Second home but worried about value

thegreenone

Is there a specific reason why you want to keep and rent out your current house?  Otherwise, why not sell it and use the money + £500k to buy what you need now in a better area and plan a downsize later in life?

If you have children or hope to, if there are no schools nearby you will be on the school run every day.  Is the bus service good so you won't be a taxi service when they get into their teens?

confusedftb

subjecttocontract said:

I know the area quite well & I wouldn't buy there. If you want prices lower than Upminster or Hornchurch try nearby Basildon. Easy commute, good transport links, strong property market, popular area.

why would you not recommend buying in that area? went there about 4-5 times and seems a pretty decent area with big houses and quiet too. 

only drawback i see are the ones i have mentioned in the initial post. 

Upminster is very expensive. Hornchurch is okay.

confusedftb

thegreenone said:

Is there a specific reason why you want to keep and rent out your current house?  Otherwise, why not sell it and use the money + £500k to buy what you need now in a better area and plan a downsize later in life?

If you have children or hope to, if there are no schools nearby you will be on the school run every day.  Is the bus service good so you won't be a taxi service when they get into their teens?

for passive income. i could make up to £800 after paying the mortgage (capital+interest) from the current property. 

really want to buy one home and then go to the grave from there tbh. i already think 4 would be too many rooms as we are a family of 3 and plan to have another child. 

there is one bus service in the town which takes to lakeside or the other way to Hornchurch 

_Penny_Dreadful

confusedftb said:

thegreenone said:

Is there a specific reason why you want to keep and rent out your current house?  Otherwise, why not sell it and use the money + £500k to buy what you need now in a better area and plan a downsize later in life?

If you have children or hope to, if there are no schools nearby you will be on the school run every day.  Is the bus service good so you won't be a taxi service when they get into their teens?

for passive income. i could make up to £800 after paying the mortgage (capital+interest) from the current property. 

  at passive income. Letting property is not a passive source of income. Even if you use a letting agent you still need to manage the agent or they’ll run rings round you. Have you estimated how much income tax you’ll pay on your rental profits? Neither the capital nor the interest is treated as a business expense. You’ll get a  20% tax credit on the mortgage interest which is okay if you're a basic rate tax payer but it’s not so good if you’re a higher or additional rate tax payer. 

Olinda99

you need to do your sums carefully it is by no means certain you can get more through letting than by popping your capital in a savings account

lika_86

confusedftb said:

thegreenone said:

Is there a specific reason why you want to keep and rent out your current house?  Otherwise, why not sell it and use the money + £500k to buy what you need now in a better area and plan a downsize later in life?

If you have children or hope to, if there are no schools nearby you will be on the school run every day.  Is the bus service good so you won't be a taxi service when they get into their teens?

for passive income. i could make up to £800 after paying the mortgage (capital+interest) from the current property. 

Presumably you've accounted for tax on the income?

AlexMac

If you really want to become a landlord (?), have researched the obligations and responsibilities (?), is the current 2-bed house the ideal letting property?  

You calculate almost £10k pa net profit on rental income which is great; but as that’s more than I make on either of my two bedroom BTL flats; both in “good” areas in London’s travel zone 3, have you counted all expanses and factors? 

- The new BTL mortgage, offset by tax relief of only 20% even if you pay 40%
- Agent fees and buildings insurance
- routine maintenance such as Gas Safety checks
- one off repairs or replacements; I’ve had to replace boilers in almost every home or rental property I’ve ever owned ; six so far over 50 years, at a cost of £2-3.5k a pop. I also had to blow £8k on a new kitchen in one BTL last year as the original was falling apart 
- voids (no rent for a month or two between tenants), or costs if you’re unlucky enough to get a rogue tenant (I’ve never been unlucky, but did do one good tenant a favour once by evicting her via Court and  Bailiff action as she asked as that was the only way she and her growing family could get a Council flat - don't tell anyone!)

I also pay leasehold service charges; you won’t but there’s always the unexpected leak, gutter or drains job (I get ‘em at home even though it’s only 40 years old) 

I’ve benefitted from large capital gains as I bought ‘em 26 and 13 years ago for peanuts, but I can’t see a repeat in the next couple of decades of the crazy house price inflation of the nineties and noughties?

So, as it’s estimated that most landlords only get 4-7% return on the current value of their asset you might consider keeping it simple? Sell the 2-bedder and buy the ideal forever home and save the extra SDLT?  Keep a cash cushion in reserve, in an ISA each and/or Bond on 5%+, then, when they mature in a year or more, consider whether you want to get into BTL and buy an ideal rental property, depending on the market and legislative environment at the time?

