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I'm thinking of buying a buy to let house - am I stupid?

(32 Posts)
VivaLeBeaver Mon 08-Oct-12 08:42:58

Well, when i need to covince dh first, so help me think of pros and cons.

The house in question belongs to my dad but he's selling as he's got married. So I know the house and know its in a good state of repair. It's a three bed terrace in an area where there's quite a few students for the local teacher training college. I'd say the vvalue of the house is about 120k looking at similar stuff on rightmove, but that's asking prices not what stuff is going for. I don't want to rip my dad off but equally I don't want to pay a full asking price just because he's my dad!

Anyway, house could be rented out to 4 people as its common for the living room to become a bedroom in rental properties of the layout this house is. I've looked at rental prices and they seem to be between £70 and £90 per person, per week for a 48 week rental period. We can sign up to a thing with the college where they'd promote the property to new students. The house next door is always rented out to students from this college.

So say we could get £1200 a month rent. We'd have to pay water rates but not council tax I don't think if they're students?

Main thing will be the mortgage. Looks like we'd have to put down at least a 25% deposit. Dh has that sort of cash but I think that would be most of our savings gone. He's quite cautious so not sure he's going to go for this. He will worry about if we don't rent it then still having to pay the mortgage. Dh is very, very good at DIY so can do repairs though obviously gas, elec would need to be done properly.

Dh doesn't have a pension and is 50yo, I'm hoping that we'd make a bit of money each month from it now and in 20 years time have the mortgage paid off and it all be profit. I'm mid 30s so younger than dh so should be able to get a 20 year mortgage.

Am I bonkers. Any advice from people who have done this?

CherylWillBounceBack Mon 08-Oct-12 09:10:59

If you can get 1200 p /m for 11 months of the year yield on an asset you are buying for circa 100k, that sounds extremely good. Obviously you would need to pay tax on a proportion of that sum, and maintenance would be important too.

the main thing is though I simply can't believe it - at least at thus moment in time when house prices are generally very high compared to yields . where I am in the country, a house that would rent for 1200 would be valued at 275-320k. if you can genuinley get full occupancy for the majority of the year at those figures mentioned, it doesn't sound risky, it sounds pretty good barring a real interest rate shock.

MoreBeta Mon 08-Oct-12 09:16:45

If your figures are right that is a 10% gross yield. Very good for residential property.

However, you are surely to late for the student market now so you will be waiting a year before you get income if you bought it now?

Check on Rightmove, Zoopla and Land Registry for actual sold prices though before taking the plunge. Asking prices seem to start out 20 - 30% above final selling price in our area.

The alternative is for your Dad to put the house on the market and decide whether you really want to beat the best offer he gets. If you outbid the actual market price on offer your Dad surely could not ask for more?

PigletJohn Mon 08-Oct-12 10:48:23

It is fairest for dad to put it on the market and see what offers come in.

BTW on investment diversification

If you already own a house you probably already have 90% of your "wealth" invested in domestic property. It is usually considered preferable not to put all your baskets in one egg.

Some people are still very enthusiastic about BTL but there are bargains to be had from distressed sellers. Opinions differ on what the housing market will do over the next 20 years.

At the moment a private investor gets tax relief on interest charged on money he borriws to buy a BTL house but not on money he borrows to but shares, gold bars etc. This might change. You are probably too young to remember 17% mortgage interest in Thatcher's day, but interest rates are currently very low, and will go up.

VivaLeBeaver Mon 08-Oct-12 11:00:03

Th rental figures I'm going on are what the teacher training college quote on their website and are also backed up by rental ads on the internet/local paper.

Dad would let me have all the furniture as well so thats one less expense.

Letting him put it on the market and equalling/slightly bettering the best offer is a good idea. But one advantage I thought of me buying it would be that he'd save on estate agent fees. Will have to ask him what he wants to do.

Its definetly not worth morethan 120k, thats what he paid for it 2 years ago and I was under the impression prices had fallen a bit. Will look at Zoopla for sold prices.

One question - me and dh currently have a 40k mortgage on our house which is worth 170k. A friend just mentioed the possibility of remortgaging this house so we could pay cash for the rental prop. Then we do have to worry about the restraints/higher interest rates of a btl mortgage. Does that sound a good idea?

PigletJohn Mon 08-Oct-12 11:08:05

Taking out a mortgage on one house to avoid taking out a mortgage on another will not make the debt or the interest payments smaller.

VivaLeBeaver Mon 08-Oct-12 11:08:43

Nationwide are saying I can have another 100k to remortgage on this prop - payments would be £630 fixed for 4 years with a £99 arrangement feel.

I'm fairly sure that repayment figure includes the 40k mortgage. Website says "Your results for loans of £100,000 with a current mortgage of £40,000 on a property value of £170,000" So thats for all the money combined isn't it?

