Advice on current situation

str8g8

Hello, we need some outside perspective on our current situation which I will try to summarise:

1. My partner and I (not married) jointly own our home with about £70k left on the mortgage. We have 2 children, aged 15 and 18 still living with us.
2. My partner owns a second property (no mortgage), which we lived in for 8 years. When we moved the market was not great, and rather than cementing a loss on the property, esp. when taking into account what we had spent on it etc, we decided to rent it).
3. We now find ourselves in a challenging financial situation due to debt (not mine) and are struggling to afford maintenance and repairs on both properties. Essential repairs to our roof for instance have been delayed for over 12 months now (!)
4. I think we should sell the second property (probably worth around £120k now, bought for £92k) and use the money to pay off the current mortgage and renovate it in the way we intended, plus give ourselves a bit of buffer (we have zero savings). Anything left could be set aside for the children though.
5. My partner disagrees and wants to keep the second house at all costs as its an asset - it does generate some income (about £350 pm after tax etc) and they also want to pass it on to our children as a gift at some point. (Also I think she feels guilt about our current situation and is trying to avoid the consequences).
6. Some other details: I'm on a higher rate income tax, my partner is on basic rate. (My income is good, but precarious, my partners is not great, but stable). We are in our mid 50s and thinking about passing some of our assets to the children over the coming years. (For example, putting the second house in a trust with them as beneficieries?)

Just looking for some general advice on the most efficient way forward, not looking to avoid tax etc, just keen to avoid pitfalls.

El_Torro

I suspect most of the comments you get on this topic will be from people telling you to sell the second property. There aren't many fans of Buy To Let here. 

Regarding giving something to the kids, how grateful will they be to receive this property? I would have thought it would be simpler, easier and better for you to help towards the deposit for a property they are buying for themselves to live in. 

I own a BTL myself so can't say I don't see a place for them. However based on what you've said and the fact that your partner is in debt I am finding it difficult to find good reasons for you to keep your second property.

Bigphil1474

My personal perspective - Forget the kids - there's absolutely no point in you struggling financially now just so your kids will get some money in the future which they may or may not need. They'll soon grow up, so enjoy your time now. Each to their own of course. 

Second home - if you sell it, you will have to pay CGT on any increase in value between when you stopped living in it and when you sell it. It'll be between 10 and 20% depending on personal tax rates. Will need calculating based on your circumstances. 

If you are in debt that you can't afford to pay off yourself, what's the point of keeping hold of a house you can't afford to maintain? If you take selling the second house off the table , can you afford to pay off the debts? I think it's more a debt free issue than a house one. Personally, I'd sell the second house, pay off your mortgage, fix the house.

saajan_12

str8g8 said:

Hello, we need some outside perspective on our current situation which I will try to summarise:

1. My partner and I (not married) jointly own our home with about £70k left on the mortgage. We have 2 children, aged 15 and 18 still living with us.
2. My partner owns a second property (no mortgage), which we lived in for 8 years. When we moved the market was not great, and rather than cementing a loss on the property, esp. when taking into account what we had spent on it etc, we decided to rent it).
3. We now find ourselves in a challenging financial situation due to debt (not mine) and are struggling to afford maintenance and repairs on both properties. Essential repairs to our roof for instance have been delayed for over 12 months now (!)
4. I think we should sell the second property (probably worth around £120k now, bought for £92k) and use the money to pay off the current mortgage and renovate it in the way we intended, plus give ourselves a bit of buffer (we have zero savings). Anything left could be set aside for the children though.
5. My partner disagrees and wants to keep the second house at all costs as its an asset - it does generate some income (about £350 pm after tax etc) and they also want to pass it on to our children as a gift at some point. (Also I think she feels guilt about our current situation and is trying to avoid the consequences).
6. Some other details: I'm on a higher rate income tax, my partner is on basic rate. (My income is good, but precarious, my partners is not great, but stable). We are in our mid 50s and thinking about passing some of our assets to the children over the coming years. (For example, putting the second house in a trust with them as beneficieries?)

Just looking for some general advice on the most efficient way forward, not looking to avoid tax etc, just keen to avoid pitfalls.

Youre combining 2 questions:(1) Do we preserve the asset/equity/pot of ~£50k for the children or spend part of it? and (2) Should that asset / investment be in the form of a house? 

For (2) you need to work out how much the net profit is on the rental: ie rent income less mortgage interest (not capital repayment part), average repair costs, insurance, agency fees, etc before tax. A property is not the only form of asset, you could sell and invest the equity. Depending on the numbers, a different asset may have a better return and be less hassle with less unexpected costs. 

Its then a separate question for (1) whether you keep the money set aside for children or spend it. Some thoughts below, but its very subjective and I wouldn't hold off on the best answer for (2) while you debate the below: 
- Owning two properties without an emergency fund is a bad idea, as it can cost you more in the long run if you have to borrow at high rates for emergencies.
- You could pay off your mortgage and then save what would have been your mortgage payment to build up a pot for the children again. Or leave it as is if you're managing and if it helps with the discipline.
- If the other debt is at a higher interest rate AND the issue that caused the debt has been resolved (eg credit cards closed etc) then you could save money buy paying that off earlier and then redirecting the debt repayments to build up savings. 

dojuls

That’s a tough spot to be in; I completely understand the stress of juggling two properties and having no savings. Selling the second house sounds like the more practical option right now, especially with urgent repairs piling up. I get your partner’s hesitation, though, it’s hard letting go of something that feels like a safety net for the future. Maybe a good middle ground is speaking to a financial advisor about the long-term pros and cons (incl. putting it in a trust)? Sometimes a neutral voice helps move the convo forward.

