mortgage? Can you raise enough equity to meet ~75% LtV or less?

I can see why this appears to be a superficially tempting situation, but I really don't think it's as clearcut as you assume.

steampowered

A buy-to-let property is an investment. There are lots of other different types of investment - e.g. stocks and shares, savings accounts.

It sounds like your goal is to eventually buy a property of your own, so you should look at what investment is most likely to help you achieve that in the medium to long term.

Are you a first time buyer, and would you eventually want to buy a property less than £450,000? If so, it is likely that your best option is to save into a Lifetime ISA. This will get you a 25% bonus from the government on the money you save, for when you do eventually buy a property of your own. If not, you are likely best off with a Stocks & Shares ISA.

It sounds to me like a BTL property could be a poor use of your savings in your circumstances, for the following reasons:

- You would be tying up a lot of capital, which you will eventually need to get a property of your own. A standard BTL mortgage requires a 25% deposit. It may not be possible to sell the BTL property quickly when you eventually want to move.
- If you are a first time buyer, you would be using up your first time buyer stamp duty relief and the bonus you could get from a Lifetime ISA.
- You are unlikely to get a good return (and may actually be losing money each month) if you are taking out the maximum possible BTL mortgage and using a letting agent.
- Your financial circumstances don't provide much of a buffer to cover possible void periods, tenant problems, interest rate rises and so on. The risk of problems arising (and the relative significance of those problems) tends to be greater with cheaper properties like the ones you are looking at than with more expensive ones.

greatcrested

steampowered said:

A buy-to-let property is an investment. There are lots of other different types of investment - e.g. stocks and shares, savings accounts.
...
- You would be tying up a lot of capital, which you will eventually need to get a property of your own. A standard BTL mortgage requires a 25% deposit. It may not be possible to sell the BTL property quickly when you eventually want to move.

My understanding was that the purchase would initially be as a BTL business, but that eventually, as the OP's family size diminishes, she would move into this property herself. So it would be a direct investment into her future long-term home.

Nonetheless I agree with your basic assessment (and of course I may have misunderstood).

Mumoffourkids

Lover_of_Lycra said:

Mumoffourkids said:

Lover_of_Lycra said:

• How much money do you have to put down as a deposit?  
• How much are you looking to spend on this rental property?
• How much can you let this type of property for?
• Who is your target tenant?
• What rental yield do you expect to make?
• How will you manage the property from a distance?
• Will owning a BTL have an impact on any benefits you claim such as tax credits?

If you owning your own home is a priority for you have you looked into shared ownership or casting your net wider and moving to a less expensive part of the country?  Like the others on this thread I'm not sure that renting your home whilst owning a BTL elsewhere is going to give you the desired outcome.

Thank you for your reply. These are all very good questions to think about and if I did go down the BTL route, I would thoroughly research these.

I have looked at the shared ownership route, unfortunately the area I live in, there a) aren’t many properties with 4 bedrooms for sale and b) I wouldn’t get approved because I don’t earn enough for the calculations they do for a property big enough. I have looked into this as I have owned a shared ownership property before and I would be happy to own again. I guess if I was earning more then this would be an option.

I do not wish to move again, my kids have already moved from France back to England and are settled in this area so moving to a less expensive area is not an option at the moment.

I think I will be researching a lot more and looking into other investments and upping my income to try and get a shared ownership property.

I don't know if or which benefits you might be claiming, you might not be claiming anything at all, but if you are be aware of what impact your savings have on your eligibility.  For example, if you are on Universal Credit, your entitlement starts to taper once you have 6,000 in savings and once you reach 16,000 you are entitled to nothing.

https://www.moneyadviceservice.org.uk/en/articles/how-do-savings-and-lump-sum-pay-outs-affect-benefits#which-benefits-are-affected-by-savings

It's a shame that shared ownership isn't a suitable option.

Thank you for your reply. I am not on universal credit which is a good thing. I am holding off changing over for as long as possible. One day I hope to not be on any benefits but that will not happen in the next year.

