1st time buyer renting out rooms - Money for nothing?
Discussion
Hi there!
I could use a little bit of input from you more experienced peeps.
I'm 27 and currently renting a room all bills Inc for £450pcm.
I have just been looking and see that I can purchase a 3 bed with decent rooms for around £150k in the same area.
Mortgage is going to be around £750 PCM tops, depending on the size of deposit I can put down (I might be able to talk my mother into boosting the deposit with some inheritance).
Two rooms rented out for £400pcm - Mortgage paid. My current £450 can be used for bills, and I basically work every hour of OT I can get to overpay the mortgage until we are in a positive balance and I can start looking for my very own place using the first house as collateral. Then I either sell or keep as a BTL.
Could possibly look into converting a reception room to further increase rental takings.
I'd be a live in landlord which hopefully might prevent tennants from wrecking the place, and I can pay for building maintenance as and when required. I can then set aside a day off once a fortnight to blitz through cleaning and general maintenance.
It can't be this easy surely? I mean, yeah, I'll still be confined to a single room, but considering I'd own and be paying off the place for around the same price as renting (before the overpayments are factored in), it seems like a small price to pay. Plus a few places have off road parking, which is always a bonus for me
Have I missed out something vital here in my calculations? I can't believe I haven't thought of this sooner!
Thanks!
I could use a little bit of input from you more experienced peeps.
I'm 27 and currently renting a room all bills Inc for £450pcm.
I have just been looking and see that I can purchase a 3 bed with decent rooms for around £150k in the same area.
Mortgage is going to be around £750 PCM tops, depending on the size of deposit I can put down (I might be able to talk my mother into boosting the deposit with some inheritance).
Two rooms rented out for £400pcm - Mortgage paid. My current £450 can be used for bills, and I basically work every hour of OT I can get to overpay the mortgage until we are in a positive balance and I can start looking for my very own place using the first house as collateral. Then I either sell or keep as a BTL.
Could possibly look into converting a reception room to further increase rental takings.
I'd be a live in landlord which hopefully might prevent tennants from wrecking the place, and I can pay for building maintenance as and when required. I can then set aside a day off once a fortnight to blitz through cleaning and general maintenance.
It can't be this easy surely? I mean, yeah, I'll still be confined to a single room, but considering I'd own and be paying off the place for around the same price as renting (before the overpayments are factored in), it seems like a small price to pay. Plus a few places have off road parking, which is always a bonus for me
Have I missed out something vital here in my calculations? I can't believe I haven't thought of this sooner!
Thanks!
Saleen836 said:
Rooms need to be furnished and also remember you need to declare the income, you will also pay tax on anything over £7500 with no deductions for expenses or capital allowances
So I did forget something vital in my calculations - The taxman!Any idea of what rate the rent is likely to be taxed at? Is it seen as income that goes against my total tax allowance and bracket?
I current just about sneak under the higher rate, but the OT and rental earnings will bump me into it.
As for furniture - Freecycle and charity shops. That's at least where it seems the stuff in my room came from
.Thank you for the reply.
xeny said:
Remember that mortgage rates are close to historic lows - there's more scope for them to rise than fall.
True, but isn't that all the more reason to over pay the living heck out of the mortgage will I get it locked in at a decent rate, and hope rising rates/Brexit/the sky falling doesn't dent house prices too much?I've done it for the past 10 years, pretty much paid off vast amount of debt i built up when young and stupid. Personally i'd keep the rent low enough to keep on or just under the tax threshold, that's what i did, saves messing around with accounts etc.
From my experience go with the following:
Be picky, you have to live with them with them end of the day
Their first message can say a lot, i tend to go with the ones that tell you a bit about themselves, their job etc. I ignore those that just say "when can i come see it" or "Do you have room, thousand thanks" (yes seriously)
Try and look them up on Facebook, either by name or mobile number, sometimes gives you an idea of their lifestyle
Take EE's with caution, the ones i've had have been odd, from a guy who paid every month yet spent only a handful of days there to a couple who removed the bed and left it on the landing, choosing to sleep on the floor, invited her sister to stay in the room without leaving for 4 days and then the last straw inviting her entire family to take over my living room one Christmas.
