Buy to let?

[Vickiyumyum]

I'm currently in a position where I rent but can't afford to buy the size of house I need for me and 4 dc. I have a sizeable deposit but to stay in this area I could only afford a 2 bed house.

This is obviously no good right now but will be good in the future. I'm not getting a very good return on my deposit in the bank and am wondering if to take a punt on buying and letting out with a view to moving in myself once at least the two eldest have moved out (dc are 16,12, 7 & 4). Housing seems to be going up and up around free and there are a lot of new builds with good offers.

I could just about afford to pay the mortgage if it wasn't tenanted.

What would you do? I think I'd use an agent to take care of everything and was thinking a new build would be best as guarantees on work and everything new so less maintenance. Currently in this area rental properties are snatched up quickly and it's a commuter suburb with good access to the m4, m3, train to padding tin and Waterloo etc.

Paddington silly auto correct.

Are you in Reading ? just a guess.
I think a buy to let would be a good option.
Please remember though that you would need to have money for repairs as well as void periods. If you are in the same area as me tenants are very transient so expect a void period every 18-24 months of 1-2 months.
We have two new builds in our portfolio and they are pretty safe bets with very little maintenance. If you are looking at this for a long term investment you really can't loose IMO.

you also need to budget for insurances (plural), agent fees, and far more frequent fixes/decorating than your own place. Not because most tenants are vandals (a tiny minority are) but because frequent moves wreck decoration.

Good advice from PP about having enough in the bank to pay for emergency repairs - and unless you need to go through an agent, you might find it much cheaper to do it yourself - and you'll get the ability to eyeball your tenants and make sure you are happy to rent to them as well. I would do a credit check and ask for references. Landlords insurance against damage is also a must.

But it does sound like the right solution for you both, as long as you can get a decent tenancy on a place for yourselves.

I dont understand why you can't buy a bigger place if you'll be paying rent and a mortgage?

Obviously you'll get rent from the btl but you say you could just about afford the mortgage too and in lots of cases rent is normally more than a mortgage.

I'm assuming that as the rental market here is very buoyant and properties go quickly that I wouldn't be empty for long and I could use other savings/cut back on the months that I don't have tenants. If it was for a long period of time then I'd be stuffed. I know that my dad would help out if it was empty for a long time, but obviously that would be last chance saloon.

I get quite a large maintenance payment currently and as the dc are young that's not likely to change for many years but I haven't found a mortgage company yet who will lend based on maintenance payments as well as salary? I pay £1000 a month rent here in a 3 bed, which is quite cheap, in fact I'd say a lot cheap currently. Houses just around the corner often smaller (this one is extended) are going for £1100-£1300. My landlord seems fair and I've been here nearly 2years, we had a discussion recently about how long I wish to say and I said as long as i can afford the rent and I need the 3 bedrooms, so at least another 5-6 years and she said perfect as she would rather have a slightly lower rent and a fixed tenant who's settled than swapping tenants every 6/12 months.

Its all just in the thinking stages currently. There are so many newbuilds popping up around here, some of them even the 2 beds are out of my mortgage able price range. I think I will arrange some financial advice for an advisor and see about mortgage levels. I could consider other areas for buy to let as by the time I can move in I won't need to worry about senior school catchments etc. I'm just thinking that this area offers better range of options in terms of prospective tenants, as well as the good links it has good schools, good local facilities, lots of green space, coffee shops, restaurants etc.

From basic figures worked out on online calculators, the rent should just cover mortgage, insurance, agents. My dad rents out his own properties but I'd be nervous as a lone woman handling my own tenants, and contractors for work needing doing.

Havetowearheels- yes Reading (well Woodley), so excellent links, but also means huge prices. The property prices here have risen dramatically in the last 6 months.

Do you work? I can't see a lender agreeing a mortgage on maintenance.

I would have thought maintenance is tricky and most lenders expect the rental income to be 125% of the mortgage so 25% higher than the repayment. Try speaking with AToM 'any type of mortgage'. Or John Charcol.

yes I work full time, circa 60k plus commission (which again most won't use these days)

My maintenance is very high, xh earns in the 6 figure range.

