1st BTL now...am I crazy?
Discussion
Douglas Arfempty said:
Thanks for all the advice, you've raised some brilliant points.
We purchased the property for 60k 5 years ago and it is now at 110k, which is at the top end for the area.
On that basis, because the capital increase is not going to be all that great, we're going to sell.
However, we are continuing on a LTB basis until we complete on our new purchase. Once this is done we'll sell our existing property. Any obvious flaws in this plan? It'll cost us a fair bit, (4k ish in estate agents fees, conveyancing again(!) and the ERC on the mortgage, plus a couple of months of mortgage payments) however we feel it'll be worth it in the long run.
Thanks once again for all the advice.
Why would you carry on with the LTB if you're then going to sell it? I can only guess it's because you don't want your current purchase to fall through? We purchased the property for 60k 5 years ago and it is now at 110k, which is at the top end for the area.
On that basis, because the capital increase is not going to be all that great, we're going to sell.
However, we are continuing on a LTB basis until we complete on our new purchase. Once this is done we'll sell our existing property. Any obvious flaws in this plan? It'll cost us a fair bit, (4k ish in estate agents fees, conveyancing again(!) and the ERC on the mortgage, plus a couple of months of mortgage payments) however we feel it'll be worth it in the long run.
Thanks once again for all the advice.
If so then depending on the figures (especially the ERC) you might be better to offer some cash towards the vendor of the house you're buying, in return for allowing you to get it advertised and sold.
Else... what happens if it doesn't sell? You'll have mortgage payments coming out, and you'll be unlikely to find a tenant to rent somewhere that's also for sale.
Sounds pretty risky unless i'm missing something!
If you're going through with the LTB, then you might as well get a tenant in for a year or two, and then sell at a later date. Or as a minimum don't get a fixed LTB mortgage with early repayment charges.
MrChips said:
Why would you carry on with the LTB if you're then going to sell it? I can only guess it's because you don't want your current purchase to fall through?
If so then depending on the figures (especially the ERC) you might be better to offer some cash towards the vendor of the house you're buying, in return for allowing you to get it advertised and sold.
Else... what happens if it doesn't sell? You'll have mortgage payments coming out, and you'll be unlikely to find a tenant to rent somewhere that's also for sale.
Sounds pretty risky unless i'm missing something!
If you're going through with the LTB, then you might as well get a tenant in for a year or two, and then sell at a later date. Or as a minimum don't get a fixed LTB mortgage with early repayment charges.
It would cost us around 4k as mentioned. You raise a good point on the ERC, it's not too late to change the mortgage selection so will look into this, which should halve that 4k. Offering the vendor a couple of K won't make a difference to them. On an interest only we can meet the LTB payments comfortably, long term if necessary however houses around here sell well to first time buyers. If so then depending on the figures (especially the ERC) you might be better to offer some cash towards the vendor of the house you're buying, in return for allowing you to get it advertised and sold.
Else... what happens if it doesn't sell? You'll have mortgage payments coming out, and you'll be unlikely to find a tenant to rent somewhere that's also for sale.
Sounds pretty risky unless i'm missing something!
If you're going through with the LTB, then you might as well get a tenant in for a year or two, and then sell at a later date. Or as a minimum don't get a fixed LTB mortgage with early repayment charges.
Just don't want to take the risk of the purchase falling through. This house is a 20-30 year keeper at least due to the area it's in, and they don't come up for sale too often.
Paul O said:
With the announced changes over the next few years, you won't be able to offset the interest payments. If you are a 40% tax payer, that'll be an extra £180pm on top, you aren't coming out with much. The only real advantage is capital growth, which depending where the property is might not be that great either.
I've just sold mine - not worth the hassle any more!
Assuming I understand the new rules correctly, they can turn a basic rate taxpayer into a higher rate taxpayer as well, which is something to watch out for - ie, let's say your income without buy to let is just at the higher rate threshold. Adding the rental income on will push you over making you pay 40% tax on it and the interest expense will do nothing to save you, as you'll get relief at 20% only. So you get taxed on a profit you haven't madeI've just sold mine - not worth the hassle any more!
What is defined as "profit" can be a nebulous thing.
Essentially it is the gross income from an activity less the costs incurred in generating that income. However, deciding whether a cost was incurred to generate an income can be a bit judgmental. And sometimes there will be cases where there are accounting options as to how a cost might be allocated.
Also, tax regulations might recognise that a cost WAS genuinely incurred as part of the process of generating the income but for political or socio-economic reasons, will not allow that cost to be offset against the income - or partially restrict the claim.
That is what is happening with the changes to the allowability of interest against rental income.
Essentially it is the gross income from an activity less the costs incurred in generating that income. However, deciding whether a cost was incurred to generate an income can be a bit judgmental. And sometimes there will be cases where there are accounting options as to how a cost might be allocated.
Also, tax regulations might recognise that a cost WAS genuinely incurred as part of the process of generating the income but for political or socio-economic reasons, will not allow that cost to be offset against the income - or partially restrict the claim.
That is what is happening with the changes to the allowability of interest against rental income.
So you currently have a home. You're buying a new one and renting out the old one.
In all your thoughts you've forgotten one item.
Detaching yourself from your current home. When you move out ensure you then just call it a house. An investment house. Seeing what some tenants are capable of can be soul destroying.
In all your thoughts you've forgotten one item.
Detaching yourself from your current home. When you move out ensure you then just call it a house. An investment house. Seeing what some tenants are capable of can be soul destroying.
e8_pack said:
Thinking of similar.
Buy a BTL with 80k cash + mortgage. Put in wife's name who has no income.
Or are we better to pay some of our main residence off: worth about 300k owe 130k.
I'm 28 years to retirement.
In very similar position to this. Interested to hear anyone's advice Buy a BTL with 80k cash + mortgage. Put in wife's name who has no income.
Or are we better to pay some of our main residence off: worth about 300k owe 130k.
I'm 28 years to retirement.
Pay down your existing mortgage. Use the savings on your monthly repayments to build up a flexible and tax efficient pot in ISAs that you can drawn on in retirement. If your ISAs are always paid up, top up your pension.
Or you could take on further borrowings to acquire an illiquid and tax inefficient asset with a low yield.
Or you could take on further borrowings to acquire an illiquid and tax inefficient asset with a low yield.
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