Releasing equity/ purchasing buy to let

Tonearoma

Hi, 

Any advice on how to buy a 2nd home to rent (this will hopefully form part of my almost non existent pension)

Currently own house outright (worth around 430k) 
and looking to purchase a property around 300k. This may well be used as a part holiday home for myself/holiday rental.

Not sure how you'd go about this, would you release equity to purchase 2nd property outright, and having a 300k mortgage on current home? (Current income is around 45k combined) 

Any bit of advice or ideas would be gratefully received. Thank you

SDLT_Geek

Tonearoma said:

Hi, 

Any advice on how to buy a 2nd home to rent (this will hopefully form part of my almost non existent pension)

Currently own house outright (worth around 430k) 
and looking to purchase a property around 300k. This may well be used as a part holiday home for myself/holiday rental.

Not sure how you'd go about this, would you release equity to purchase 2nd property outright, and having a 300k mortgage on current home? (Current income is around 45k combined) 

Any bit of advice or ideas would be gratefully received. Thank you

Will the property you are buying be in England?  If so, have you factored in the extra 3% stamp duty land tax which will be due on the purchase?

Tonearoma

Hi SDLT_Geek, 

The property would be in England, yes. It would probably be coastal, around 30 minutes away.

I haven't really considered much at this point tbh, just really wondering how I could go about this, and whether it's worth the risk.

Many thanks 

Bookworm105

you need to make up your mind what you your business plan is:
- if it is let to "normal" tenants then it won't be available for your holiday use.
- if you want to use it yourself then you'll need short term tenants / AirBnB  so you can control when void periods occur for your own use 
- are you in reality setting out to buy a holiday home with occasional bouts of income from other "users"     

will 45k income support a 300k mortgage? Check one of the many mortgage website calculators to see. In principle re-mortgaging your home to buy another should be the cheaper option, but not all lenders allow equity release where the money is spend in that manner. You need to research the mortgage market.
 
Can I Remortgage My Home To Buy a Rental Property? | GoCompare

if not, then you will need a large deposit to get a BTL mortgage on the other property. BTL deposit normally in the range 20 - 25% (£60,000 - £75,000 in your case). Do you have such a pile of cash?
Again calculators will show you what that means in terms of rental cover required 

can you support a mortgage when (it is a 100% certainty) you have zero rent periods?  

Tonearoma

Thanks Bookworm105, 

I just did some quick mortgage calculator workings out, and no, 45k wouldn't support a 300k mortgage, and also not having that kind of deposit, means at this stage, it's probably not going to happen.

Good advice though, so thanks for that

RHemmings

If you are buying a property to rent out, first you need to be very familiar with the responsibilities, including legal responsibilities of a landlord.  And the many ways that things can go 'wrong'. Both are many. 

Second, if you can't afford a £300k house, then could you buy a property to rent out in a cheaper part of the country? I'm guessing the high value is because you want the home for holiday use - being a suitable property in your target part of the country. Your follow-ups seem to strongly suggest this. Can you compromise on either the location, or the size of property? 

Can't you just move to the coastal house, since it's only 30 minutes away? And then buy and rent out another house somewhere else? You would have approx £130k to buy another, rental, property with. 

Can you tell us the general locations - both where you live and where you are thinking of moving to? That shouldn't identify you, but would help us understand what you're trying to do. 

Bookworm105

Tonearoma said:

Thanks Bookworm105, 

I just did some quick mortgage calculator workings out, and no, 45k wouldn't support a 300k mortgage, and also not having that kind of deposit, means at this stage, it's probably not going to happen.

Good advice though, so thanks for that

there you go then, if you cannot afford an outright  300k mortgage then your business plan just got a lot more risky as you would need to explore lenders who will give a smaller loan on your main home (based only on your income) and a top up BTL mortgage on the other property (which would be based on equity in that property and its rental cover)

that opens a world of pain in terms of "what ifs"
- your 45k income changes - you might lose both properties
- the rent dries up and you can't pay both mortgages from 45k income 
- you do short term lets and don't get enough in per year to cover the BTL mortgage 
- your business is so successful you never actually get to use the property yourself, 
- you start operating it as a Furnished Holiday Let (FHL) which potentially is more lucrative and has tax advantages but is lot more work and may land you in deep do do without getting planning permission if your seaside town is hot on such issues.

Tonearoma

Thanks RHemmings,

Some great food for thought there. Thanks.

I moved to Norwich a few years back. A friend of mine talked about doing a similar kind of thing (I don't fully know their personal financial situation)

Most of the Norfolk coast is quite accessible to me, ranging from 30 minutes to an hour in distance. It's a place I really enjoy spending time, many weekends currently, and at multiple locations.

At this stage, I wouldn't want to move out of Norwich, it ticks so many boxes right now. 

If I started to look into this in a more serious manner, then I could/would have to compromise. 

I'm more than happy to Airbnb a property in the spring/summer, to help cover some of the outgoings. Using the property in the less popular times as an escape from work life.

I guess I could look into a purchase in the city as a long rental, and just go to the coast as and when. But I also love the idea of potentially allowing friends or family the usage of a little holiday cottage.

Thanks for all the advice 🙏 

Tonearoma

Bookworm105 said:

Tonearoma said:

Thanks Bookworm105, 

I just did some quick mortgage calculator workings out, and no, 45k wouldn't support a 300k mortgage, and also not having that kind of deposit, means at this stage, it's probably not going to happen.

Good advice though, so thanks for that

there you go then, if you cannot afford an outright  300k mortgage then your business plan just got a lot more risky as you would need to explore lenders who will give a smaller loan on your main home (based only on your income) and a top up BTL mortgage on the other property (which would be based on equity in that property and its rental cover)

that opens a world of pain in terms of "what ifs"
- your 45k income changes - you might lose both properties
- the rent dries up and you can't pay both mortgages from 45k income 
- you do short term lets and don't get enough in per year to cover the BTL mortgage 
- your business is so successful you never actually get to use the property yourself, 
- you start operating it as a Furnished Holiday Let (FHL) which potentially is more lucrative and has tax advantages but is lot more work and may land you in deep do do without getting planning permission if your seaside town is hot on such issues.

Wow, that is a lot to consider (and I'm sure that's the tip of the iceberg) 

Thanks for highlighting all of that. I wouldn't say it's totally put me off, but it's certainly opened my eyes to things I didn't know.

Bookworm105

Tonearoma said:

I guess I could look into a purchase in the city as a long rental, and just go to the coast as and when. But I also love the idea of potentially allowing friends or family the usage of a little holiday cottage.

Ok so your business plan is primarily personal use holiday home
getting funding for one of those is going to be very hard as the rental income will be variable and so hard to convince a BTL lender that there is a reliable income stream to cover a mortgage given your own income won't.

you are going to have to compromise on the property cost and look on any income from  letting it in season as a bonus rather than a means of funding its purchase.

martindow

Don't under-estimate the work involved in short term letting.  You, or someone you pay, has got to clean the house after each letting, sort out the laundry, check the place over, do any repairs needed, etc.  This either takes a lot of your time or money to do.