But whatever you decide; do it well. Good luck!

confusedftb

_Penny_Dreadful said:

confusedftb said:

thegreenone said:

Is there a specific reason why you want to keep and rent out your current house?  Otherwise, why not sell it and use the money + £500k to buy what you need now in a better area and plan a downsize later in life?

If you have children or hope to, if there are no schools nearby you will be on the school run every day.  Is the bus service good so you won't be a taxi service when they get into their teens?

for passive income. i could make up to £800 after paying the mortgage (capital+interest) from the current property. 

  at passive income. Letting property is not a passive source of income. Even if you use a letting agent you still need to manage the agent or they’ll run rings round you. Have you estimated how much income tax you’ll pay on your rental profits? Neither the capital nor the interest is treated as a business expense. You’ll get a  20% tax credit on the mortgage interest which is okay if you're a basic rate tax payer but it’s not so good if you’re a higher or additional rate tax payer. 

was thinking to go private rather than through agents and etc. good point about income tax, i have not thought about that. 

how would i get 20% on the mortgage interest? i am not in basic tax payer rate. 

Olinda99 said:

you need to do your sums carefully it is by no means certain you can get more through letting than by popping your capital in a savings account

i absolutely agree with you that i need to do the numbers. so far i have not done them very precisely. good with numbers but when you put all the tax calculations and other bits, then i start to lose track. any recommended guides to read for this? or maybe a calculator? 

lika_86 said:

confusedftb said:

thegreenone said:

Is there a specific reason why you want to keep and rent out your current house?  Otherwise, why not sell it and use the money + £500k to buy what you need now in a better area and plan a downsize later in life?

If you have children or hope to, if there are no schools nearby you will be on the school run every day.  Is the bus service good so you won't be a taxi service when they get into their teens?

for passive income. i could make up to £800 after paying the mortgage (capital+interest) from the current property. 

Presumably you've accounted for tax on the income?

nope, can i ask the tenants to pay cash? :P 

confusedftb

AlexMac said:

If you really want to become a landlord (?), have researched the obligations and responsibilities (?), is the current 2-bed house the ideal letting property?  

You calculate almost £10k pa net profit on rental income which is great; but as that’s more than I make on either of my two bedroom BTL flats; both in “good” areas in London’s travel zone 3, have you counted all expanses and factors? 

- The new BTL mortgage, offset by tax relief of only 20% even if you pay 40%
- Agent fees and buildings insurance
- routine maintenance such as Gas Safety checks
- one off repairs or replacements; I’ve had to replace boilers in almost every home or rental property I’ve ever owned ; six so far over 50 years, at a cost of £2-3.5k a pop. I also had to blow £8k on a new kitchen in one BTL last year as the original was falling apart 
- voids (no rent for a month or two between tenants), or costs if you’re unlucky enough to get a rogue tenant (I’ve never been unlucky, but did do one good tenant a favour once by evicting her via Court and  Bailiff action as she asked as that was the only way she and her growing family could get a Council flat - don't tell anyone!)

I also pay leasehold service charges; you won’t but there’s always the unexpected leak, gutter or drains job (I get ‘em at home even though it’s only 40 years old) 

I’ve benefitted from large capital gains as I bought ‘em 26 and 13 years ago for peanuts, but I can’t see a repeat in the next couple of decades of the crazy house price inflation of the nineties and noughties?

So, as it’s estimated that most landlords only get 4-7% return on the current value of their asset you might consider keeping it simple? Sell the 2-bedder and buy the ideal forever home and save the extra SDLT?  Keep a cash cushion in reserve, in an ISA each and/or Bond on 5%+, then, when they mature in a year or more, consider whether you want to get into BTL and buy an ideal rental property, depending on the market and legislative environment at the time?

But whatever you decide; do it well. Good luck!

thank you so much for such a detailed reply. really helpful and informative. 

i know that the SDLT will cost alot but the hassle of selling this home and then later on buying another one just for putting it on rent, wouldnt that be extra hassle? 

i am thinking to rent it privately rather than through the agent, not sure how will it work but i dont see any reason to give it through the agent. a lot of demand for properties so i should be able to rent it privately, easily.

its a freehold property so no leasehold charges or any other costs. 

only thing i am looking at is that this property will be there and will gain alot in value over the coming years, and perhaps the kid/s will benefit from it.