WWYD- take the money or buy the house?

[VivaLeBeaver]

My life feels like the most important game of monopoly at the minute.

I've inherited a third of a house which I've just had valued today at 140-145k. I've also inherited 20k cash.

So I have the choice of taking the cash and we put the property on the market and I get a third of the sales figure minus estate agent costs.

Or I offer the other parties 90k for their shares. Give them the 20k cash and get a mortgage for 70k.

Mortgage repayments would be approx 400-430 a month. We could rent the house out for £550 and that's priced to rent and I think it would rent out quickly from the location. I actually know two people who have seriously said they want to rent it if I buy it.

So I'm left with approx £100-150 a month "profit" out of which I'd have to pay landlord insurance, building insurance, tax and put anything left over to one side for repairs.

We wouldn't use a letting agent and on the plus side dh is very handy so apart from gas and elec he could fix stuff that went wrong. We'd have to get gas certificates done for the house as well prior to renting.

Doesn't really leave a lot and to be honest I am looking at it more long term. In 20 years the mortgage would be paid off and the money would then be profit apart from repairs and tax. I'd be 57yo then and I view it as a pension. I am going to get an ok nhs pension but not till I'm 67 and I don't think I can do my job till 67. So its kind of my one opportunity to possibly retire early.

But I worry about repair costs, tennants not paying, me being out of pocket if they don't pay rent or I can't rent it out for periods.

There's also the fact that although we're currently ok off financially we're not rolling in it and having a bit of extra money in the bank would be really good. I've currently got about 4k savings, dh has a bit more and we have a tiny (30k) mortgage. But we do live quite frugally, don't go out for meals, I rarely buy clothes, I save £100 a month but apart from that I spend all my wages. Dh manages to save a bit more.

It would be nice to think we could maybe take the caravan to France instead of to Yorkshire. Not going mad, but just little things like that. Try and save as much of the capital as possible in the best account I could find and not touch much of it. I'm fairly confident that in 20 years time I could still have at least 50k of it untouched.....but 50k capital isn't going to let me retire ten years early.

So live for the moment and enjoy life a bit more or be really sensible and spend the next 20 years scrimping for a longer term gain? Dh is 50yo by the way and doesn't have a private pension.

go for it, rent it through an agency (I have one in Grimsby i rent out) save yourself the hassle and trauma of having to see the inside when someone else is in it :-D
the agency fees are such a small amount. I pay 10% through an agent in Caistor. Landlords insurance is less than £50 and you don't end up paying for council tax etc

If you sell it in the future won't you be liable for second home tax on it?

MSE forum are putting me off now by telling me my tax costs would be much higher than I thought.

I thought I'd be paying tax on my £150 "profit" but they reckon the taxman will consider part of my mortgage repayments profit as well. So I might end up paying tax on nearer £350 a month.

I really don't understand how this works.

I would try and rent it out for more, you can always lower the price if it's not shifting.

Randomness, I think the capital gains tax is only applied to any price difference between purchase price and sale price rather than the total price. Which I can live with.

that's not right. When you calculate your 'profit' you take your income, then deduct expenses such as insurance, repairs, phone calls, travel AND interest on mortgage payments (not the capital bit) The remainder is taxable.
you will have capital gains to pay eventually.........

Just make sure you can cover the bills and mortgage when the house is empty. We have a house that we rent out but was empty for 5 ,months as the tenant moved out in November and we only got a new one in April. Our plan is to sell next year as we have spent a lot on it in the past year and don't feel we're getting much return. House prices also went down below what we paid for it. There's also the risk of bad tenants, I would recommend using an agency to deal with find tenants as they will also sort out any issues with rent arrears damage to the property etc! Sorry if that's a bit doom and gloom!

So if the rent was £550 a month.

I could deduct say £50 for landlord insurance, £20 for building insurance, then whatever the interest on the mortgage was (MSE say estimate 50%) so £200. Then a bit for repairs. So say £300 total a month.

So I'd have to pay tax on £250 a month. At 20%. So approx £50.?

Yes about £50 per month.

I think as it's a property you love that you would like one day to live in it is worth serious consideration.

HEre is a link on the tax thing www.gov.uk/renting-out-a-property/paying-tax the main thing you can't claim is the capital portion of the payment of the mortgage.

yep. Insurance will be less (£50 all in i think). Don't forget agency fees (WELL worth it in my opinion)

viva
yup, 20% tax on the profit after all expenses (and they can be surprisingly high )
capital gain would be on sale price lest cost price less personal allowance (times two for you and DH)

sounds like you can think of a use for the house - keep it.

I'm only going to make about £30 a month if this is right. I know I need to be looking at it long term, that someone else is paying the mortgage, etc. but not sure its worth the stress for £30 a month.

you can't think of it in terms of monthly profit. it just has to pay for itself. It's an investment long term. that comes from an increase in value over time and the fact that the mortgage is reducing also. I make nothing really on mine on a monthly basis

No,
on £550 rent
less £50 pcm insurances, £100 pcm repairs, £200 pcm interest, £40 tax
leaves £160 in your pocket, AND a house waiting for when you want it

You can get a separate insurance (if your Landlords insurance doesn't already include it) that will cover non-payment of rent and all the legalities of eviction etc.

Talking that's not right. Her mortgage would be £400 (twice as much as the interest i think is what she estimates)

The mortgage would be £400 a month so I'm not going to get £160 a month in my pocket.

I don't think I understand this at all.

Are interest only mortgages ever a good idea?

Can I really claim I spend £100 a month on repairs? Wouldn't I have to show receipts?

haha you would have to have the receipts yes.

So basically I make nothing a month? Hopefully break even?

Then Can't put a little bit aside each month to put in an emergency account to pay the mortgage incase the tennant defaults on the rent?

don't forget you only pay the tax once per year (you would have to complete a tax form - all landlords do) so you only need one big spend of £1,200, or two half sized £600, to have the same tax reduction as £100 per month

Mmmmm, I think I'm going to sell.

If I could wave a wand and it was all in place and I knew there would never be any major house problems or someone who didnt pay I'd do it but this sounds too complicated for my little brain!

If it were that easy Viva everyone would be doing it

Viva, our insurance will pay the mortgage/value of rent for up to 6 months (I think, would have to dig out policy) if tenants default.