Is this a sensible idea? Letting my current house to buy another. Looking for input!

JimLad

Heres my situation....

Our neighbour over the road who has a much nicer and larger house is moving away next year and we are thinking about renting out our house (owned outright currently) and use the BTL/LTB mortgage as a deposit on theirs.

A few things drove me to consider this option instead of selling....

1) keeping hold of an appreciating asset...i know you have to pay capital gains tax on any value increase, but house values seem to just be going up and up.
2) Generating a future income outside of my pension (which i pay the max into my company matches and is well on track)
3) Being able to move quickly and offer to purchase my neighbours house straight away (no agent fees) and chain free when they want to move away next year. They are moving into rented whilst they look for a project.

Ive done some basic calculations based on taking a 200k LTB on our 340k house and getting 1200pm rent (which is on the low end i think looking at the market). Their house is approx 450k.

	Monthly
Monthly Rent	£1,200.00
Landlord Insurance	£25.00
Agent Fees	£100.00	Based on changing tennant annually
Maintenance	£100.00	1 months rent annually
Gas Safety	£4.00	Annual cost /12
Electical Safety	£4.00
Monthly Rent Taxable	£967.00
Income Tax	£193.40
Mortgage	£250.00
Solar Panel Income	£55.00	Is this taxable?
Tax Credit	£50.00	Is this correct?
Profit	£628.60

Any thoughts on any of this? Am i mad? Are my figures sensible?

Feedback would be much appretiated!

davilown

I maybe in a similar position next year so interested to hear views. Being able to live so close would be a benefit in some ways, but not in others though 😉 

SDLT_Geek

JimLad said:

Heres my situation....

Our neighbour over the road who has a much nicer and larger house is moving away next year and we are thinking about renting out our house (owned outright currently) and use the BTL/LTB mortgage as a deposit on theirs.

A few things drove me to consider this option instead of selling....

1) keeping hold of an appreciating asset...i know you have to pay capital gains tax on any value increase, but house values seem to just be going up and up.
2) Generating a future income outside of my pension (which i pay the max into my company matches and is well on track)
3) Being able to move quickly and offer to purchase my neighbours house straight away (no agent fees) and chain free when they want to move away next year. They are moving into rented whilst they look for a project.

Ive done some basic calculations based on taking a 200k LTB on our 340k house and getting 1200pm rent (which is on the low end i think looking at the market). Their house is approx 450k.

	Monthly
Monthly Rent	£1,200.00
Landlord Insurance	£25.00
Agent Fees	£100.00	Based on changing tennant annually
Maintenance	£100.00	1 months rent annually
Gas Safety	£4.00	Annual cost /12
Electical Safety	£4.00
Monthly Rent Taxable	£967.00
Income Tax	£193.40
Mortgage	£250.00
Solar Panel Income	£55.00	Is this taxable?
Tax Credit	£50.00	Is this correct?
Profit	£628.60

Any thoughts on any of this? Am i mad? Are my figures sensible?

Feedback would be much appretiated!

Have you budgeted for the extra 3% stamp duty land tax due on the purchase if you keep your old home?
That is assuming you are buying in England.  It is an extra 4% in Scotland and Wales.

AdrianC

I'm less than convinced about your £250/mo mortgage interest figure - that would be 1.5%. Repayment only, of course, so you're always going to owe that £200k... Perhaps possible as a discount rate on a residential -  but not long-term on a 60% LtV BtL mortgage. Let's provisionally double that.

I'm also less than convinced by your £1,200/mo annual maintenance on a £340k house... You live there, you know how much you've spent on it over the last few years, right? Now up the decor element because tenants are harder on houses than owner-occupiers. And, of course, there's all the things you'll have to do to make it lettable in the first place. Let's double it.

And you don't appear to have included anything for voids and bad debts. Let's allow a month per year, too. If you do end up getting through a tenant a year, that's going to be low.

Your £630/mo profit just came down to £180/mo. About 0.6% net yield.

Now calculate how long it's going to take just to cover the £13,500 of extra SDLT on the purchase, before you even see a penny in your pocket. Just over 6 years.

And that's before we taking into account the £140k higher mortgage on your new home...

Simple question - if you didn't already own your place, and were buying the other house, would you take a larger mortgage to buy this place as a BtL as well...?

And that's before we consider the stress of living next door to your tenants. Can you turn off the "BUT THAT'S OUR HOUSE!"?

babyblade41

I'm afraid I think this is a terrible idea .. being a LL is not great and living opposite would be a nightmare, that's before you even start on the financial implications as stated above.

Although I think @AdrianC is being a little conservative with his figures 

AdrianC

You mean I'm being pessimistic?

Perhaps.

But it's better to budget for pessimism and be pleasantly surprised, right? No winners if you budget for blind optimism and find out that the reality is harsher.

koalakoala

If you watch some of those tv programmes you wouldn’t do it!

[Deleted User]

Being a landlord is a major responsibility. You own someone else's home. It's not something you go into lightly to make easy money.

It's also immoral, given the current housing crisis. Someone could buy that home to live in, paying less in mortgage than they would pay you in rent. Something to consider.

another_casualty

If you were to let it out, the tenants know where you live . Not good..

JimLad

Well this has been overwhelmingly negative! 🤣

rexmedorum

rigolith said:

...

It's also immoral, given the current housing crisis. Someone could buy that home to live in, paying less in mortgage than they would pay you in rent. Something to consider.

I think blanket calling it immoral is a touch unfair.