Let to Buy - What are my options/implications

RazzleDazle

I have a property that will be mortgage free in 18 months worth c325k. My thinking to look at renting this out (taking out c225k) and then purchase a new property on Interest Only. I would use the 225k as deposit and the rental income (which would be c£1600 per month) to pay the Interest Only part. New Property Price would be c600-650k so lets say a 400k IO mortgage. 

Income is c75-80k per annum with OH c20k

The plan would then be to pay off the Interest Only mortgage using Pension (should be able to take c175k Tax Free), Savings over next 15 years, Sale of new property, Sale of existing property to then buy a smaller home in the future.  

Interest Only mortgage would be c650-700 per month. This would leave surplus to fund pension to max annual amount for next 15 years as well still leave ability to save via ISAs

Has anyone followed this route and would it work with tax implications of Rental Income. Would welcome thoughts!?

TripleH

How long can you afford  to run the rental property if you are getting no income from it (void periods plus non-paying tenant)?

By how much can interest rates go up by before you feel the pinch?

Have you factored the above into your calculations?

RazzleDazle

I could still afford IO Mortgage without Rental Income but Savings would take a hit. 

Would say an extra 2-3% on rates would be manageable fairly easily. 

SDLT_Geek

RazzleDazle said:

I have a property that will be mortgage free in 18 months worth c325k. My thinking to look at renting this out (taking out c225k) and then purchase a new property on Interest Only. I would use the 225k as deposit and the rental income (which would be c£1600 per month) to pay the Interest Only part. New Property Price would be c600-650k so lets say a 400k IO mortgage. 

Income is c75-80k per annum with OH c20k

The plan would then be to pay off the Interest Only mortgage using Pension (should be able to take c175k Tax Free), Savings over next 15 years, Sale of new property, Sale of existing property to then buy a smaller home in the future.  

Interest Only mortgage would be c650-700 per month. This would leave surplus to fund pension to max annual amount for next 15 years as well still leave ability to save via ISAs

Has anyone followed this route and would it work with tax implications of Rental Income. Would welcome thoughts!?

Have you allowed for the extra stamp duty on the purchase?  If buying in England it would be an extra 3% stamp duty land tax.

RazzleDazle

I have also thought I would have the BTL mortgage outgoings of c£600 per month. The same above still applies. 

RazzleDazle

SDLT_Geek said:

RazzleDazle said:

I have a property that will be mortgage free in 18 months worth c325k. My thinking to look at renting this out (taking out c225k) and then purchase a new property on Interest Only. I would use the 225k as deposit and the rental income (which would be c£1600 per month) to pay the Interest Only part. New Property Price would be c600-650k so lets say a 400k IO mortgage. 

Income is c75-80k per annum with OH c20k

The plan would then be to pay off the Interest Only mortgage using Pension (should be able to take c175k Tax Free), Savings over next 15 years, Sale of new property, Sale of existing property to then buy a smaller home in the future.  

Interest Only mortgage would be c650-700 per month. This would leave surplus to fund pension to max annual amount for next 15 years as well still leave ability to save via ISAs

Has anyone followed this route and would it work with tax implications of Rental Income. Would welcome thoughts!?

Have you allowed for the extra stamp duty on the purchase?  If buying in England it would be an extra 3% stamp duty land tax.

So that would be c20k which I could find via Savings prior to doing this within 8-9 months (once Mortgage has finished)

Thrugelmir

I'd suggest you crunch the numbers fully. Stamp duty, legal costs, arrangement fees for BTL mortgage, maintenance costs for the rental, tax etc etc. Back of the fag packet calculations are prone to serious miscalculations. 

£625k of debt is an exposed position to be in as interest rates rise. Might knock the shine off your investment returns as well. 

RazzleDazle

Thanks All. Given me food for thought. The 625k of debt with potential interest rate rises for sure!!! 

canaldumidi

" the rental income (which would be c£1600 per month)". You sure? I only ask because people often over-estimate.

And assuming you get a contract for that amount, don't forget to deduct agents fees (or would you self-manage?), voids, tax etc.

Some more food for thought:

Post 7: New landlords (1):advice & information :see links in next post

Post 8: New landlords (2): Essential links for further information

Post 9: Letting agents: how should a landlord select or sack?