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

saajan_12

Bendy_House said:

JimLad said:

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.

The Pros are:

You end up with a larger and much nicer house.- relative to what? You could afford an even larger / nicer house if you could use all the equity in the let house too. 

You end up with 2 houses instead of one. 

You end up with a second income and an appreciating asset (long term, if not medium). - correct. Could also get that through many other leveraged investment portfolios which pay out dividends and appreciate long term (based on the history, ofcourse they could go up or down just like houses)

Cons:

The considerable responsibilities of being a LL. You mitigate this by passing the task on to a reputable local agent. - mitigate to some extent. You still hold a siginficant portion of the responsibility as you're the one sued if the agent does anything wrong eg deposit, repairs. Or you lose a chunk of your profits if your give your agent carte blanche to choose their fave repairs people, complete with the back handers. 

You might have a nightmare tenant - in which case your agent evicts them. And does a better job of vetting next time... - no, you evict them, your agent has no standing. Then you suffer the months of rent void, court process, property damage, uncertainty on when you can get the next people in.. 

You might have to cope with the intrinsic envy, suspicion and self-righteous faux-moral indignation of some folk. Oh, look, it's already happened on here. You mitigate this by (a) being an ethical and attentive LL, and (b) not giving a damn about trolls. - there I agree. 
(And it's up to you whether you declare to the tenants you are the owner of the property - mind you, chances are they'll soon find out... If they are clearly a nice family, they will by implication also be the type of neighbour you will want to know.) - its not up you you.. you have to provide your name & address in writing upon request. 

If it were me, I think I'd do it.

Although warnings about what can go wrong with tenants need to be made, it is surely the case that the vast majority will be responsible and decent folk, just like home-owners. - what % is that 'majority' and how do you know? 

There are may people it can work for, but you need to fully understand the pros & cons, your point's aren't necessarily accurate. 

Bendy_House

All fair comments, thank you.

Fair to say the OP has also been warned  

Saajan, this surprised me: "You still hold a significant portion of the responsibility as you're the one sued if the agent does anything wrong eg deposit, repairs. Or you lose a chunk of your profits if you give your agent carte blanche to choose their fave repairs people, complete with the back handers."

Really? The agent - who handles all this - doesn't have to take responsibility if they get it wrong?! Blimey. I didn't know that, and what a responsibility.

The 'repairs' bit is another valid issue, but should be easily handled by making it clear the agent has to contact the owner regarding any work needed on the house. The owner can then send their known sparky/gassie/chippy.

MaryNB

Bendy_House said:

All fair comments, thank you.

Fair to say the OP has also been warned  

Saajan, this surprised me: "You still hold a significant portion of the responsibility as you're the one sued if the agent does anything wrong eg deposit, repairs. Or you lose a chunk of your profits if you give your agent carte blanche to choose their fave repairs people, complete with the back handers."

Really? The agent - who handles all this - doesn't have to take responsibility if they get it wrong?! Blimey. I didn't know that, and what a responsibility.

You can assign tasks to the letting agent, you can't assign responsibility. If, for example, the required safety certs are not obtained, you as landlord will be held legally responsible by the relevant authority. If you asked the letting agent to do it and they didn't, that's an issue between you and the agency. 

JimLad

Bendy_House said:

JimLad said:

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.

The Pros are:

You end up with a larger and much nicer house.

You end up with 2 houses instead of one.

You end up with a second income and an appreciating asset (long term, if not medium).

Cons:

The considerable responsibilities of being a LL. You mitigate this by passing the task on to a reputable local agent.

You might have a nightmare tenant - in which case your agent evicts them. And does a better job of vetting next time...

You might have to cope with the intrinsic envy, suspicion and self-righteous faux-moral indignation of some folk. Oh, look, it's already happened on here. You mitigate this by (a) being an ethical and attentive LL, and (b) not giving a damn about trolls. (And it's up to you whether you declare to the tenants you are the owner of the property - mind you, chances are they'll soon find out... If they are clearly a nice family, they will by implication also be the type of neighbour you will want to know.)

If it were me, I think I'd do it.

