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General => General discussion => Topic started by: ROO1 on 12 January 2014, 14:15
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Hi, thinking of renting out the house we currently live in (we have 50% equity) and buying another. Anyone else done this? If so what are the real life pros and cons. Thanks in advance
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someone like me renting it out :laugh: :grin: :evil:
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You'll have to change your mortgage for the property that you want to rent out and then get another mortgage for the new place. But I would imagine that you may not be able to get a Buy-to-let mortgage for a shared-ownership property.
You may not be able to rent out a property if you don't own it 100%, but that will depend on your shared equity deal.
A lot of shared ownership deals have limits on things like modifications, selling, etc.
You'll also have to make sure you can afford to have the house empty and pay 2 mortgages if you don't find a tenant straight away.
The big problem I have personally with buy to let, is that a lot of people getting into the buy to let market buy up the cheaper properties pushing up the prices making it tricky for people to get onto the property ladder.
If the only way you could get onto the property ladder yourself was by using a shared equity deal, do you really think it's right to a) take up a property that was bought as shared ownership and b) take a cheaper property off the market stopping someone else who's trying to get onto the property ladder buying it (imagine that was you a couple of years ago?)
(^This is my personal opinion as someone at the bottom of the ladder, not intending to offend)
A better use for your money would be to buy out another 25% of your current place so that you "own" 75% of it. Then in another couple of years get the last 25% so you "own" all of it.
Or if you can afford the bigger mortgage, sell your current place, use the money from that as deposit on a bigger place and get yourself a mortgage for the full amount.
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You'll have to change your mortgage for the property that you want to rent out and then get another mortgage for the new place. But I would imagine that you may not be able to get a Buy-to-let mortgage for a shared-ownership property.
You may not be able to rent out a property if you don't own it 100%, but that will depend on your shared equity deal.
A lot of shared ownership deals have limits on things like modifications, selling, etc.
You'll also have to make sure you can afford to have the house empty and pay 2 mortgages if you don't find a tenant straight away.
The big problem I have personally with buy to let, is that a lot of people getting into the buy to let market buy up the cheaper properties pushing up the prices making it tricky for people to get onto the property ladder.
If the only way you could get onto the property ladder yourself was by using a shared equity deal, do you really think it's right to a) take up a property that was bought as shared ownership and b) take a cheaper property off the market stopping someone else who's trying to get onto the property ladder buying it (imagine that was you a couple of years ago?)
(^This is my personal opinion as someone at the bottom of the ladder, not intending to offend)
A better use for your money would be to buy out another 25% of your current place so that you "own" 75% of it. Then in another couple of years get the last 25% so you "own" all of it.
Or if you can afford the bigger mortgage, sell your current place, use the money from that as deposit on a bigger place and get yourself a mortgage for the full amount.
You have misunderstood....
Sorry I meant we only have half of the value of our house left to pay, So large equity
160k house with only an 80k mortgage
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Are you doing it so you can move to a bigger house or just as a investment ?
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Are you doing it so you can move to a bigger house or just as a investment ?
House sale has fallen through twice in last few months due to proximity of the river and we want to move. Not that the house has ever flooded, the media hype has got solicitors twitching
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Tricky one that you in a new build on a flood plane then ? Bridgnorth at a guess
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Do it above board and through a good letting agent, as its not your main income you need to protect your asset and avoid hassle.
Be selective of tenant credentials, don't allow dss.
Get insurance and mortgage for letting, don't be tempted to avoid this...
Put funds by for repairs, more things than you expect will go wrong.
Make sure you can afford both if the interest rates rise.
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Tricky one that you in a new build on a flood plane then ? Bridgnorth at a guess
Yes Bridgnorth but further down the river and 350 metres away from it. Most properties are on its banks and sell easily even though they flood every year. Ours has never ever flooded. Not on a flood plane.
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..............
You have misunderstood....
Sorry I meant we only have half of the value of our house left to pay, So large equity
160k house with only an 80k mortgage
Ah, right.
If you're close to a river, seems like it would be best to hold onto it for the moment and then I guess your options are to at least wait till the summer and try to sell again, you may not make any more money but at least you'd get it sold or get it rented out and hope that it doesn't lose any money in the long term.
