Buying to keep or rent

[schoolie258]

First time buyers.

Is it better to rent out a property to someone else or is it better to live in a house and pay your own mortgage?

We would need a 3 bedroom which would be expensive at the moment.

We are considering if getting a 1-2 bedroom house or flat and renting that out to someone would be a better way of saving money and eventually affording a bigger house for ourselves.

Just for example sake say mortgage was £500 on this 1 bed property. As a private let we could charge £700-1000. Pay £500 from tenant to the mortgage and anything extra can be put in savings. This way we'd be on the property ladder and can either continue renting out or sell 1 bedroom place eventually

You'd need to pay tax on your rental income, I would buy to live in and wait a few years for equity to build. May also have capital gains to pay when you sell up (check the rules I'm not sure you would if it's your only house) you also need a large % for the deposit, I think 20 or 25% on a buy to let mortgage, you can't have a normal mortgage on a house you're purchasing to rent out to someone else, interest rates are sometimes higher and you need to be earning a certain amount to qualify

The tax and fees will wipe out any profit. You'd lose forty percent - so possibly only 400 or so net and have to top up mortgage payement

You'd gain any equity rise though

And you'd be becoming part of the problem- exploiting the gap in affordability between rent + mortgages.

So, if you rent for say £1,000 you need to pay tax on that - you can deduct any expenses like repairs (non capital), etc but you can't deduct all of the mortgage interest

Then when you sell you will pay capital gains tax on the difference between what you purchase it for and what you sell it for, less purchase and sales costs

You also need to consider the costs of being a landlord, EPC, insurance, etc

Plus what happens if you can't get a tenant out, they trash the house, or don't pay the rent?

You've been watching too much TV I think.

With a differential of £200-500 there is a good chance you could lose money in terms of cashflow, especially if you get bad tenants.

Then the overall gain is dependent on the selling price, and it could be much higher, the same, or even lower.

The downside scenario doesn't really make the risk worth taking, just buy somewhere you can live in.

Where would you live if you rented out the property you bought? 🤔

right now it's cheaper to rent than to buy (if you're a renter single or couple, or small family but want a big house). I think if you're finding the housing market too expensive - everyone is btw - then rent and save save save. Mortgage rates are creeping towards 5% again (for 40% deposit!!!) . It is worse for people with less deposit.

sorry I misunderstood your post. ignore my comment. some of it is irrelevant to what you asked for

Just for example sake say mortgage was £500 on this 1 bed property. As a private let we could charge £700-1000. Pay £500 from tenant to the mortgage and anything extra can be put in savings.

I think this is too simplistic a view. From that 700-1000 you need to...

a) cover managing agent fees (if you use a managing agent - or you need to be hot on landlord law etc yourself and have the time to react quickly and efficiently to issues with contacts of trades people who can help)
b) pay tax (maybe/probably depending on your siutations).
c) upkeep the property, for which you should really set aside at least 10-20% of the rental income
d) put side money to cover the mortgage between tenants or if you have non payers

I don't think you'd get any savings out of it, tbh - nd may lose money.

Yeah, I looked into BTL...sheesh, I can't afford a London house on my own but looked into doing BTL on a small house in my home town. It's not worth it. Capital Gains is 18% plus BTL mortgages are poor value for money. Then when you need to sell and pay all the costs etc. I've decided not to do it.

Probably a good decision - from everything I read it's a shit time to be a LL right now

I considered this. Agent's fees, tax, repairs and the possibility of damage made it a non starter. You could possibly be out of pocket. Buy what you can and live in it.