ReadySteadyPop

El_Torro said:

I suspect most of the comments you get on this topic will be from people telling you to sell the second property. There aren't many fans of Buy To Let here. 

Regarding giving something to the kids, how grateful will they be to receive this property? I would have thought it would be simpler, easier and better for you to help towards the deposit for a property they are buying for themselves to live in. 

I own a BTL myself so can't say I don't see a place for them. However based on what you've said and the fact that your partner is in debt I am finding it difficult to find good reasons for you to keep your second property.

Depends on the debt levels, recent landlords with BTL mortgage debt are probably in trouble, people who bought years ago and have no mortgages and are letting in areas where there is loads of work can probably generate a decent income, but it needs to be part of a wider portfolio that includes stocks, bonds, money market funds and other assets including cash. The biggest mistake a lot of people made was in thinking that property is somehow a future shock proof cash/value generator, by it`s very nature (illiquid, especially in a crisis) property can be a risky asset if you are relying on it to "release" funds.

Having said that my advice to the OP would be to keep both properties and find another solution to the debt based on salary/wages and cutting expenditure. There was another thread about selling a property to pay debt where someone underlined the difference between "secured" and "un-secured" debt and advised keeping the property (I think that poster though wanted to sell the house they live in, rent, then buy back into the property market)

ReadySteadyPop

El_Torro said:

I suspect most of the comments you get on this topic will be from people telling you to sell the second property. There aren't many fans of Buy To Let here. 

Regarding giving something to the kids, how grateful will they be to receive this property? I would have thought it would be simpler, easier and better for you to help towards the deposit for a property they are buying for themselves to live in. 

I own a BTL myself so can't say I don't see a place for them. However based on what you've said and the fact that your partner is in debt I am finding it difficult to find good reasons for you to keep your second property.

Couldn`t you just raise the rent a bit to pay off some of the debt?

str8g8

Thanks for the comments.
To answer some of the questions:
"Couldn`t you just raise the rent a bit to pay off some of the debt?"
We could raise the rent, in fact it is being let below market rate at the moment (but we don't really feel its ethical to do so, since as mentioned it needs updating).

Net profit on the property is about £350pm (this is an overage over the last 5 years, taking into account all fees, tax and maintenance). I agree its more of debt problem than a house problem. To me it feels like trying to maintain a rental is making the situation worse, whereas partner feels like it is part of the solution. I guess its sort of short term vs long term.

We have paid down the debt from around 20k to 4k in around 2 years. If we carry on as we are we could be debt free by the end of the year.

I agree that I think we need to get some financial advice, esp about the exact amount of CGT we would end up paying etc.

noitsnotme

ReadySteadyPop said:

El_Torro said:

I suspect most of the comments you get on this topic will be from people telling you to sell the second property. There aren't many fans of Buy To Let here. 

Regarding giving something to the kids, how grateful will they be to receive this property? I would have thought it would be simpler, easier and better for you to help towards the deposit for a property they are buying for themselves to live in. 

I own a BTL myself so can't say I don't see a place for them. However based on what you've said and the fact that your partner is in debt I am finding it difficult to find good reasons for you to keep your second property.

Having said that my advice to the OP would be to keep both properties

ReadySteadyPop said:

El_Torro said:

I suspect most of the comments you get on this topic will be from people telling you to sell the second property. There aren't many fans of Buy To Let here. 

Regarding giving something to the kids, how grateful will they be to receive this property? I would have thought it would be simpler, easier and better for you to help towards the deposit for a property they are buying for themselves to live in. 

I own a BTL myself so can't say I don't see a place for them. However based on what you've said and the fact that your partner is in debt I am finding it difficult to find good reasons for you to keep your second property.

Couldn`t you just raise the rent a bit to pay off some of the debt?

Are you ok?  Your account seems to have been hacked!  Blink twice if you need assistance.

lincroft1710

What are your options?

If your joint salaries and BTL income do not generate enough cash to pay for essential repairs to your house then you have to get the money from somewhere. Forget this notion of passing on the BTL to the children, at the moment you need the capital and in the long term your children may not appreciate being joint owners of a house neither wants

So sell the BTL, but if your tenants are unwilling to leave it could be 12 months before a court orders them to leave.

Uriziel

I am struggling to understand how you can be a higher tax payer and in debt. There is very clearly more to this story and either you or your wife has issues with overspending. It is not possible for you to be a tax payer and even have a working wife and somehow still not afford mortgage and some repairs at such a late stage in life.

Your children are not going to appreciate receiving property that requires repairs. If it is that cheap it most likely is in an area that they will not want to live in so it makes more sense to sell it and just put the money in a savings account and then help them with a deposit. If your wife refuses ask her how she is expecting to get through this and let her come up with a plan instead of you trying to juggle this on your own while she is blocking any solution.