Are you sure you've got the pricing right? My friends had their place on the market for a year with no buyer before they dropped the price significantly and sold it in a couple of months.
Even if it's not on the flood plain some people will just look at a map and see that it's close to a river and discount it.
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We sold it twice both within 1 week
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You will need to negotiate equity release from your current house to buy another - you're letting to buy, not buying to let. As such you will need a let to buy, not buy to let mortgage - there are differences. You need to be realistic on the value of your house - surveyors will define it, not your asking price. The value will be set by recent equivalent sales, not what you think it's worth.
So long as you go into this with realistic expectations you should be fine. Accept that there are three different types of tenant:
1. Morons who think landlord are assholes.
2. Assholes who think landlord are morons.
3. Chuff
The first two interchange at will.
If you can get into another house using your equity then it's a sound investment and one that should deliver a good pension in the long term.... maybe.
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As much of a good investment this could potentially be, it's a good idea to stress test your finances.
You don't want to find yourself shafted if anything goes south. I remember a couple of months back some talk of private rent controls. Its just idle talk atm, but its not beyond reason that regulation of the private rental market could make a comeback.
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but its not beyond reason that regulation of the private rental market could make a comeback.
You realise that Labour isn't it power and that sort of thing went out with the ark, right?
Far more likely is a rise of several percentage points on the base rate. See what that does to your figures.
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Flooding or the thought of potential flooding can make people do irrational things.
Why do you want to move? Do you want a bigger house, or have you got your worries about possible flooding? If it's the latter and you rent it out, you'll still worry about it when the river gets high, even though there are none of your things in it.
Personally I'd stick it out and hold out for a sale and move on. Even if it means selling and moving into rented in the short term before you find a new house. You may need to take a little less for your house, but with nothing to sell, you will potentially get any shortfall back by being in a stronger negotiating position for the new house.
Whilst £80k might seem like a fair amount of equity, it's not that much if you share it over two properties. "Buying" a second house may stack up on paper providing that things go well, but it will mean that you will owe a considerable amount of extra money. If you struggle getting tenants due to their concerns about flooding, you make struggle to fund the debt.
You can make your house more saleable by putting flood defenses in place. Flood doors and covers for air bricks needed cost that much, but it could ease potential buyers minds.
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As much of a good investment this could potentially be, it's a good idea to stress test your finances.
You don't want to find yourself shafted if anything goes south.
^ This.
A number of years ago, we rented a house from an aquintence who was looking to rent out the house but they hadn't done their maths properly. They set the rent too low, then one of them changed to a lower paid job and after 9 months in the house we were told that they *had* to sell the house because they couldn't afford to keep it going. I've heard this happening to lots of people in recent years.
A friend of mine had a house on the south coast that was empty for 9 months, and although he didn't have to pay council tax and some other bills while it was unoccupied, he still had to cover the mortgage while also paying for the place he lived in.
If people are renting a house, I think they'll be less bothered about the river so long as you can assure them that it hasn't flooded.
Is the value of the house going to go up or down with it being close to the river and the fact that flooding has become more of an issue in recent years? IE, is this a sound investment property?
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IE, is this a sound investment property?
That's why I'd be looking to get out of it and move on to something you are more comfortable with.
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but its not beyond reason that regulation of the private rental market could make a comeback.
You realise that Labour isn't it power and that sort of thing went out with the ark, right?
Far more likely is a rise of several percentage points on the base rate. See what that does to your figures.
^_^ This was what I meant. Interest rate changes, what happens if it doesn't rent for a few months, etc.
A cross party bill had it's first reading in parliament a few months back discussing rent controls on private rental properties iirc.- As I alluded to before, I doubt that this bill will get any traction. Yet consider the increasing fuss people are making about first time buyers and decrasing home ownership, and some of the backlash seen even in this thread.
Long term, it's not beyond the realms of possiblity support will increase ultimately leading to regulation creeping back. Even then it's not going to sqeeze all the profit from the business, but still.
Always have an exit strategy.