So we'd have to put up 20k cash which we could do.

Then we pay £630 a month, water rates would be on a meter but maybe £40 a month. Things like an annual gas inspection to pay for. Does anyone know how much tax we'd have to pay? Put £100 minimum a month aside for repairs. We should be looking at a profit of a couple of hundred a month if its rented out.

I'm not really doing to it to make a profit now - as long as we break even I'd be happy. The thing I want is in 20 years time to have 2 houses mortgage free.

PigletJohn Mon 08-Oct-12 11:09:27

Sorry
Misunderstood

Will the rate be good?

VivaLeBeaver Mon 08-Oct-12 11:09:35

PigletJohn, from looking at btl mortgages it seems that the interest rates are a bit higher and the arrangement fees are about the 2k mark.

VivaLeBeaver Mon 08-Oct-12 11:10:39

I can fix for 4 years at 4.49% or for 5 years at 4.9% (payments would then be £659 a month).

VivaLeBeaver Mon 08-Oct-12 19:11:03

Well dh was interested when I mentioned it to him so he's mulling it over.

One more worry I've thought of is that as dh is 50 then a 20 year mortgage of approx £630 a month is a lot to be taking on, won't finish till he's 70. I do work though so hopefully we'd be allowed to borrow the money.....not sure if mortgage companies might say he's too old.

SeventhEverything Mon 08-Oct-12 19:17:48

Message withdrawn at poster's request.

DigWeedSow Mon 08-Oct-12 20:06:46

Hi, I've been reading this thread with interest as we are in a similar position and in the process of purchasing our first BTL.

We considered raising the money to purchase our BTL by taking out a mortgage on our own home however we found a better deal on a BTL mortgage with Northern Rock (3.8%).

Will your property be classed as a house of multiple occupancy? If so it's worth checking out what regulations need to be adhered to.

With regard to the value of the propery you can see what other houses have sold for in the area on nethouseprices.com, this combined with valuations from a minimum of three estate agents may give you a figure that is fair to both parties. Hope this helps and good luck

VivaLeBeaver Mon 08-Oct-12 20:13:09

Good point about the furniture maybe not been fire checked. Will have to check that.

I think if the house was rented out as a family home it would be looking at £650 a month rental. It seems that renting out to 4 individual students pushes the money up. Both the teacher training college website and the uni website talk about weekly rentals of £70-£80 per week per person for terrace houses. So I'm going on that.

I am worried though, what happens if we buy the house and can't get that? I think I need to ring the college accommodation officer and chat to them.

Bluestocking Mon 08-Oct-12 20:21:22

You need to factor in landlord's insurance, and also bear in mind that letting to students usually means you have to refurb more often and more thoroughly than you would if you let to other types of tenants. Are you near the house, so you/your DH could deal with repairs? If not, you might be better off letting it through an agent (usually for 10%) who would take care of any day-to-day maintenance issues.

VivaLeBeaver Mon 08-Oct-12 20:21:53

I've just found a couple of student accommodation search websites for the city. Rooms advertised on There are between £75 to £80 a week and include utility bills.

There aren't that many available, less than 10 that I could see, plus one cheaper room at £45 a week which was a single in a dodgy area.

The potential house has 3 doubles and one single, so may need to price the single cheaper.

VivaLeBeaver Mon 08-Oct-12 20:24:43

Yes, we're close to the house and dh is super good at all sorts of DIY, decorating, plumbing, roofing, brickwork. He can do electrics but obviously wouldn't be allowed to. So that's not a problem. Will price up insurance, we'd need house insurance as well.

howdoikeeponsmiling Mon 08-Oct-12 21:18:25

It's also worth bearing in mind that some BTL mortgages do not allow you to let to students and may also insist that the property is let on a single AST rather than four separate tenanicies.

VivaLeBeaver Mon 08-Oct-12 21:34:34

Well hopefully if we remortgage our home we can pay cash for the rental house and do what we want with it. It's all a bit scary.

oldnewmummy Tue 09-Oct-12 06:20:21

If the mortgage and therefore interest is on your residential home, not sure if the interest payments are still tax deductible against your rental profits. Does anyone know?

ripsishere Tue 09-Oct-12 06:28:20

Do you have to pay the water rates? our tenants, not students are liable for those. (I hope)

DelGirl Tue 09-Oct-12 06:37:01

Yes afaik you can offset the extra mortgage against profit.

DelGirl Tue 09-Oct-12 06:37:27

interest payments that is

DelGirl Tue 09-Oct-12 06:39:27

if it was me, I wouldn't be happy to include electric and gas in the rent, I would rather they paid that on top even if it means charging less rent.

ripsishere Tue 09-Oct-12 06:58:56

Yes, DelGirl, I agree. When I think of how much of both I wasted when I lived with my parents, I am rather ashamed.

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