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.

I've been and seen a letting agency today. Showed them some photos of the house and they reckon I'd get a minimum of £550 a month, possibly more and that it would rent out really quickly.

They couldn't give me any tax advice though. Another estate agent I saw today did reckon an interest only mortgage was the way to go.

Looking at sums for that the mortgage repayments would be less at approx £230 a month. Tax would be less at £60 a month. Tis is compared to £430 a month for a repayment mortgage and £70 tax (my rough figures).

So it would be nicer to have £250 a month left over rather than about £50 a month (less after building insurance, etc). So with insurance payments I'd be looking at nearer £200 a month left on interest only mortgage vs £0 a month on repayment.

Obviously at the end of a repayment mortgage the house is 100% mine and on an interest only one I'd still owe the mortgage company 70k.

I can't understand when I own a third of this house how I can't make the figures seem better.

I suppose though in 20 years time house prices would have risen so if I had to sell as I didnt have 70k to buy the house I'd get a lump sum after I've paid the 70k back.

don't forget that owning it means you have to still pay insurance and council tax! So if you kept it, it would cost you. Renting it means it will end up costing you nothing.

spreadsheet will be with you later this evening .....

Thanks Talkin.

you have mail

Talkin, thanks a lot for the spreadsheet its great.

I wish dh would talk more. I've got all this going round in my head and while he's happy to listen he has no comment or opinion to make on the situation. Aghhhh.

print it out and show it to him.
ESP the bit about tax free savings ;-)

I messaged sil yesterday as I remembered she rents a property out.

She reckons IO mortgage is the way to go. Then I'd get £200 a month income, more than from having the money in a bank account. Don't think about buying it in 20 years. Sell it at that point. You pay the mortgage company back the 70k you owe them and hopefully if property has gone up in value you make some money there as well.

She makes it sound so simple.

Just a thought.
Could you take the mortgage out on the property you now live in and have the £30,000 mortgage?
This is effectively what we have done. Much better deal to be had.

I wouldn't take an IO mortgage out on my home.

If we did go down the route of a repayment mortgage I'd take it all out on my home and effectively have a 100k mortgage on our home and be mortgage free on the BTL.

IO on your house is FINE so long as you understand how they work.
I've been IO for the last 24 years and 7 months ..... this October it all comes out at zero.

I don't think I understand how it works.

I know I could put a couple of £100 aside each month into an isa. But that won't be 70k after 20 years. I know that the house value will increase but I'd have to sell it at the end of 20 years to realise it.

Have a look at the mortgage spreadsheet in my spreadsheets thread : it shows how to pay off an IO mortgage

I would sell the house and pay off the £30k on your mortgage. Enjoy life too. With no mortgage you would be able to save more for retirement.
I am NHS too and don't fancy doing my job until I am 67!!

Dh has just said he'll put 35k cash towards the house as well. So that leaves us with £35k mortgage. He does say he expects me to make some payments to him to build his capital back up but its all sounding a lot more doable.

Sell it.

Well it looks like we're buying it. . Waiting for a mortgage appt now.

One more question. My gut feeling is to extend the mortgage on our home and be mortgage free on the rental property. We're going to put the rental prop in my name as dh is a higher rate tax payer. Obv our home is in joint name though.

Will we get into trouble if we try and pay 20% tax by saying the house is is in my name when the mortgage is in both names?

The mortgage and the house need to be in the same names.

You will have to declare to the solicitor where the money to buy it is coming from.

Viva
put the mortgage onto the house where its tax deductable and have the one you live in mortgage free
that way its clearer for HMRC
but YY yo having all the income into you at lower tax rate (and your silly DH has been paying tax on his savings. Give him a from me)

the adventre begins!

But an extra mortgage on our home would be tax deductible if we say its been used to fund the buy to let.

The mortgage company wouldn't care about the buy to let been in my name only as it'll be nothing to do with them as the mortgage will all be on our home. So home n both names, mortgage in both names.

But will the tax man have a fit if the buy to let is in my name, I try to off set tax on a mortgage on another house which is ok, but is it still ok if its in both our names?

Dh says last year he wasn't a higher rate tax payer just to confuse matters, or only just. He did a self assessment form to see if he needed to pay child benefit back and had to pay £150. He did say they looked at interest on his savings which they hadn't before....maybe the £150 was extra tax rather than child benefit repayment I'm not sure. His earnings depend on overtime and he's borderline.

I've made an offer to my step mum on the house, below the evaluation and she's considering it.