Although warnings about what can go wrong with tenants need to be made, it is surely the case that the vast majority will be responsible and decent folk, just like home-owners.

Thankyou for this more balanced view. I was very surprised at the negative view of this plan on here. Purely financially speaking I think it works.

JimLad

Pixie5740 said:

Bendy_House said:

JimLad said:

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.

The Pros are:

You end up with a larger and much nicer house.

You end up with 2 houses instead of one.

You end up with a second income and an appreciating asset (long term, if not medium).

Cons:

The considerable responsibilities of being a LL. You mitigate this by passing the task on to a reputable local agent.

You might have a nightmare tenant - in which case your agent evicts them. And does a better job of vetting next time...

You might have to cope with the intrinsic envy, suspicion and self-righteous faux-moral indignation of some folk. Oh, look, it's already happened on here. You mitigate this by (a) being an ethical and attentive LL, and (b) not giving a damn about trolls. (And it's up to you whether you declare you are the owner of the property - mind you, chances are they'll soon find out...)

If it were me, I think I'd do it.

Although warnings about what can go wrong with tenants need to be made, it is surely the case that the vast majority will be responsible and decent folk, just like home-owners.

Reputable agent.  Isn't that an oxymoron?  I'm sure there are some good letting agents out there but my experience has been that you need to manage them just as much, sometimes more, than you would the tenant so as a landlord you need to know the law and keep up to date with it.  Ultimately the buck stops with the landlord anyway so with the OP living so close he could manage it himself and save the fees.

Agents don't evict tenants because agents do not have the power to do so.  The OP would need to do the eviction himself or use a solicitor.

I see the OP has calculated tax based on 20% so maybe the OP is a basic rate tax payer and will continue to be a basic rate tax payer even with the rental income.  Once you get into paying higher tax rates BTL becomes less appealing unless you set up a limited company and then you're looking at having more than one BTL to make it worthwhile.

Yes we will just about sneak under the 40% bracket assuming the income is allocated 50/50 between me and my wife?

warwick2001

Not an opinion, just a genuine question.

You own your property outright. You are aiming to use a BTL mortgage to buy a new property that you don't intend to rent out. 

Can you do that or have I misunderstood your plans?

Pixie5740

warwick2001 said:

Not an opinion, just a genuine question.

You own your property outright. You are aiming to use a BTL mortgage to buy a new property that you don't intend to rent out. 

Can you do that or have I misunderstood your plans?

You’ve misunderstood. Let to Buy mortgages, as opposed to Buy to Let, allow you to raise capital so that you can buy a new home and let your previous home out. The mortgage is secured against the old home, the one that is being let. 

ReadingTim

warwick2001 said:

Not an opinion, just a genuine question.

You own your property outright. You are aiming to use a BTL mortgage to buy a new property that you don't intend to rent out. 

Can you do that or have I misunderstood your plans?

You have misunderstood slightly.  The OP remortgages the property they currently own outright with a BTL mortgage, and uses the proceeds of that mortgage as a deposit/part of the purchase price of a new property, renting out the current one (which has the BTL mortgage on it).  

It's not that different to 'taking equity out of the house' by remortgaging for a larger sum and using the funds to do up the kitchen, or build an extension... 

TBagpuss

OP, one question I would ask is whether you would be looking to buy your neighbour's house if you weren't thinking of letting out the existing one? 

If you want the other house, then go for it.


Meanwhile, consider whether you actually want to be a landlord.  As others have said, it does have a lot of responsibilities, and it also means that you are putting all your eggs in one basket - you do need to consider things such as how long you would be able to afford to pay the mortgage if you had a tenant who failed to pay the rent, or if you had a void period with no tenants.

If you do want to become a landlord, is your existing house the best investment? Or is it just convenient? It might make better sense to look at selling it and investing in a property to rent out, if that 's what you want to do.

I think some of your figures are probably on the low side so do review your budget - and look at joining a landlords association to ensure that you are fully familiar with your legal responsibilities if you decide to go ahead. 

warwick2001

Thanks for the clarification @Pixie5740 and @ReadingTim.

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