Renting Out Our House ???

sarah1

HI I NEED SOME HELP.
we are going to be renting our house out through an agent as we are going to be moving out of the area hopefully long term.
We have a mortgage for £70k on the property worth about £180k . we will need £20k on top to help us set up our venture. Should get around £600 ... £650 per month less fees.
we need to know what is the best way to go about things. Part Furnished /Fully Furnished ???
what is the best way to avoid large TAX BILLS.
Any help gratefully received.

bobsa1

Hi, we rent out a few properties now but started like you are doing. We changed our residential mortgage to a rent to buy mortgage (through a financial advisor) and let it partly furnished.

The advantage for us in doing that was that we took some equity out of our property when we changed the mortgage, to put as a deposit on our new home.

You can take all interest charges for your mortgage into account when doing your tax, so it is probably more tax efficient to have a higher mortgage on the property you are renting out.

Usually you need to show that the monthly rent covers at least 125% of the mortgage.

If you are using an agent you can deduct agents fees from your tax liability and make an allowance for wear & tear to furnishings which again is tax deductible.

If you use a good agent they can probably help you with this.

Hope this helps.

eurows

Are you mad?

You seem in a fairly good financial position. Don't throw it away.

Your house is worth £180,000 probably dropped in value since the last time you had it valued. WILL drop further in the next two years.

Your picture is probably rosy, maybe painted by an EA but what if:-

The value of your house depreciates - GUARANTEED

You don't get a tenant

How can you ride this

More and more stories are coming out about people in neg equity. Coming unstuck with falling prices.

6 months ago there were loads of people advising buy to let. You can now read loads of stories about the same people in trouble and desperate to sell.

Look into it sensibly first. Don't listen to EA's.

Read this first

http://portal.telegraph.co.uk/property/main.jhtml?xml=/property/2005/09/13/phell13.xml&sSheet=/property/2005/09/13/ixpright12.html

and there is plenty more

november

I always advise landords thinking of buying to let for the first time or letting out their property to think of it like a business and to be aware they must NOT assume all their mortgage and costs will always be covered every month by a perfect tenant paying rent.

Reasons for this are:

You may have periods of time when you are paying a mortgage but don't have a tenant. Even if you start with a tenant they may move out and then you are waiting for someone to move in. You NEED savings to cover your mortgage for times you don't have a tenant. If you haven't got 2 months mortgage put up forget it and you should preferably have 6 months in case of other costs as well.

On the above - what is demand like for your renting your type of property in your area? What rents are other advertisers getting?

You will have a tenant (hopefully) who will expect YOU to pay for all repairs promptly - you need money to cover this. Either take out policies for gas etc servicing or ensure you have savings to cover.

You hopefully will have a good tenant. You may get a bad tenant and incure damage or rent arrears costs above that of a deposit.

You have to serve 2 months notice if you want the tenant to leave. If your tenant doesn't leave you WILL have to take them to court to make them do so. Have you got money put aside for this?

If your property has gas you will need an annual gas certificate. If you provide electrical goods I strongly advise getting them checked annually - legislation currently says you have to have taken 'reasonable' precautions to ensure they are safe and not having them checked could be deemed unreasonable.

Re. the furnished/unfurnished question - depends on demand in your area. I assume it is a house - sometimes there isn't so much of a demand for furnished houses as families tend to have their own furniture - check. Also if you provide soft furnishings they have to comply with legislation. Another thing to remember with providing furniture is it will, eventually, wear out (damage excluded) and it increases your risk of having additional costs for damage above and beyond a deposit (more stuff = potential higher cost of repairing/replacement)

Done properly in an area where there is demand renting can work well for landlords, particularly for those who bought years ago and therefore have a low mortgage and don't want to live in the property themselves WHEN they have considered and worked out all the issues involved.

Lecture over (sorry). If I had a £1 for every stressed landlord I had met who's mortgage payment was due out and whose rent was late coming in or who was tenant free and wanted one to move in NOW THIS MINUTE and who had never even given this scenario a thought prior to letting out their house I would be rich.

sarah1

Thanks for all your replies.
Do you also know anything about dss people. why do landlords advertise NO dss?
I was thinking that the dss would pay me direct and they have plenty of people to fill them, (too many people no houses) ???
What is the downfall of these. It just seems straight forward but there must be a catch somewhere.?