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I recently found out that you still have to pay council tax on a empty second property. Something to bare in mind if the house is empty for a while. :wink:
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Houses are a bigger risk than small flats near city centers on buy to let :whistle:
If chuff was renting my place I would insist double deposit! :evil:
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Houses are a bigger risk than small flats near city centers on buy to let
The OP comes from Shropshire. We are lucky enough to not have any cities, so if he wants a property to let that's close enough for him to keep an eye on, it'll be a house. People in the sticks like to have their own bit of space around them, so there will always me a better market for houses than flats round here.
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Depends really investors tend to buy whats hot rather than locality, like guaranteed capital gains and rental yields, but I hear what you are saying though.
Off plan comes to mind you might get 10% increase once phase of plans have even been built finalised before a mortgage kicks in.
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but its not beyond reason that regulation of the private rental market could make a comeback.
You realise that Labour isn't it power and that sort of thing went out with the ark, right?
Far more likely is a rise of several percentage points on the base rate. See what that does to your figures.
Very true
Interesting articles:
Scaremongering
http://moneyweek.com/endofbritain/
Debunk
http://anotherangryvoice.blogspot.co.uk/2013/01/moneyweek-and-their-end-of-britain.html
Truth lies somewhere in the middle as always, but one things for sure and that's the rates cant get much lower.
In situations like this you win big or lose it all so you need to be sure of your employment and finances.
We lost a wage packet in 08 and got stuck with 30k on cards and a one bed flat, just about clear now and looking to move :undecided:
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I would say that unless you are paying your mortgage off super fast, with 50% equity, you are going to (at the bare minimum) break even, perhaps make a semi decent profit on it. With that in mind, I would go for it, with the following proviso's...
1. Go through a reputable and recommended letting agent - a fully managed package is somewhere between 10-12% of rental income.
2. Ensure you have a buy to let mortgage. You will probably get a slightly worse rate than a standard mortgage but at the moment rates are low, so it could be a good time to change mortgage anyway. Remember that you might get a 'lock-in' period for your new mortgage (normally the same amount of time as your fixed rate if you get it), so ensure you intend to rent for longer than this.
3. Get a decent landlords insurance policy.
4. Get (something along the lines of) British Gas Homecare - the best cover you can afford.
5. Ensure you let the taxman know about it - you'll need to pay tax on any profit.
6. Once it is rented out, ensure you put away the majority of the first 6 months/1 years rent (or profit if you use it to pay your mortgage) just in case you get a period of it not renting out - some letting agents will guarantee the property is rented out for something along the lines of the first 6 months, so you'll be safe for a while, but after that, there's no guarantees.
Remember as well, that any expenses you have with the house (letting fees, insurance, homecare) can be offset against tax (IE, you get tax relief on them and will therefore only pay tax on the profit, rather than your rental income).
I rent my house out as I am out of the country for 4 years - although I don't make a profit, it's nice to have someone paying my mortgage for me!
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As said, your first consideration is whether the property is a good investment. If there are question marks over this, then selling maybe the better option this time round.
Secondly, ensure you use a reliable letting agent. You will need to decide whether you wish to go for fully managed service or for let only.
Fully managed service is best option if you do not live near your let property or do not have the desire or confidence to manage things such as maintenance and repair yourself. However, If you are likely to be living close by, then don't discount an agent 'let only' service, whereby they will find the tenants and do all the contract/collection of rent/deposit side but as the landlord you would manage some aspects of the let yourself, such as maintenance and repairs etc. Of course you'll need to factor annual costs for maintenance/repair plus cleaning and redecoration (between lets), so it needs careful consideration and many prefer to pay a higher % to an agent to take care of this, but it can work.
My partner and I have been letting out property for 15 years using a letting agent on a let only basis and it suits us. We live only couple of miles from our properties so are close at hand. It's a reasonably sound investment in an area awash with students, but we generally only let to mature overseas students. We've never had the properties empty for longer than a month, thus limiting the financial burden. You need to carefully look at the rental market in your area to avoid long periods without tenants, which will be the killer.
Would you let the property furnished or unfurnished?