Investing equity into BTL while we rent

[Minimalme]

We sold our home this summer and signed a two year rental contract.

We love our new rental home and want to stay, but the rent is steep and it doesn't offer us long term security.

We are considering putting the equity from the sale of our house on a buy to let, rent it out for two years then move in ourselves.

After agency fees and interest only mortgage payments, we would see a return of £500 pm.

Would you do this or stick the money in a savings account and wait and see where the market ends up in 18 months time?

It feels weird to be off the market and renting. I agree that the far simpler, safer option is to leave the money in the bank and see where we are once our tenancy is up.

I am worried the housing market will still be loopy in 18 months while our savings have got smaller.

This market is impossible for so many reasons

Some questions.

Does your projected return of £500 pcm take account of

1. making the property compliant for renting
2. refurbishment
3. landlords insurance
4. gas safety, EIRC etc
5. repairs and maintenance
6. voids
7. income tax - remember that you can’t deduct mortgage interest and other finance costs (such as mortgage arrangement fees) from your rental income before calculating your tax liabiliy and you can only claim a tax credit of 20% .

Do you have enough cash to pay the mortgage yourself for about 12 months if you get a non paying tenant ?

How will you pay off the capital if your mortgage is interest only ?

Will this income put you in a higher tax bracket ?

forgot to say - remember the interest rate is higher and the deposit larger on a BTL mortgage.

Hey @0live they are good questions!

We have a lump sum from the sale of our house which is enough to afford the larger deposit and provide a fund to cover the rent if needed.

The £500 was clear profit after paying management fees/insurances etc.

The interest only mortgage would just be a means of making our money earn more than it would stuck in a bank. I don't expect the market to rise so no gains there.

The house has a new bathroom/kitchen and boiler and is in (what appears to be) good rental condition.

I am taking a look at it tomorrow. People in my area are desperate for rentals.

I wondered about letting it through the Council? It is an ex council property - will speak to them tomorrow too.

I

The £500 was clear profit after paying management fees/insurances etc

Im just checking that you understand the tax rules and whether or not that extra income will put you up a tax bracket ?

How are you going to get the tenants to leave when you want to get your money out to buy somewhere else ?

Id imagine that the Council will want to have the property for a minimum of 3 years but they usually guarantee your income and you wouldn’t have to pay agents fees.

It all sounds really daft to me.

You might end up with a tenant that does not pay the rent and trashes the place, especially if you were to do this through your local council.

Also, why did you sign up for such a long rental?

What you should have done I sign a shorter contract (six months or a year) and use the time to find and find a new home in the area where you are renting if you like your current location rather than make everything more complicated than it needs to be.

You would have to pay tax on your rental income and the rates for BTL mortgages are less advantageous than if you were getting a regular mortgage.

I think we will just hang on.

We signed up for a two year rental to give our kids some stability.

We basically could not afford the home we had once I had to stop working to care full time for our middle child.

I think I get what you are saying about being taxed on the income and that would make the margins very tight.

I bought my first place in 2005 and all these years later I never expected to end up renting. I think I just need to let homeownership go for a couple of years and then see where we are at.

I think if you were going abroad for 5 to 10 years it would be a good plan most brokers or Financial advisors would see two years as being a short-term plan and therefore whack it in a isa

£500 profit pcm sounds lovely, from experience that isn't what happens. Capital application is alot less likely over the next couple of years than it has been. I'd personally find somewhere else to pit that money with a guaranteed return and very little effort.

We are just in the process of changing our residential mortgage to a buy to let and then tax is going to be an absolute killer. We are going for a 2yr fix then might sell if it's as nightmarish as it appears so we can get a refund on the additional stamp duty paid. Definitely worth investigating the tax as it really is a lot of money now you can't claim the whole mortgage payment as an expense

You can claim the interest element of the mortgage against tax though just not the repayment which is fair enough really because the repayment element is literally just like putting your money in a savings account isn’t it ?

I rent for myself and have buy to let’s. It’s worked out very well for me - I wasn’t sure where I wanted to end up and the places I wanted to rent I couldn’t afford to buy. Income doesn’t matter for but to let (well sometimes there are minimum income requirements but they’re normally low)

I am sooooo relieved I did it. It means that I’ve now got good property equity and I’ve not been priced out of the market - so when I do come to buy I’ll be able to afford it (will be in less expensive areas than I rent but I will be happy to make that compromise at that time) and I’ll be able to use the equity from the buy to let’s and still keep them because there’s enough in there to do both!

it is a head fuck being a landlord. But it is what it is and it’s not outrageous. I’ve got very insurance going - including legal and to cover unpaid rent.

in your case i would def do it. I bet you end up staying in thenrental for much longer than you think - and your money is just going to erode sitting in an account. Or even worse you’ll spend it.

@Thissucksmonkeynuts any ideas for a guaranteed return with little effort??

Buy to let mortgages are usually interest only rather than repayment. You can claim 20% mortgage relief on interest but that's it.