Doozergirl

I'm afraid I can't offer much help except an anecdote.

My friend has a flat with a DSS tenant in. He has been trying to get the guy out for over ten years but his legal aid (being DSS) pays for a better solicitor than my friend can afford, it seems! The rent comes when the Housing Benefit is paid. This is infrequent to say the least, especially living in an area covered by one of the most notoriously bad councils. He has to shoulder the costs himself until he is finally paid. There are often disputes over the amount of Housing Benefit the tenant is due and this has on occassion involved going to court to get the money!

I hear it is better to rent directly to the council than to a DSS tenant. Don't know exactly why .

GDB2222

sarah1 wrote:

Thanks for all your replies.
Do you also know anything about dss people. why do landlords advertise NO dss?
I was thinking that the dss would pay me direct and they have plenty of people to fill them, (too many people no houses) ???
What is the downfall of these. It just seems straight forward but there must be a catch somewhere.?

Well, the catches are:-

1. Tenant is a man of straw, so if he wrecks the place and the dposit does not cover it, you can whistle. Same happens if he has to pay some rent on top of housing benefit (HB), but does not do so. Try to get an obscenely large deposit - if you can. Either that or keep your fingers crossed.

2. If HB paid direct to you, you are liable to repay it if there was a mistake or anything. Suppose tenant claims HB for a year, but has a job which he has not told HB about. After a year, they find out, and they reclaim the whole of the HB back from you (as it was paid to you). You can try to get it back from tenant - fat chance. So, you have let your flat out for nothing for a year.

Conrad

Ive sold my B2Ls, its the end of the ride, dont be the last muppet in the UK B2L queue.

Invest elsewhere or sell and have a reduced mortgage. Invest in international stock markets via packaged funds or buy land in Germany / Japan etc. Its easy and far more likely to make a profit.

Mnay Stock Markets have doubled in the last 12 months. Land in Tokyo is up to 90% cheaper than 15 years ago. Its about to go up. Buy a £50000 plot and wait 7 years for it to become £500000+

Your thinking "that all sounds very complex", but think about it, its not as hard as you think. Germany is only 1/2 hours on a plane. Ive seen a whole village school for 40000 euros. Imagine what that will be worth in 10 years as they climb out of thier long recession.

biblejohn

eurows wrote:

Are you mad?

You seem in a fairly good financial position. Don't throw it away.

Your house is worth £180,000 probably dropped in value since the last time you had it valued. WILL drop further in the next two years.

Your picture is probably rosy, maybe painted by an EA but what if:-

The value of your house depreciates - GUARANTEED

You don't get a tenant

How can you ride this

More and more stories are coming out about people in neg equity. Coming unstuck with falling prices.

6 months ago there were loads of people advising buy to let. You can now read loads of stories about the same people in trouble and desperate to sell.

Look into it sensibly first. Don't listen to EA's.

Read this first

http://portal.telegraph.co.uk/property/main.jhtml?xml=/property/2005/09/13/phell13.xml&sSheet=/property/2005/09/13/ixpright12.html

and there is plenty more

That article refers to a couple who bought a brand new house and as the expert on the article says, new houses very often drop in value to the normal market price within the first few years as you are paying over the odds for a new place.

House prices are a very hot topic at the moment. Some people will say they are going to drop, others say they will go up. Either way, they will more than likely still go up by more than you`d get in a bank over the whole year.

It is all down to how long you want to keep hold of the house for. In my city, the renting market is flooded. There are millions of people buying houses and letting them out. So much, that its cheaper to rent a house than to get a mortgage on it. Take for example a 2bed flat in my city. Monthly mortgage would be about 500quid on an interest only mortgage. The rental you could get is only about 400quid a month. If your very lucky, you might just be able to cover the mortgage payment from renting the place out, but you wont make any profit. The only way you`ll make money is from the house price going up, and you need to decide if you think its likely for this to rise over the period of time you are planning on keeping the place.

For Example: One of my friends does b2l and he is planning on selling his houses off in about 30 years time and hoping that the increase in value over the next 30 years is enough for him to retire on.