Buy to let on newly owned house

thenumber8shirt

Hi, I'm trying to work out the best way of going about this, so am reaching out to the brill MSE forum.

My daughter has recently inherited a house, mortgage free. However, she is not ready to move out yet, so would like to rent the property out. 

The problem is that the house needs quite a bit of work before it is rentable (roughly 50k), so we would need a mortgage to fund this.

For a buy to let mortgage (among other issues about length of time the property has been owned) they base the rental value on the property in current state, and I don't know if I will be able to get the amount needed.

So, I can't get a mortgage to update the house to rental standard without upgrading the house. 

Property value is roughly 180k.

Any help/ advice is appreciated 

Annisele

I have some questions before I'd be comfortable making suggestions - but of course you don't have to answer any of them. If you are comfortable giving (some) answers, that might help others to help you:

• Is your daughter over 18? (Some financing options won't be available if she's a minor.)
• Does she have any employment income of her own? (Some financing options will be easier if she does.)
• What does "quite a bit of work" mean? As in, are you talking the decor is tired and the EPC isn't good enough to allow letting, or are you talking no heating no plumbing and the whole thing will fall over if you breathe on it? (I'm wondering whether you're going to need development finance.)
• How sure are you about the £50k cost? (If you're an experienced property developer yourself and you've estimated £45k plus a bit of contingency, I'd view that differently to if you've never touched a paintbrush but you feel like £50k is a nice round number.)
• Do you have access to £50k yourself that you'd be willing to lend her? Either in savings or by increasing your own mortgage?

Those were my "I'm honestly trying to be helpful" questions, but I also have some "I think this is probably a daft idea" questions - which again, you're of course free to ignore:

• If your daughter had inherited £180k cash, would she have used it to start a lettings business? If so, would she have used it to buy this particular house?  If she would have started a lettings business but wouldn't have bought this house, is it worth her considering selling this one and replacing it with something that doesn't need £50k of work?
  
• When you say "recently inherited", what exactly do you mean? Has the house been transferred to her name via the Land Registry, or has that not happened yet? If it hasn't been transferred yet, is it worth having the exectors just sell the house, and allow your daughter to keep any first time buyer privileges she might have for when she is ready to buy something herself?
• Is it you or your daughter that thinks the lettings business plan is a good idea? (I'm always slightly dubious when it's the parent asking for advice on behalf of the child, or indeed the other way around.)
• Is your daughter willing to do all the training she'd need to be sure she's on top of the legislation she'll need to comply with as a landlord?
  

ACG

Generally speaking a BTL mortgage is not raised to renovate the property. 
Surveyors can be a little harsher on BTL mortgages as they want to see the property is habitable and lettable - that means if the property has hot running water, doors and windows, it is generally deemed habitable. If it has 1960s decor, a kitchen from the 80s, wallpaper hanging off the walls - it is not really lettable. 

If it is n a reasonable condition albeit not the nicest then you may be ok - but without seeing the property it is difficult to say. 

Generally speaking if you want to renovate and the property is in bad shape, you would need some sort of bridging loan/development finance and once done then you could remortgage on a BTL. 

However, there will be issues with your daughter getting a BTL - not a homeowner, no experience etc etc. 

I think really your daughter (with you if she wants) should have a chat with a mortgage broker. They can look at the property in a little more detail and give you some tailored advice. 

thenumber8shirt

Annisele said:

I have some questions before I'd be comfortable making suggestions - but of course you don't have to answer any of them. If you are comfortable giving (some) answers, that might help others to help you:

• Is your daughter over 18? (Some financing options won't be available if she's a minor.)
• Does she have any employment income of her own? (Some financing options will be easier if she does.)
• What does "quite a bit of work" mean? As in, are you talking the decor is tired and the EPC isn't good enough to allow letting, or are you talking no heating no plumbing and the whole thing will fall over if you breathe on it? (I'm wondering whether you're going to need development finance.)
• How sure are you about the £50k cost? (If you're an experienced property developer yourself and you've estimated £45k plus a bit of contingency, I'd view that differently to if you've never touched a paintbrush but you feel like £50k is a nice round number.)
• Do you have access to £50k yourself that you'd be willing to lend her? Either in savings or by increasing your own mortgage?

