How do people buy a second home?

[summerbreezingin]

Hi

I am wondering with real interest how people afford to buy second properties/holiday homes?

We are both in our early 30s, earning good money with no dependents. We would love to purchase a second home. I work in social housing so would want this to be rented out at an affordable rent level.

My question is, just how do people do it? We have stayed in a number of AirBNBs over the years which are owned by people very similar age to us, and I wonder just how they do it?

Dexy, Air BnB's are local people. Often, people renting a room in their house but a lot just holiday cottages. Sometimes b and b'stoo. Air BnB is just an advertising platform.

We originally each owned our own property when we met so we pooled our assets and bought our first home together, in the 80s, property values really increased in those days, we moved again & paid off our mortgage in our 40s. We them relocated (for work) to an area where property was significantly cheaper so we were able to buy a BTL flat with a small mortgage (since paid off with an inheritance).

A lot of this was down to luck by being in the right place at the right time.

As landlords I hope we are reasonable, we never increased the rent for 5 years, always did repairs, maintenance etc immediately & when our last tenant moved out it was because she had saved enough to buy her own home.

Actually with Airbnb i think the local economy can be lifted.

If you had a holiday cottage that you use 300 out of 360 days each year then by letting the place out the rest of the time you are providing work for local cleaners, restaurants and supermarkets etc

I know that I'm a big fan of air b n b and use it often, but it's true what getmeacupoftea said that they add to the shortage of homes for local people. It's probably true that the best outcome for the local economy and community would be that tourists still came but stayed in hotels / b n bs, and what would otherwise be air b n bs would be rented out to local families.

But I believe in choice and the free market so you won't hear me complaining about air b n b!

Oh and I'm not sure most air b n bs are locals, my parents have one in Edinburgh and they don't live anywhere near there!

Interestingly i can't see that anyone has mentioned "the housing market".

Anyone buying property in the 90's has experienced an unprecedented boom in the market, particularly in London and the South East.

Subsequently that makes it easier to release significant equity and then get rental payments to cover the cost of the second home, or even buy outright if the 2nd home is significantly smaller/in a cheaper area.

My friend has a btl property which was her flat before she met and married dh.

They tried to sell it just as the recession hit so they decided to rent it out and when the tenants left they would then try to sell it.
They just wanted to cover the mortgage and expenses with a little wriggle room for repairs and maintenance.

Tenant hadn’t moved out.

Rent is very reasonable (definitely more than 80% of market rent though)

Friend was worried over money. (Very protracted divorce) I added up her yearly rent and all the expenses eg mortgage, insurance, agency fees, landlord cover etc and found it was costing her £30 per month to rent the place out.

Friend is charging about 10% below market rent and it is not feasible.

Oliversmummy I will make a loss on my BTL property when the new rules for deduct ability of mortgage interest have fully kicked in but unless something wild happens to greater london prices I still don't plan to sell: it's value has doubled in less than 6 years and although it's plateaued it would take years (10 or 20+) of consecutive price dropping for me to need to take my hat out of the ring and sell.

So depending on growth in your local market a loss may well be small change.

Exactly DexyMidnight

I get the impression Op is looking at only charging 80% of market rent because she isn’t a grabby landlord

Tbf I am quite grabby 😉

@summerbreezingin Have you actually approached a bank about a BTL loan? We got our first BTL aged about 30; property was worth around £100k, so we put down a 10% deposit and the rent covered the mortgage. We just have interest-only as we'll sell when the mortgage ends if not before. We've always made a small profit on it so never needed to raise the rent. It is easily below market rent.

lifesnotaspectatorsport

Btl mortgage are usually 25% down.

Also never come across one that rent could just cover the mortgage.
Most mortgage companies need you to be able to charge 25% more than the cost of the mortgage

Where did repairs, maintenance, tax, agents fees, insurances and void periods come from.

It must have cost you money each month to keep the place going

I think 80% of market rent is unwise. Are you going to use an agent, they will charge you. Things go wrong, boiler breaks, you will have to pay.

How are you going to select the tenant, you need to do proper checks otherwise you may not get paid. Are you prepared to go to inspect the property regularly, otherwise you could end up with a cannabis farm.

I think you are being naive

Divorce settlement enabled me and my new dp to buy a small house each outright to rent out and go halves on a home together. We are practically mortgage free on all properties so our basics are covered and we both now work part-time and go on lots of holidays.

@leckford why would I need an agent when the local authority would be able to cover any void loss and guarantee tenants?

Naive how? Why would I need to charge more than the market rent so long as my mortgage repayments are covered?

Or naive because I'm not greedy??

Used the equity in my first house as a deposit for the second. First house rented out to pay the mortgage.

I'm what I guess is called an accidental landlord as I was unable to sell the first house and it's too small to live in with my family.

So are you renting the place to the council and taking 80% of the market rate because the council will guarantee you an income for a set number of years?

In which case I don’t think you can have a say who gets to live in your house.

Or are you hoping that someone who gets turned down by the council will be pointed in your direction and you will rent to them at 80% below market rent.

The former doesn’t make you any different than any other landlord.

It makes sound financial sense if you are planning on keeping a property long term.
It does depend still on whether the rent you get is 25% above your mortgage payment and with your salary, the rental payments could take you into the 40% tax bracket so you would have to account for that payment as well as insurances.

If it is the latter as you describe it I doubt you would be considered a “trusted private landlord”

For a start in technical terms you cannot call yourself a professional landlord because you lack the amount of properties to qualify and secondly how would you show you could trusted. You don’t have any experience.

How do the council cover void periods do they pay this persons rent.
This system sounds like something that could be operated as a huge fraud.

Will the council also cover repair costs when a tenant trashes the place.

If not then you will need land lord insurance and you can only get covered properly if you have the place fully managed (hence needing to account for agency fees)

I have heard of renting to the council on a long term lease and I have heard of the council directing people to landlords who might have a suitable property available but never to a landlord who only had one property and who had no experience of renting to a tenant.

If you go down this route then please for your own sake make sure you have done all your figures properly otherwise you could end up either in breach of your mortgage or bankrupting you because your rent is not covering your out goings

Even getting the gas and white goods and electrical stuff checked each year is not free.

@Oliversmumsarmy Sorry, the deposit was 15% - we got it just before the financial crisis when lenders were very generous with their loans so it was lucky timing. We also got a lifetime mortgage at 0.85 above bank base rate. Started out paying £300 ish interest-only mortgage but most of the last 8 years it's been under £150. Rent at £500 since 2009. So yes, we make a profit even with agent fees and other costs.

We bought another flat subsequently at 20% deposit (from savings plus a loan) and although the mortgage is not as cheap, we still more than cover it with the rent. I don't think it's that unusual to be able to do that. You do have to do your figures carefully though, agreed. I suspect main aim for a lot of landlords is capital gain/ pension pot rather than making an annual profit.