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.

www.endsleigh.co.uk/business/landlords/landlords-rent-guarantee/

Googled as a quick example ^^

have you thought about selling, adding your share to the £20k, selling your own home and buying somewhere bigger? That way it is still invested in property but you receive the benefits of a nicer house as well as the investment

I couldn't stand the stress of moving at the minute or yes that would be an option. I do love where I am for now while dd is at home.

Where can I find out what percentage of a repayment mortgage is interest? I've googled and I just get mortgage calculators.

it changes all the time. At the beginning of a repayment mortgage it's nearly all interest. On a 25 year deal the capital would only substantially start reducing after 10 years really....

Shakey, thanks for the link. Rent guarantee is only £100 a year so that's good.

So is there no way of finding out until I've taken the mortgage out?

i didn't find out until i got my annual statement to be honest! But on application I am pretty sure any mortgage dealer would be happy to show you an example.

It depends on the mortgage ....
In an IO its nowt
in a repayment its a reducing balance based on the sum of the digits ....
my spreadsheet shows you
www.mumsnet.com/Talk/legal_money_matters/1987219-SPREADSHEETS-for-Debt-Control-Budgeting-Mortgages-etc
columns O to R
docs.google.com/spreadsheet/ccc?key=0AiZqlQ7-gn07dDN4clg5OXhLMGJWbHZhOEo4UTJINEE#gid=0

That link is great TalkinPeace, thanks.

So initially it would approx be 50/50. But towards the end the interest would be hardly anything. So I'd be paying 20% tax on nearly the full £550. And my repayments would still be £400.

Now because we already have a 30k mortgage on our home which technically I could pay off with the inherited money.....

If I got another mortgage for 70k on our home could I actually say to the tax man that the 70k and the 30k is for the buy to let?

Your best bet would be to do what MPs do .....

mortgage the new property fully on an IO basis (fully deductible) and use any spare cash for yourselves later / pay off your own mortgage

then when you sell your own house - tax free - you clear the other mortgagge and move into that house

not sure what you mean. you have to tell the truth to the tax man, so if the mortgage is on the inherited house, that is the one that affects the tax on rental income. Your house that you live i and any associated mortgages are irrelevant

There is no law against choosing to mortgage a property you own : its called tax planning

as I say, its exacly what hundreds of MPs have been doing for years

I wouldn't be happy with an IO mortgage. I'd have all the hassle for 20 years and still owe 70k at the end of it to buy the house, same as what I do now.

Yes the repayments would be less.....be about £220 a month. But then I'd still have to pay 20% tax on the difference between that and the rent, less repairs, insurance.

I don't want to get a buy to let mortgage on the house I've inherited. The arrangement fees are sky high and the rates are worse.

Someone told me its quite ok to take a 70k mortgage out on a better rate on our home. So we get given 70k cash by the mortgage company and we spend that on the buy to let house so that is 100% paid for.

Then they said we can tell the taxman that the mortgage on our home is to fund the buy to let and we can claim tax relief on that mortgage??

I would take the money without a shadow of a doubt.

Viva
IO is absolutely fine if managed properly (my mortgage is IO)

If you went IO
Rent income is £550
£150 pms on insurance and repairs, £200 on interest, tax is £40
so £160 in your pocket
BUT
if you mortgage up the new house and pay off your own mortgage, then you are better off cash wise by that amount each month

numbers are never black and white in tax land

So £160 a month adds up to £38400 over 20 years.

I guess with a bit of interest maybe I'd have 40k in the bank.

That's still a 30k shortfall. But I guess at that point I could sell the house, I'd get back any equity and have 40k.

viva i'm pretty sure you cannot do that

Ah, one of my neighbours does do that Supa but is new to BTL so maybe she"ll get a bad tax bill!

supa
you can. Its perfectly legal.
the law was written by tax advisers after all

i would think they would be in trouble if their tax was ever checked........

WHAT??? REALLY?????

why?
mine was, I wasn't
its legal

just having a read. apparently it's the purpose of a loan that matters not what it is secured against......well i never! (source not official)