Those were my "I'm honestly trying to be helpful" questions, but I also have some "I think this is probably a daft idea" questions - which again, you're of course free to ignore:

• If your daughter had inherited £180k cash, would she have used it to start a lettings business? If so, would she have used it to buy this particular house?  If she would have started a lettings business but wouldn't have bought this house, is it worth her considering selling this one and replacing it with something that doesn't need £50k of work?
  
• When you say "recently inherited", what exactly do you mean? Has the house been transferred to her name via the Land Registry, or has that not happened yet? If it hasn't been transferred yet, is it worth having the exectors just sell the house, and allow your daughter to keep any first time buyer privileges she might have for when she is ready to buy something herself?
• Is it you or your daughter that thinks the lettings business plan is a good idea? (I'm always slightly dubious when it's the parent asking for advice on behalf of the child, or indeed the other way around.)
• Is your daughter willing to do all the training she'd need to be sure she's on top of the legislation she'll need to comply with as a landlord?
  

Is your daughter over 18? (Some financing options won't be available if she's a minor.) – yes she is over 18

Does she have any employment income of her own? (Some financing options will be easier if she does.) – currently works part-time, is starting full time teaching role in September

What does "quite a bit of work" mean? As in, are you talking the decor is tired and the EPC isn't good enough to allow letting, or are you talking no heating no plumbing and the whole thing will fall over if you breathe on it? (I'm wondering whether you're going to need development finance.) – it has functional water/ heating (so is by definition habitable and would probably pass an EPC) – however, in current condition the assessment of how much rental income it would bring in would be considerably less

How sure are you about the £50k cost? (If you're an experienced property developer yourself and you've estimated £45k plus a bit of contingency, I'd view that differently to if you've never touched a paintbrush but you feel like £50k is a nice round number.) – I have had multiple quotes for all the necessary work needed and have totalled up the top end ones and added some fat – pretty confident

Do you have access to £50k yourself that you'd be willing to lend her? Either in savings or by increasing your own mortgage? – had considered increasing own mortgage (although not due to remortgage currently so not sure if this works or is the best option – mainly because I can’t get a clear idea of what other options are available).

Those were my "I'm honestly trying to be helpful" questions, but I also have some "I think this is probably a daft idea" questions - which again, you're of course free to ignore:

If your daughter had inherited £180k cash, would she have used it to start a lettings business? If so, would she have used it to buy this particular house? If she would have started a lettings business but wouldn't have bought this house, is it worth her considering selling this one and replacing it with something that doesn't need £50k of work? – she hasn’t inherited 180k cash, she has a house that is worth 70k (maybe) – which she also has a strong emotional connection to

When you say "recently inherited", what exactly do you mean? Has the house been transferred to her name via the Land Registry, or has that not happened yet? If it hasn't been transferred yet, is it worth having the exectors just sell the house, and allow your daughter to keep any first time buyer privileges she might have for when she is ready to buy something herself? Going through the final stages of asset transfer now – all things considered this is the most financially viable option (house for nothing +50k mortgage paid off by tenant and house worth more than 180k which can be sold or lived in at a future point vs selling house for 70k now and needing a 130k mortgage to get to the same level at a future point)

Is it you or your daughter that thinks the lettings business plan is a good idea? (I'm always slightly dubious when it's the parent asking for advice on behalf of the child, or indeed the other way around.) – the whole family

Is your daughter willing to do all the training she'd need to be sure she's on top of the legislation she'll need to comply with as a landlord? yes

thenumber8shirt

ACG said:

Generally speaking a BTL mortgage is not raised to renovate the property. 
Surveyors can be a little harsher on BTL mortgages as they want to see the property is habitable and lettable - that means if the property has hot running water, doors and windows, it is generally deemed habitable. If it has 1960s decor, a kitchen from the 80s, wallpaper hanging off the walls - it is not really lettable. 

If it is n a reasonable condition albeit not the nicest then you may be ok - but without seeing the property it is difficult to say. 