That was a good guess. Yes I would stick with the area you are in or Lower Earley, then manage yourself. You could use an agent to find tenant do checks and draw up agreement, we currently use Romans, we than manage ourselves.
The market is absolutely mad here at the moment. We are about to complete on a property in Arborfield that we snapped up for £250k (3 bed semi with a garage) at the beginning of December (needs a bit of tlc). Agent has already advised us it is now worth 280k and more once we have done the work and did we want to flip it.
If you want to speak to an IFA we use a fantastic lady down the Oxford Road, she has arranged god knows how many mortgages for us and is fantastic, if you want her details let me know.

Wow you got a bargain there. I should imagine you can make quite a large profit/equity on that.

I have two worries one is that the property market is moving so fast if I don't act quick I might be out priced on even the 2beds and also that what if it does all go boom and the property I buy at £250k is suddenly worth only £100k?

My brother has expressed an interest in renting from me. He has a job could afford the rent etc but again I'm wary of renting to friends or family, because if their were problems it could cause a rift in the family.

I very much doubt that would happen. As long as you look at this as long term, you can't fail, any dip in the market will be recovered in time.

For example I purchase my first flat in 1988 for 48k within 18 months it was worth 36k (due to interest rates being 15%), I held onto it until 2005 and sold it for 49k. That same flat today is £130k. God I wish I had held onto that flat. This was an exceptional time in the property market.

I agree with keeping business and pleasure separate however you can insure against loss of rent, but of course this wouldn't help with a family rift.

lots to look into and think about then. I will speak to my landlady as well as she has several properties and said she would be happy to give me some details regarding insurance etc. she seemed to think it was a good idea too. hopefully my deposit will work better for me in a property than a bank. the banks only want to tie me into bonds etc for 5-10 years to get a better return but I'd rather not.

the first house I brought, was a 2bed in a not so great area of reading, I paid £48k, we sold it 4 years later for £147k, its worth about £160k maybe 170k (no garden) we used the equity and xh's increased salary to take a huge leap up the property ladder and somehow I ended up back at the bottom again! oh well, at least I'm not married to him anymore that's worth more than money.

havetowearheels- do you find it takes that long to get new tenants each time? I've always moved in the day after people moving out here so literally just enough time to clean and do inventory. The property I moved into now, the previous tenants were cleaning while we did the inventory. Was my landlady just very lucky? (I did have to live the first week with decorators in, as I had to move in on the 1st of the month due to having to leave previous property on the 31st,i had to pay to stay the extra day)

No doesn't usually take long to find new tenants, however we don't advertise a property until the old tenants have moved out and the place is up together. Silly I know but, we very much advocate that when a person rents they should be left to enjoy the property until the end of the agreement. We usually find new tenants with a couple of weeks.
If we advertised earlier we would probably have no void periods, but it works out OK tax wise as we have less income against interest payments, so as long as you have enough to cover the mortgage it works out OK. We also use this void for any redecoration/ maintenance we need to do.

A lot of lenders won't allow BTL without a preexisting residential mortgage.

Also if your property isn't fully managed by a rental agent then your insurance might not be valid.

Please don't forget that you will have to pay tax on the profit before paying the mortgage on the BTL. Plus national insurance if you make over 5k a year or so. You can deduct agent fees, repairs, buildings insurance snd mortgage interest but this will still take 20% off.

I have booked an appointment, so will find out if its a goer or not and I its financially viable. I keep getting tempted to book huge holidays or buy a car or both with the money in the bank, its been there for 4years and hardly grown at all, seems such a waste.

If I can't then so be it, I won't be losing out right now. I'm just trying to secure a property for my future, and the though of renting out for ten years prior to moving in and having half the mortgage paid already seems too good to be true.

You pay tax on the profit after you have taken out the mortgage payments, mortgage if you sell and any other maintenance etc you only pay tax if you then do not reinvest the money in something else. You only pay NI if you are counting the profits as salary.

Fiveleaves you pay tax on any profit after the interest has been taken off. Everything is duductable, insurance, management fee's, agents fee's.
OP We have an accountant, who does all this for us and is worth every penny we pay him.