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AIBU?

Share your dilemmas and get honest opinions from other Mumsnetters.

Original poster

To ask if you think this is a sensible financial choice?

72 replies

Everythingnotsaved · 31/12/2019 08:14

So, I live in an expensive part of south England where we have never been able to buy a house despite earning good money! Raising kids in a rented house.

I have just come into some money £20k that isn’t enough to buy a house but could be enough to buy a small flat to rent out & have a bit of extra income to rent a bigger family house.

It’s not ideal obviously but would give us a property to live in once the kids have left home or sell and move somewhere cheaper which is the plan.

The kids are in a great schools & we both have great jobs- we just missed the boat a bit on houses (we’d need at least 100k to buy a house here)

Aibu? Silly idea or not? I feel like a child when it comes to financial decisions to be honest...

OP posts:
gobbynorthernbird · 31/12/2019 08:15

Would you be able to cover the mortgage payments during a void period, or if you had tenants that stopped paying rent and needed to be evicted?

delilahbucket · 31/12/2019 08:17

Do your research on becoming a landlord. It isn't as easy as you think and if you get that one bad tenant who won't pay and won't leave, can you still afford to pay the mortgage and legal fees to remove them, while paying your rent and bringing up your children? It is a massive risk if you are in a precarious enough position that you cannot afford to save to buy a house of your own.

andyjusthangingaround · 31/12/2019 08:17

OP,
Financially it makes sense.
However please do let me know where you can get a flat for 20K, or even put down a deposit for that. I also live in the expensive SE

Original poster
Everythingnotsaved · 31/12/2019 08:17

@gobby I guess those are things we would need to factor into our decision making and think carefully about

OP posts:
PooWillyBumBum · 31/12/2019 08:17

It’s not a ridiculous idea, but could you rent it out with a capital repayment mortgage and use it to accumulate a bigger deposit for a long term family home rather than sinking anything extra into a bigger rental for your family? Or funnel it into retirement savings (are you on track to be able to rent comfortably once you give up work)?

You might want to think about a rental out of area where you get a higher ROI, and also to create a spreadsheet to model returns, tax, expected maintenance costs etc. If either of you are higher earners it could be quite a sting unless you have an amazing rental yield or go through a limited company (which has its own downfalls!)

Original poster
Everythingnotsaved · 31/12/2019 08:19

@andyjusthangingaround that’s also something we need to look at - family have said they would help a bit too

OP posts:
Original poster
Everythingnotsaved · 31/12/2019 08:20

@PooWillyBumBum I am lucky enough to have a brilliant final salary pension as I work for the civil service (it’s the only good financial decision I have ever made tbh)

OP posts:
CustardT · 31/12/2019 08:20

It is a great idea - if you can afford it. We got burnt by doing this up north. So I’d say do it somewhere close to you and be involved.

BarchesterTowers · 31/12/2019 08:21

Look for one with low maintenance costs. My friend has flats near a hospital and rents them out pretty much continuously to medical staff. Not entirely trouble free but few empty times.

My boss does this, he’s living with his family in rented (whicjh he is looking to buy) rents out his own house, has other rental properties. Nut he can do maintenance himself and takes no snash from tenants.

I’d talk to a broker about mortgages.

IceCreamAndCandyfloss · 31/12/2019 08:23

Unless you have decent savings and can afford to pay the mortgage in between tenants, cover court costs, damages, repairs straight away etc I wouldn’t.

Could you not buy a flat to live in yourselves? Plenty do with children.

Original poster
Everythingnotsaved · 31/12/2019 08:26

@icecream we just can’t afford it. We need to move to a cheaper area - which I would consider - but DS is in a brilliant secondary that we don’t want to leave until his GCSEs are done. DD still in primary & would move her but DS very happy in secondary & we feel that we are lucky given how tricky it can be!

OP posts:
andyjusthangingaround · 31/12/2019 08:28

@Everythingnotsaved
That was my logic with saving, however flat house prices in this area is incredible.
As you don’t own a house at the moment (based on your post), you could buy a house under your name and avoid the additional cost of buy-to-let
I would probably get a longer term mortgage so the monthly payments are more affordable.
Also, if you are considering an investment property, do your research about what the market is looking for and maybe not what you like. Two-bed flat, in town centre, next to station, ideally two bath, parking space, fast broadband, green area nearby. Your target is likely to be young couple or working adults, choose one accordingly.
(I am still considering this option for us but not our primary saving / pension investment due to its risks)

Eve · 31/12/2019 08:31

Don’t forget to factor in income tax on your rental earnings especially as mortgage costs can no longer be offset against tax.