From my experience go with the following:
Be picky, you have to live with them with them end of the day
Their first message can say a lot, i tend to go with the ones that tell you a bit about themselves, their job etc. I ignore those that just say "when can i come see it" or "Do you have room, thousand thanks" (yes seriously)
Try and look them up on Facebook, either by name or mobile number, sometimes gives you an idea of their lifestyle
Take EE's with caution, the ones i've had have been odd, from a guy who paid every month yet spent only a handful of days there to a couple who removed the bed and left it on the landing, choosing to sleep on the floor, invited her sister to stay in the room without leaving for 4 days and then the last straw inviting her entire family to take over my living room one Christmas.
I've done it before & biggest tip is be selective about who you bring in. You will see it as an invasion of your space even though you are being paid for it. You can start to resent the other person taking over you place. I only had people who came recommended from friends & generally i would say it worked out Ok, It sounds easy money, but sometimes you will question your wisdom at doing it!
If you make a profit from your rental activities i.e. your gross rental income exceeds the allowable costs you incur against the rental income, then you will pay tax on that rental profit. The tax rate you pay is dependent on your total income from all sources during each relevant tax year.
If, for example, you had a salary of £40,000 and rental profits of £10,000, your total assessable income for the tax year would be £50,000. Deduct from that your normal personal tax allowances and the balance left is what you will pay your tax on.
The tax on your salary will be paid through the PAYE system. The tax on the rental income is collected through the self assessment system. That means, once you start receiving rents from a tenant, you need to contact HMRC so you can be "registered" fore self assessment. Once the tax year is ended, HMRC will send you a "Notice to Complete A Self Assessment Tax Return". You then have until the following 31 January to submit the return and pay any taxes due.
If, for example, you had a salary of £40,000 and rental profits of £10,000, your total assessable income for the tax year would be £50,000. Deduct from that your normal personal tax allowances and the balance left is what you will pay your tax on.
The tax on your salary will be paid through the PAYE system. The tax on the rental income is collected through the self assessment system. That means, once you start receiving rents from a tenant, you need to contact HMRC so you can be "registered" fore self assessment. Once the tax year is ended, HMRC will send you a "Notice to Complete A Self Assessment Tax Return". You then have until the following 31 January to submit the return and pay any taxes due.
GT03ROB said:
I've done it before & biggest tip is be selective about who you bring in. You will see it as an invasion of your space even though you are being paid for it. You can start to resent the other person taking over you place. I only had people who came recommended from friends & generally i would say it worked out Ok, It sounds easy money, but sometimes you will question your wisdom at doing it!
I rented a room to a friend, and although he wasn't tooooo bad. I became to resent him. Better mates now he's moved on. I then rented the room to a guy i work with, who was on opposite shift pattern so I saw him a lot less. Much better.I work in heavy industry and see adverts about the place offering rooms for the seasonal contractors who come for a few months and go again. They would come for a few months, be in work mon-fri and go home on weekends, so just sleep there. If I was to do it again, thats the people I would try get.
GT03ROB said:
Eric, I thought the rent-a-room scheme gave you an additional amount tax free??
Not quite. It allows you to not have to bother with making any sort of self assessment declaration provided - i) the property being rented is a single room in your primary residence
ii) there is only one tenant/lodger
iii) the gross rental receipts do not exceed £7,500 in the tax year
If you had a separate rental property which was generating a profit of only (say) £1,000, you would still need to register for self assessment to declare the income.
Yes it can be that easy I did it for years when I was your age I didn’t have a mortgage to pay the rent took care of it. You will have arguments with tenants though no doubt I had 1 who left his dishes on the drainer for his mum to wash except she didn’t live there I did! Another who was a bit odd and enjoyed boiling cabbage late at night but think of the money!
Good luck.
Good luck.
I did it for years when I was in my 20's if you keep rent below the tax threshold it's a nice income and a bargain for tenant, which means they cheap rent in return for being in charge of all cleaning.
It definitely helped me when I first bought and also over the years helped 2 good friends save for deposits on their own places.
It definitely helped me when I first bought and also over the years helped 2 good friends save for deposits on their own places.
Eric Mc said:
GT03ROB said:
Eric, I thought the rent-a-room scheme gave you an additional amount tax free??
Not quite. It allows you to not have to bother with making any sort of self assessment declaration provided - i) the property being rented is a single room in your primary residence
ii) there is only one tenant/lodger
iii) the gross rental receipts do not exceed £7,500 in the tax year
If you had a separate rental property which was generating a profit of only (say) £1,000, you would still need to register for self assessment to declare the income.
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