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Original poster

WWYD- take the money or buy the house?

123 replies

VivaLeBeaver · 07/05/2014 18:53

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.

OP posts:
TalkinPeace · 07/05/2014 22:25
Grin spot the piece of legislation drafted by accountants on secondment to HMRC Wink
supadupapupascupa · 07/05/2014 22:26

you'll love this, I'm an accountant Grin

ClashCityRocker · 07/05/2014 22:29

No they wouldn't. I'm a tax advisor and it's a fairly common way of financing - for example, if you needed to raise capital for a business, you would likely secure the loan on your own assets - your family home, for example. Provided the loan is used as capital in the business, the interest is deductible. Otherwise, no banks would lend to new businesses that didn't have any 'business' assets.

Same applies for rental businesses - it's rather common for precisely those reasons - BTL mortgages are expensive,and hmrc manual BIM45685 says the following:

"The security for borrowed funds does not determine the use of those funds. It is very common in small businesses for loans to be secured on the proprietor’s home, because that is the only substantial owned asset. This is not relevant to the consideration of the use of the funds borrowed. Similarly guarantees given by another person do not affect the use of the funds."

ClashCityRocker · 07/05/2014 22:32

If the loan was more than the value of the rental property, for example, she borrowed 200k, obviously the amount of interest would be restricted to that which was attributable to the rental property, so she could claim 145/200s of the interest, bit doesn't look like this will be an issue here.

ClashCityRocker · 07/05/2014 22:33

I hope all us accountants are going to put this down as CPD Grin

supadupapupascupa · 07/05/2014 22:34

thank you clash. makes perfect sense.

Original poster
VivaLeBeaver · 07/05/2014 22:34

So I could offset interest on 90k. But then as the interest gets less I suppose I'd end up paying more towards the end of 20 years as they'd also look at the capital on the larger amount. So probably no better off.

I can see me getting £550 a month rent.

£430 on mortgage.
£10 rent insurance
£20 property insurance
£100 tax

Grin

Really don't think its going to work.

OP posts:
Original poster
VivaLeBeaver · 07/05/2014 22:35
OP posts:
TalkinPeace · 07/05/2014 22:35

LOL
I did actually tell my professional body how much time I spent time lurking on UKBF, writing my ebay page and investigating stuff like this.
They accepted it under the 'informal' category !

TalkinPeace · 07/05/2014 22:36

Viva
message me tomorrow and I'll write you a spreadsheet to play with :-)

Original poster
VivaLeBeaver · 07/05/2014 22:37

I'm going to take the money and fritter it on shoes and vodka I think. Grin

My dad died a year after retiring. Maybe I should enjoy life while I'm youngish.

OP posts:
supadupapupascupa · 07/05/2014 22:37

haha @Clash what a fab idea!

Original poster
VivaLeBeaver · 07/05/2014 22:37

Thanks Talkin, will do that. If I could see a way to doing it I would like to keep it really.

OP posts:
MadonnaKebab · 07/05/2014 22:40

You need to see a mortgage advisor and find out which is better tax & rate- wise for you:
to pay off your home mortgage with your lump sum & savings and get a buy-to -let mortgage, hopefully at a better rate than standard as you can also have your mortgage-free home as security. Then interest on 70k will be tax deductible
or what you propose, ie take out another loan on home. Then interest on only 70k will be deductible
Which is better for you will depend on your tax rates and on the difference between the 2 rates

Original poster
VivaLeBeaver · 07/05/2014 22:41

Really annoyingly I think dh probably has close to 70k in savings. We've always kept our money separate and there's no way he's going to risk it all on a house. He rather have it in a building society earning 0.2% interest or something crazy.

I wish I could get him to see the potential in this.

OP posts:
MadonnaKebab · 07/05/2014 22:43

Sorry, the first one should say 90k not 70k
Oops!

MadonnaKebab · 07/05/2014 22:44

Wow that's great
You'll have to start flexing your spreadsheets and convince him

Roshbegosh · 07/05/2014 22:49

Don't let it be the one that got away, you will regret it. The figures you have are for now but over time the rental income goes up, and you can expect a capital gain. Buy it.

Early retirement, yes plan hard for that to happen, you will be giving yourself all those years of really living instead of working your arse off in the NHS until you drop.

foxdongle · 07/05/2014 23:12

If it were me I would keep it.
It can still be an investment as well as you loving it.
I loved our rental property from the minute I set eyes on it and everyone says how lovely it is.
There's nothing wrong with that imo as surely it would make it easier to sell if you needed to?
As long as you can detach from it as it will be someone else's home while they are renting it.

Original poster
VivaLeBeaver · 07/05/2014 23:22

I've realised as well that sadly I don't think I'm going to be able to rent it to my friend who is keen on it.

I'd want to pay into a rent insurance scheme and it says they need to pass a reference/credit check. I don't think she will as she is leaving her dp and while she's sensible with money and would be ok her dp is currently defaulting on mortgage payments as the relationship breaks down.

She can downsize and manage payments but I can't rent to her if she can't pass a credit check and that means I won't get insurance.

OP posts:
MadonnaKebab · 07/05/2014 23:48

Is she a close enough friend that you can risk not having the insurance?

This sounds like the sort of opportunity that, if you missed it, you'd spend the rest of your life kicking yourself every time you walked past it

Original poster
VivaLeBeaver · 07/05/2014 23:51

She is a friend but money's kind of tight. She'll be getting housing benefit which will cover the rent but I just worry if she has a big, unexpected bill as she has no savings then she might think she could pay me a bit late.......

OP posts:
SantasLittleMonkeyButler · 08/05/2014 00:01

With regards to what you said about Solicitors fees/costs being lower because you wouldn't have any searches or a survey to do - the searches and survey are for the mortgage company rather than the Buyer. So if you have a mortgage you will still need to have all of the relevant paperwork.

I'd be no help at all to you, sorry - I can see the good and bad points of both selling & keeping the house!

LillianGish · 08/05/2014 10:05

Don't rent to a friend. Been there, done that in hope of avoiding fees and management costs etc - best thing that ever happened was when they moved out and put it with an agency, small fee but well worth it to avoid the hassle of late payment of rent etc etc. make sure everything is on a proper business footing especially if you can't afford to/don't want to subsidise their financial difficulties. So much more awkward with friends than with a stranger.

Kakaka · 08/05/2014 10:25

There are credit check and credit checks Viva. One agent told me that some cost 50p.

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