BBBear · 31/12/2019 08:40

Letting can be a complete pain. We let a flat (that we couldn’t sell) and it never turns a profit when you take into account maintenance and the return we had to do recently.

Could you look at help to buy (if that scheme is still going) or just hold on to the cash until you can buy when your DC finishes GCSE?

Original poster
Everythingnotsaved · 31/12/2019 08:44

@BB I guess i am worried about my age- I am 45 already 🙈 But obviously ideally I would prefer to just buy my own house rather than go through this palaver!!

OP posts:
LakieLady · 31/12/2019 08:47

It’s not a ridiculous idea, but could you rent it out with a capital repayment mortgage and use it to accumulate a bigger deposit for a long term family home rather than sinking anything extra into a bigger rental for your family?

Exactly what I was going to say. Using capital to give an income that you'll just piss up against the wall in rent seems a bit daft, tbh.

And think very carefully about the costs involved in renting, possible bad debts/damage, capital gains tax if/when you come to sell the rental property etc.

PlanDeRaccordement · 31/12/2019 08:49

It’s a sensible decision but may not be the best option for you. Buy to lets have higher costs. You’d also use up your first time homebuyer status on a buy to let. Have you thought about using that £20k towards a help to buy scheme for first time buyers? Or towards a shared ownership purchase? You could even look at a LISA if you are under 40 because you’d get great top ups from the government and can take money out for first home purchase or retirement.
Final salary pensions are great but successive governments do have the right to cut your entitlement. So you may not get all what you are promised today.

Mummyoflittledragon · 31/12/2019 08:50

Landlady here. Flats are not as desirable as houses, rents are lower and you have to factor in ground rent, which will increase over time. If you are able to afford it, you’re much better to get a freehold house like a one bed cluster home. You will also have to declare your income including income on mortgage payments. This could have implications to any benefits you get including child benefit. The letting agency set up fees and maintenance are high - gas safety check, electrical safety check etc. Then what happens if the tenants don’t pay or trash the place?

I’m not trying to put you off. But it’s not something to do on a whim either.

Original poster
Everythingnotsaved · 31/12/2019 08:57

@mummyoflittledragon thanks- it really helps to get some realism! Trying to find a solution to a problem but maybe it’s not the best solution

OP posts:
Original poster
Everythingnotsaved · 31/12/2019 08:59

It’s also amazing really when 20k isn’t anywhere near enough to buy a home! I have friends who bought with deposits of 3k etc!!! (Years ago obvs!)

OP posts:
OhTheRoses · 31/12/2019 08:59

I wouldn't. It's the wrong point in the cycle vis a vis capital appreciation and costs are high. I'd be more inclined to invest in a stocks and shares ISA.

Dolorabelle · 31/12/2019 09:07

I wouldn't do it in your financial circumstances. I'm an "accidental" landlord and while on paper the figures look just about doable, in reality, I make no money at all from my rental property - and that's with a relatively small mortgage and a good property (3-4 bedrooms) in a prime area. I get the top rent possible, and the house is well-kept - I did a major refurbishment (new roof, rewired, new boiler etc) 5 years ago.

I have agents to look ayer it as I don't have time to do the thing myself, so I pay them.

There is no longer a decent tax break on the interest on your mortgage payments - even though this is a legitimate business expense.

As a rule of thumb, to get good tenants, you need what is known as a "good let." which means spending around 20% of the rental income per annum on upkeep and improvement of the property.

My rental property costs me but I'm trying to hang onto it as a retirement house - it's in the area of the country I prefer to live in (have to be elsewhere for work). Still it means that actually I have less cash because of it.

With your financial circumstances, I'd say that you could look at it as a long-term investment, but not as a way of building a house deposit.

dottiedodah · 31/12/2019 09:07

Just wondering where in the SE you can buy a house for £100,000? We live South Coast ,and there is nothing at all under 250k TBH! I think letting can be a pain, and also now you have 20k that is a sizeable deposit surely ? Although you would be amassing some rent to pay for that mortgage .You would still have to pay rent on your own property too! I would look at houses in your area and see if you could afford to buy .

Original poster
Everythingnotsaved · 31/12/2019 09:09

@dottiedodah we can’t afford to buy a house! That’s the issue- this is more about trying to get on the property ladder

OP posts:
akittencalledjesus · 31/12/2019 09:11

Is £20k enough of an LTV for a flat in the south? I'm in the south east and a basic flat here is around £180k. Take in to account LTV as well; Your £20k will likely buy you an £80k flat at best.

https://www.landc.co.uk/mortgage-guides/buy-to-let-mortgage-faqs/