Rent free opportunity - how to make the most of it !

Eroll27

Hello, this is my first time posting on here but I would love to get some financial ideas and advice to do with property. 

 Myself and my husband and young baby live in a 2 bedroom property which is currently on the market with the intention of moving to a 3+ bed house. 

Potentially myself and my husband may have an opportunity to live on a school site. This would mean our overheads are completely paid for with housing at school. We live in quite an expensive area in the south east so a 3 bedroom property is around the 500k mark. We have a house that’s valued at 410 k which we bought for 336k 5 years ago and we bought using a help to buy. 

IF we move on school site we would be renting out our house. I’m exploring the following options … 


1- stay put and remortgage the HTB loan. Our mortgage would be around 280k with the current rental value of around 1600pcm. Pros- We wouldn’t have to pay stamp duty ect and we love this area. Cons - we have outgrown this property.

2- Sell our property and move to a 3 bed house (around 500-550k) and then rent this out.  Pros - bigger house and somewhere to fall back on. Cons - high mortgage rates larger payments. Stamp duty and fees. We wouldn’t probably have to move to a cheaper area. 

3- downsize to a flat (approx 250k which would mean we would only need a 120k mortgage) the flat I’ve seen the rental income is about 1250pcm and have this paid off in about 3 years. Smaller return when selling but then save a bigger deposit once this has paid off and save the rental income to buy a much bigger property in a few years ! 

I hope this makes sense ? The third option seems a bit random but the logic is we would be borrowing much less money and therefore pay less interest. 

Any ideas are welcome ! 

Thank you for taking time to read this  

lika_86

I'm confused as to how options 1 and 2 interact with living on the school site. 

If you do have accommodation provided, why not just sell up and invest your money? Why do you want a property to rent out?

Eroll27

We would like a property just incase the job falls through or something happens. All options we would have at least a 2 bedroom property  

born_again

Eroll27 said:

We would like a property just incase the job falls through or something happens. All options we would have at least a 2 bedroom property  

Have a study of landlord regulations. You will not be able to move in straight away if the job falls though, or you get moved out. Once you have tenants in.

Albermarle

Would the  accommodation at the school be big enough for you?

Being a landlord is not simple. You have lots of rules to follow/understand, and you can have problem tenants. Even if they are good tenants, they maybe reluctant to move out when the time comes.

Although investing £400K might sound scary if you are inexperienced, but it is definitely an option to consider.
Not suggesting you bet the lot on Bitcoin or picking company shares. A mixture of short and long term cash savings + an amount invested in a mainstream medium/low risk fund, could be a possibility. A lot less effort than renting out property ( or buying and selling homes).
If you decide to buy a home later, you will be a cash buyer with no chain, the most popular type of buyer.

Eroll27

This is great advice thank you . But won’t the rental income be a better return ? This is projecting over a 5 year period roughly. 

SiliconChip

Eroll27 said:

This is great advice thank you . But won’t the rental income be a better return ? This is projecting over a 5 year period roughly. 

Possibly, but it's by no means certain. Having a single property means all your eggs are in one basket, so if you have problem tenants or lengthy void periods you could easily end up losing money. Most people who make money from property will have a portfolio of properties so that the inevitable losses are offset by profits elsewhere.

Syman

Are you sure your housing costs will be met by the school?

In my 30+ years of experience with tied/service accommodation, very few include all bills.

The Trust i currently work for have 3 or 4 tied properties for their caretakers. The housing charge is between 6.5 and 8% of the gross wage, taken at source. All utilities and Council tax are paid by the "tenant"

The Local authority service accommodation in schools is also around 7%. Again, this does not include bills.

Some private schools may fully expence their accommodation, but it is by no means the norm.

Albermarle

Eroll27 said:

This is great advice thank you . But won’t the rental income be a better return ? This is projecting over a 5 year period roughly. 

As we can not see into the future then it is impossible to tell.

5 years is a bit short for investing, so you would probably be better off keeping any house proceeds in cash.
A 5 year fix rate savings account is currently paying 4 to 4.5% . Risk free ( and effort free ) but there will be some tax , same as with rental income.

kimwp

I imagine it would depend on the people who would want to rent in the area, but my understanding is that two bed houses are easier to rent than three bed.