Transitioning to rental property - seeking advice

Pablito_

Hi guys,

I have a property with my ex. We broke up about 6 months ago and have broadly agreed a financial settlement. Based on the new value of the house, after payout the property will have about 30% equity.

Based on a discussions with a letting company, after my mortgage, I'd expect to have roughly £200 a month left-over. So not a huge amount, but enough to 'break even' after repair costs and tax, is my feeling.

Similarly, I've been thinking about my options and want to move to a small flat in the City. Location and low maintenance being the motivating factors. I have 12% of the deposit price.

As such, my feeling is I would like to get to a position where:

1) I am a landlord of my current property with tennants
2) I own and pay a mortgage on a second property

Does this seem feasible? Has anyone else done anything like this and have any advice or guidance? Is a £200 (pre-tax) excess from rental income - minus mortgage enough of a 'profit' to not put additional financial pressure on myself?

Ultimately, it feels like I am in a fortunate position where I could end up having a second property (and a retirement plan) if I play it right, but similarly I am cautious that I don't want to end up over-stretching and risking financial ruin!

Any comments would be appreciated.

Keep_pedalling

You have allowed for repair costs and tax but you also need to factor in void periods where you are waiting to find new tenants and the risk that you get a tenant who can’t or won’t pay their rent forcing you down the drawn out process of eviction, at the end of which you find the place has been trashed. 

powerspowers

Think through the worst case scenario, would you be able to cover the mortgage if you had a period where the property was empty for a period of time or you had tenants who couldn’t pay the rent? 

Have you factored stamp duty at higher rate into your calculations? Does your property need any work in order to let it out legally? Boiler checks, electric checks, anything to raise the EPC?

SDLT_Geek

Pablito_ said:

Hi guys,

I have a property with my ex. We broke up about 6 months ago and have broadly agreed a financial settlement. Based on the new value of the house, after payout the property will have about 30% equity.

Based on a discussions with a letting company, after my mortgage, I'd expect to have roughly £200 a month left-over. So not a huge amount, but enough to 'break even' after repair costs and tax, is my feeling.

Similarly, I've been thinking about my options and want to move to a small flat in the City. Location and low maintenance being the motivating factors. I have 12% of the deposit price.

As such, my feeling is I would like to get to a position where:

1) I am a landlord of my current property with tennants
2) I own and pay a mortgage on a second property

Does this seem feasible? Has anyone else done anything like this and have any advice or guidance? Is a £200 (pre-tax) excess from rental income - minus mortgage enough of a 'profit' to not put additional financial pressure on myself?

Ultimately, it feels like I am in a fortunate position where I could end up having a second property (and a retirement plan) if I play it right, but similarly I am cautious that I don't want to end up over-stretching and risking financial ruin!

Any comments would be appreciated.

Have you allowed for the extra 3% stamp duty land tax that would be due on your purchase in London if you retain the existing property?

alelly

In addition to the comments others have made, you should also factor in the higher interest rate you will be paying having a second property, and the additional borrowing costs from not using the equity towards your new place. It’s honestly rarely worth it unless you are a professional or have some other reason for renting (ie planning to move back in eventually, family property).

Pablito_

Thanks for the replies guys.

With regards to EPC etc, yes the house will be fine. Brand new boiler 2 years ago. In terms of the house, the only thing is the kitchen is very dated. It's functional, but it needs a new one really.

The house is in Birmingham, I will have to pay stamp duty on the next property. However, I am in no urgent rush to do this, so ultimately can wait for a few months to save in order to make it happen.

But you guys are right, I could cover both mortgages should the worst happen, but would have a hugely diminished quality of life... So that has to be a consideration too.

GentleGiant01

I am becoming an “accidental landlord” I believe the word is. My wife and I will have around £300 “profit” after accounting for tax, mortgage, landlord fees ETC. 

we have been very fortunate that our tenants who are moving in tomorrow have paid 6 months up front and have shown that they have another 6 months rent in the bank. They don’t wish to buy for a few years because they’ve just moved to the city for work and don’t know where they wish to settle. But i do worry about what happens when they move on. 

If I didn’t want to keep the property so much, I’d have sold if I’m honest. The extra costs are just not worth it. 30k out of pocket with stamp duty and everything else! 

canaldumidi

A 'brand new boiler' is good but does not guarantee the EPC rating. Is there a current EPC (within last 10 years)? What rate?

Current law is rented properties must be 'E' or better, but beware - this is changing to 'C' in 2025....

Tenancy regs are changing constanty, mostly to the advantage of tenants. Removal of S21 eviction notices is under serious consideration, with the replacement process unclear, but it will make eviction harder that's for sure.

Mandatory electric certificates were recently introduced, and from October CO alarms become mandatory not just for solid fuel stoves (as at present) but also gas boilers. You see the trend? It all costs money and it all makes slip-ups more likely.

Read

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?

Sadly a bit outof date as the author is now persona non grata.

martindow

GentleGiant01 said:

I am becoming an “accidental landlord” I believe the word is.

It is probably best to avoid calling yourself an accidental landlord.  It tends to raise hackles with some people as you can only become a landlord after a deliberate decision.  Whatever your motivation for becoming a landlord, the legal requirements and obligations are the same.  Running a lettings business needs to be taken seriously.

Olinda99

You should also familiarise yourself with the Rental Reform Bill White Paper and the changes that are coming down the line should it become law.

Your property also will soon need to be EPC of C or better

Ratkin007

If you decide to let your property, keep an eye on Selective licensing as it looks like Birmingham intend to introduce a scheme in April 2023. Failure to licence could result in a civil penalty notice and tenants can obtain a rent repayment order.