Generally speaking if you want to renovate and the property is in bad shape, you would need some sort of bridging loan/development finance and once done then you could remortgage on a BTL. 

However, there will be issues with your daughter getting a BTL - not a homeowner, no experience etc etc. 

I think really your daughter (with you if she wants) should have a chat with a mortgage broker. They can look at the property in a little more detail and give you some tailored advice. 

I've read abit about bridging loans, so I might look further into that, thank you

stuhse

Despite all the bad press on this site about renting properties out, i have done so  for over 25 years and in that time have only had 2 tenants who ran off without paying the last months rent, 1 who left the place in a state, and one who i ended up on the court room steps over none payment of rent.  The move has been extremely good for me financially..though it is a long burn thing. I view mine as part of my pension...and at the moment its done far better than the money ive paid into traditional pensions- but of course there are risks.  The one thing that sounds alarm bells..."emotional attachment to the property"...not good..this is a business, not  to be mixed with emotion.  The key to this for me is getting the 50k figure down.  You say you've taken the highest estimates in each case  and added some.  Well how about getting the family to pitch in for a few weekends and evening decorating and minimize the work that has to be paid for ?  Another possibility to consider...your daughter makes this her residence then lets the spare bedroom on 'rent a room' basis.  There are tax breaks for this and it may make the returns more lucrative.  She can of course stay at your place any night she chooses.

hildosaver

I have no issue with letting a property out - it can work well and be a source of income for your daughter. One concern however is that you say the value of the house is around 70k and you feel it requires £50k work to make it lettable. That is a huge amount to spend on a house worth £70k - what would you anticipate the value of the property once the work was complete? If it is less than £120k then I would strongly suggest reconsidering the amount of money you put aside for any work.

housebuyer143

You can get refurbishment buy to let mortgages exactly for this purpose. Speak to a broker but CHL do them.

simon_or

If you have sufficient equity in your house, the cheapest and least hassle option is to take out a loan secured against your house - additonal borrowing from your current bank if you have a mortgage and they allow you to raise funds to gift/loan 50k to your daughter, or a second charge loan if additional borrowing isn't an option. This way the condition of the property doesn't matter, there's no expensive clock ticking like it would on a bridge loan, and your daughter's criteria does not come into the picture.

The next cheapest would be some kind of refurb to let product, but this will be complicated as it'll need to be in your daughter's name so she'll 
https://www.precisemortgages.co.uk/BuyToLet/RefurbishmentBTL

The most expensive option will be a bridging loan.

I've done similar (for my own but to let's) in the past a couple of times and raising money against the house I lived in was always the cheapest and easiest route to take.

Annisele

thenumber8shirt said:

Going through the final stages of asset transfer now – all things considered this is the most financially viable option (house for nothing +50k mortgage paid off by tenant and house worth more than 180k which can be sold or lived in at a future point vs selling house for 70k now and needing a 130k mortgage to get to the same level at a future point)

I'm not following this part. If the "Property value is roughly 180k" and she "has recently inherited a house, mortgage free"(from your OP), how come she'd only get £70k if she were to sell the property? Is the £180k the estimated value after the £50k work has been done?

How come the tenant will be paying off £50k of mortgage? Is that conditional on anything? Is your daughter inheriting this house by herself, or will she own jointly with somebody else?

I think that if she solely owns a house currently worth £180k, and she's about to be receiving a full time teacher's salary, a good broker will probably be able to find her options to allow £50k of borrowing. But if I've misunderstood and that isn't the position, maybe not.

MWT

thenumber8shirt said:

Property value is roughly 180k.

thenumber8shirt said:

...she has a house that is worth 70k (maybe) – which she also has a strong emotional connection to

Something is wrong with these numbers, you appear to be saying she has inherited a house valued at £70k (valued at that for probate presumably) ... but you think that by spending £50k on it, it will then be worth £180k...

With her strong emotional attachment and her full-time teaching job in September (presumably you mean she is being employed as a teacher?) why not just get a mortgage then, repair the house and live in it.

... putting tenants into a property she is strongly attached to may not end well...