Buying a property, renting it out, and staying elsewhere as a solution to housing issue

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Has anyone done this as a housing solution after divorce? I’m due about 200K from the sale of the family home, which is nowhere enough to house me and the children in our area. One child is in school so we need to stay around for the next three years at least.

I’m thinking of using the 200K to buy a much smaller property, maybe a one-bedroom or studio flat (paid for in full) and rent it out. Then use that rent + money from my earnings to house ourselves in a 3-bed rental in the area until child finishes school. After which sell the property and move away somewhere cheaper.

Is this “allowed” (I can’t think why not) and are there any disadvantages or issues I’m not seeing?

P.S. Only able to get a tiny mortgage due to income

I think the main things for me would be would you actually make a profit? . If it's far away presumably it'll need to be through an agency. Once mortgage and agency fees have come out plus some regular money put aside from that for maintenance, how much profit will you have?

If you at least break even its one way or securing the money but my concern would be if it'll end up costing you

There won't be a mortgage. I was thinking of buying for cash. Hence going for a smaller property that won't need a mortgage.

Check the tax implications.

I was thinking of doing this as I don't want to live long-term where I am living now for the DC's schools.

What I might do is (when my divorce finally comes through) buy somewhere I would like to live and rent it out in the meantime.

But I worry that the extra income might send my tax sky-rocketing.

I have only just started looking into possibly doing this myself. However I believe one thing to look out for is the capital gains tax whe you sell the property if you haven't used it as your main residence.

I’m thinking of doing this too. Can’t see why you wouldn’t be ‘allowed’ unless you are currently using housing benefit/UC housing element to pay your rent, as I don’t suppose you’d still be entitled if you own a property.

Oh the other thing to check would be cost of stamp duty and estate agents.

I'm not in the UK and they are ridiculously high - in fact you need to stay in a house for at least 5 years to just break even compared to renting a similar property.

Remember to deduct 20% tax off your income for the rental property before adding it to your earnings, as you have to pay tax on it at the end of the year. (Remember to keep that 20% separate so that you don't spend it during the year!)

Sounds like a workable idea, particularly if you live close. You will need to pay up front for any repairs on the property you are letting out, including replacing white goods etc, so save a bit of cash back to make sure that you can keep your property in good condition. (You can claim back the costs of reasonable repairs in your tax claim- but you need to have paid them up front.)

The main disadvantage is that you have to do a self assessment tax return each January - but they aren't too bad if your finances are relatively straightforward.

I would get a mortgage too as the mortgage interest is tax deductible. Consider buying a house big enough to live in for a year due to the capital gains tax aspect.

Definitely worth speaking to a specialist financial advisor.

If you need to claim benefits it could prove to be a problem

Thank you for all this. Taking notes. I'm self employed so do an annual tax return anyway so that's not an issue. I didn't realise the tax implications though! I will get advice.

Not going to be claiming any benefits (except child benefit)

Why not buy the cheaper house you intend to buy does the line, now. Rent that out until you're ready to move out of your rental

You will have to be able to afford your life without the rental income.
Because you may have void periods, or your tenants may stop paying rent or expensive repairs may need to be done immediately.
You can get insurance to cover some of the above issues, you will also need landlords insurance including legal cover.
There is capital gains tax on any profit if you sell the property.

It isn't an impossible idea however.

In my area uou can sometimes get flats for 45/50,000 the rent is only £4/500 pcm BUT a three bed house can go for £200,000 and the rent will be £6/700 pm so you could buy two flats and make more money and spend less money overall iyswim

Do you receive universal credit? An investment property would probably mean you would stop receiving it. Tax will also be an issue if you don't have a mortgage as you won't be able to offset rent income and mortgage interest.