Are my rental sums correct?

Cakeguts · 24 January 2017 at 11:42AM

How much research did you do into rental properties in the area that you bought the 60K property? I am struggling to think of an area of the country where a 60K property would be considered a nice property. You have already said that it isn't in a very good area and the neighbours are not pleasant? How did you decide to buy this property did you just see one that you could afford and then just buy it? Who do you expect will want to rent this property from you? Someone with a good job?

You need to do some research. Your rent is not how much you get each month it is how much you get each year. The best properties are the ones that tenants rent for years and years. Every time a tenant leaves it is going to cost you money. The cheaper the property the less choice you have of tenants. The less choice you have the more likely you are to get someone who will wreck the place.

Why not do this instead of all these daft ideas. Sell the house you are in give you ex his equity and you go and live in the rental house. You have enough equity to own that outright and it will also give you a very good idea of what it is like to live in a 60K house in a not very good area? Something that you were hoping someone else would pay you for.

MyOnlyPost · 24 January 2017 at 12:17PM

Cakeguts wrote: »

How much research did you do into rental properties in the area that you bought the 60K property? I am struggling to think of an area of the country where a 60K property would be considered a nice property.

In some areas fo the North East and North West properties can start as little as £10-15k and a ""nice" property that working tenants would want to live in can be bought for £50-60k. The rents however are commensurate with the property prices

booksurr · 24 January 2017 at 1:01PM

Jeanclaudvandamme wrote: »

Keep living together and use our £60k equity in the rental house to get 3 more properties (circa £60k) so 4 buy to let mortgages in total. That would mean £21,600 in gross rental income. Mortgage for each property would be £272 repayment or £150 interest only. I understand George Osborne's changes means landlords will soon no longer be able to deduct all their mortgage interest when they work out their profits. So I think that means we can only claim £122 a month as a cost for tax relief if we went for repayment. good grief NO, if you think the capital repayment £122 (272-150) is an allowable cost you cannot be more wrong. The capital repayment is part of your profit since that is what your wealth increases by and will be yours when you sell. As such you pay tax on it, you do not claim it against tax I think most landlords go for interest only. So based on interest only, according to my calculations on 4 houses gross profit £21,600 minus interest only mortgage costs of £7,200 = £14,400. Minus tax at 20% = £11,520 profit a year. Is that roughly right?

rental income 21,600, let us assume you agree 50/50 split, so 10,800 each
let us assume for the sake of example you have non finance related costs (repairs, etc etc) of £1,000 so £500 each (a very unrealistic figure!)
let us take the interest as 7,200/2 = 3,600 each
let us take as read one owner is a higher rate taxpayer whilst the other is basic rate due to the impact of job and other income

Basic Rate taxpayer
rental income 10,800 - 500 non finance related costs = 10,300
tax payable 10,300 x 20% = 2,060
less interest cost relief of 3,600 x 20% = 720
net tax payable 2,060 - 720 = 1,340

"profit" made: rent - other costs - interest paid - tax: 10,800 - 500 - 3,600 - 1,340 = 5,360

Higher Rate taxpayer
rental income 10,800 - 500 non finance related costs = 10,300
tax payable 10,300 x 40% = 4,120
less interest cost relief of 3,600 x 20% = 720
net tax payable 4,120 - 720 = 3,400

"profit" made: 10,800 - 500 - 3,600 - 3,400 = 3,300

the basic rate taxpayer nets £2,060 more than the higher rate taxpayer under the new tax rules. They will come into full force in 20/21 tax year as between 16/17 to then they are applied in increments

Jeanclaudvandamme · 24 January 2017 at 1:51PM

Hi, thank you all very much for your helpful responses. It's clear I need to sit down properly and go through the figures. Perhaps this isn't an easy get rich quick plan and I need to reconsider! Thanks for taking the time to reply, I'll sit down and read properly all your responses.

Cakeguts · 25 January 2017 at 1:23AM

MyOnlyPost wrote: »

In some areas fo the North East and North West properties can start as little as £10-15k and a ""nice" property that working tenants would want to live in can be bought for £50-60k. The rents however are commensurate with the property prices

North East probably but not North West. In the North West most people do not want a terraced house that has a front door onto the street and that is all you will get with 50k to 60k and that is likely to be a back to back with no back yard or garden. If you look on the internet you will see how many of these properties are available for rent at anyone time compared to a house with off street parking and a garden.

marliepanda · 25 January 2017 at 8:28AM

I live in the northeast. I wouldn't considering many of the 60k properties round here "nice" (not even with quote marks!)

tlc678910 · 25 January 2017 at 8:54AM

Jeanclaudvandamme wrote: »

Hi, thank you all very much for your helpful responses. It's clear I need to sit down properly and go through the figures. Perhaps this isn't an easy get rich quick plan and I need to reconsider! Thanks for taking the time to reply, I'll sit down and read properly all your responses.

Hi, I think you have had your head turned by these mythical figures of big profits for old rope, but you more than anybody should know these figures are make believe. You have bought a cheap property and by May will have failed to let it successfully for 2 years!

The only reason the rental hasn't severely bit you is because you bought it outright and no finance was involved. Your ex found the area unlivable. Imagine having 4 properties, each with mortgages and experiencing similar problems.

If your ex is happy to walk away with 40k is this clear and agreed as full and final for both properties and any other shared assets. Has your ex contributed to the costs of the buy to let beyond when he lived there? (e.g. insurance, council tax). If you keep the shared property while unable to take your ex off the mortgage won't your lender insist on paying your ex his share on sale of the property?

If your ex has not contributed to the buy to let at all (except bills when he lived there) it is still 100% yours (bought with your inheritance) so sell it and if you are lucky and get your 60k back put it in your own bank account.

Get yourself into work and sell your joint property. If your figures are correct you will get about 30k equity each. You (in work) will have 90k - less whatever you have needed to dip into it while unemployed - to put towards your own property. Then you can both move on with your lives.

Tlc

Are my rental sums correct?

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