Which house?

[bridgetjonesmassivepants]

I am going to become a buy to let landlord (I know, I know...)
Now, which path to go down.

1. I have inherited half a house in a northern seaside town. Very nice, large 4 bed semi but worth about £160,000 on a good day. It's in good condition at the moment. Would get £545 a month after all deductions including full management fees. Has a tenant in place who is great and may be interested in long lease. Bit of a depressed area and 3 hours away from me.

2. Sell the inherited house and with my share buy a house for £160,000 in my town. This would be 2 bed nearly new build. Would get £420 a month and would have to manage this one myself.

Plan to keep the house for about 10-12 years and then sell it Uni fees. House 1 may go up a bit in value, House 2 would probably go up a bit more.

Stamp duty for House 1 would be £2250 (I think) whereas House 2 would be £4800.

I just keep going round in circles! Any fresh ideas?

When you say the Victorian house is in good condition, do you mean 100% structurally perfect? If not you need to factor in expenses for repairs that tend to pop up in this kind of property.

£160000 should be getting £800 per month. Are you in the uk.

Would you be better off looking at 2 £80000 flats or smaller properties.

The two-bedder definitely - much more lettable. A young couple is the likely target tenant; a family house with 4 beds is harder to let out as folk needing that sort of space are usually on the housing ladder themselves by that stage.

Also, managing repairs etc is so much easier if the house is nearby. And neighbour problems etc. - imagine managing that sort of thing from a distance.

My DD and SIL put their savings into buy to let to save for their retirement and the small 2-bedders are snapped up; the bigger house is more of a chore to let.

£420 per month is a little over 3% which isn't great.

I am confused. You say you've inherited half of house 1 - is the whole property worth double the £160,000, or £160,000 in total? If the latter, you surely only have £80,000 to invest. If the former, the rent seems very low.

Don't forget to factor in the costs of buying a new home - solicitors' fees etc. with house 2.

How have you calculated stamp duty on house 1? Is that for buying the other half? Don't get selling solicitor and estate agent fees if you sell house 1. Will cost u nearly 10 k to sell and buy a new house. Plus it sounds like the rental income is more stable in house 1 with a good long term tenant. I'd keep it for sure

Whole property is £160,000. But I only have to get a mortgage for £80,000. So £80,000 to invest.

House 1 would be getting £820 a month but after tax, management fees, insurance I would get £545.

Monsieurpoirot - that's what I'm thinking. If I'm going to get a buy to let and already have one in place with minimal outlay wouldn't it be better to keep it rather than spend a chunk of profits in setting a new one up?

Only thing that's putting me off is maintance but we have just spent £2000 putting in some new windows, fixing a leak in the roof and other stuff.

Don't forget that if you buy to let on house 1 now, you can do so without too many additional costs and maybe see how things go? Why not talk some more to the existing tenant and see if you can arrange something?

If you are getting a mortgage then the incomes you mention are not viable. You would need to show at least 1.25 times your mortgage as rental income just to be considered for a mortgage and when interest rates go up to be safe I personally would want at least a 5% return on the investment otherwise you only have to have a void period for a few weeks or someone not paying and everything could come crashing down.
BTL is not for playing at. It is a business and like all businesses it needs to make a profit. If you really want to do this then I suggest you look around at other places and areas to get the best return on your money.
Presumably you are a higher rate tax payer or near to the top of the band in order to be even considered for a mortgage. So you have to take into account that the extra income could end up swallowed by 40 % tax.

It might be worth your while putting £50000 in ERNIE bonds and investing the rest in ISAs or just a savings account.

It would be less hassle

Or if you keep the existing house and end up spending more than you are earning from

Lower rate taxpayer (very much so!) Interest only mortgage is £155 for a two year fixed rate so I think the sums work out. Rental after deductions including the mortgage would be 3 times the mortgage.

£420x12 =£5040 per year less 25% tax = £3780
Less £1860 per year for your mortgage=£1920 per year. That's less than £37 per week and that doesn't take into account insurance and void periods and people who don't pay and the money you need to get non payers out of your house and the other bits and bobs that go with it.
If you invested the £80000 quick google and you could be getting over £2000 without the hassle

I'm sorry if I'm not supplying the correct info. All my figures include all deductions.

House 1 - After tax, mortgage payments (Interest only) management fees and insurance - profit = £545 a month or £6540 a year.

Houses 2 - As above £420 a month or £5040 a year.

Not sure how you are coming to your figures. I'm not stupid - I wouldn't have all the potential hassle of a buy-to-let with less than £2000 a year profit!!

Sorry I am confused I presumed when you said you owned 1/2 a £160000 house and if you sold it then you were going to have £80000 to put down and an £80000 mortgage that would buy house 2. I didn't realise you had a mortgage on house 1

House1 £820 per month rental income x 12 months=£9840 less 25% tax=£7380 so divide by 12 months = £615 per month
You are saying management fees and insurance and mortgage payments are only £70
£615-£545=£70

Are you saying that house 2 rents at £420 + mortgage +tax +insurance

Not that you get £420 rent

Sorry I always put 25% away for tax realise it is 20%

If you were starting from new, then I'd have thought close to you and a newer build would both make sense, but what struck me is the fact you already have a long term tenant who you believe would be happy to stay on. That, in itself seems to tip the balance in favour of keeping what you've got, even before the maths indicating it would bring you in more income.

Oliversmumsarmy - to buy all of House 1 I would get an £80000 mortgage. House 2 - I would get £420 a month rent after all deductions.

BackforGood - yes, this is what I'm thinking. I also like the idea that if in a couple of years the maintenance is too much etc then I could always sell it, pay off the mortgage, take the rest and then think afresh!

If you think you would get greater capital growth in the property closer to home I would go with that option and lower income from it. If you get the chance (and can afford to) use some of the "profit" to repay some of the capital each year too.

I have just sold a property which I have managed at a distance to reinvest in a property close by.