I am now leaning towards shared ownership more. From what I understand I need to up my income because of the calculations they do to prove you can afford it. I can afford it as I am but my income doesn’t fit into their calculations. I am just very good at budgeting my money.

Mumoffourkids

greatcrested said:

steampowered said:

A buy-to-let property is an investment. There are lots of other different types of investment - e.g. stocks and shares, savings accounts.
...
- You would be tying up a lot of capital, which you will eventually need to get a property of your own. A standard BTL mortgage requires a 25% deposit. It may not be possible to sell the BTL property quickly when you eventually want to move.

My understanding was that the purchase would initially be as a BTL business, but that eventually, as the OP's family size diminishes, she would move into this property herself. So it would be a direct investment into her future long-term home.

Nonetheless I agree with your basic assessment (and of course I may have misunderstood).

Yes that was my plan to buy a property to let but then move into it later on. But steampowered’s reply does throw up further things to consider.

Mumoffourkids

AdrianC said:

Mumoffourkids said:

The only issue I have is the security of not owning your own home. But I would have to get over that.

But buying a property to let won't be "owning your own home", either. You cannot afford to buy your own home - you said that in your original post. You do not earn enough, and you cannot save enough equity. To be perfectly honest, with seven mouths to feed from one part-time income, I'm surprised that you can save anything.

You would be buying a business asset for your residential letting business. It may or may not be a profitable business. It will certainly not be a zero-hassle one, and it will certainly be one you're paying somebody else to manage for you.

Without being a home owner, can you even get a BtL mortgage? Can you raise enough equity to meet ~75% LtV or less?

I can see why this appears to be a superficially tempting situation, but I really don't think it's as clearcut as you assume.

Yes I do not earn enough to buy a place big enough for us. Unluckily I live in the south where a two bedroom bungalow is around £300,000 or more in the area I live in. 

I believe I can get a buy to let mortgage without being a homeowner but it would be a lot more difficult and I believe that the more equity I would be able to put down, the better.

It does seem like a tempting way to get on the property ladder but this is why I asked the question on. I am just in the idea stage at the moment and I want to secure my future in the best way.

Mumoffourkids

steampowered said:

A buy-to-let property is an investment. There are lots of other different types of investment - e.g. stocks and shares, savings accounts.

It sounds like your goal is to eventually buy a property of your own, so you should look at what investment is most likely to help you achieve that in the medium to long term.

Are you a first time buyer, and would you eventually want to buy a property less than £450,000? If so, it is likely that your best option is to save into a Lifetime ISA. This will get you a 25% bonus from the government on the money you save, for when you do eventually buy a property of your own. If not, you are likely best off with a Stocks & Shares ISA.

It sounds to me like a BTL property could be a poor use of your savings in your circumstances, for the following reasons:

- You would be tying up a lot of capital, which you will eventually need to get a property of your own. A standard BTL mortgage requires a 25% deposit. It may not be possible to sell the BTL property quickly when you eventually want to move.
- If you are a first time buyer, you would be using up your first time buyer stamp duty relief and the bonus you could get from a Lifetime ISA.
- You are unlikely to get a good return (and may actually be losing money each month) if you are taking out the maximum possible BTL mortgage and using a letting agent.
- Your financial circumstances don't provide much of a buffer to cover possible void periods, tenant problems, interest rate rises and so on. The risk of problems arising (and the relative significance of those problems) tends to be greater with cheaper properties like the ones you are looking at than with more expensive ones.

Thank you for your reply. Lots more to consider here. Unfortunately I am not a first time buyer. I used to own a property with my ex husband so I cannot take advantage of the lifetime isa.

But your post has given me lots more to think about. I am very good at budgeting and making my money stretch. Although I do have a large family, I am able to save each month and this will increase once my youngest starts school in September and I no longer have nursery fees to pay. I can also increase my income as all children will be at school.

This has been interesting to se that most people would say it’s not a good idea to have a buy to let property but simply to invest in other ways.