Buy my first place or become a landlord?
Discussion
Hi all,
I'm typical first time buyer with a reasonable deposit which was to go on a new house/flat.
But with prices the way the are is now a great time to buy with a view to letting at the expense of staying at home another 12months until i save another deposit for my house?
Any opinions welcome, #
Thanks,
Sam
I'm typical first time buyer with a reasonable deposit which was to go on a new house/flat.
But with prices the way the are is now a great time to buy with a view to letting at the expense of staying at home another 12months until i save another deposit for my house?
Any opinions welcome, #
Thanks,
Sam
1)Personally I wouldn't say now is a great time to buy, you're probably just setting yourself up for negative equity.
2) BTL will attract CGT, personal residence won't.
3)You're unlikely to be able to rent your own place for less than a mortgage. (Or are you staying with parents?)
4) I'd invest the bulk of the deposit now in summat risk free like gilts. Use some "losable" money on higher risk investments. (Like RBS shares)
2) BTL will attract CGT, personal residence won't.
3)You're unlikely to be able to rent your own place for less than a mortgage. (Or are you staying with parents?)
4) I'd invest the bulk of the deposit now in summat risk free like gilts. Use some "losable" money on higher risk investments. (Like RBS shares)
Plotloss said:
I'm amazed that this is even a question, just goes to show the power of the last few years.
Get your own house in order first, then consider profiting off providing someone elses.
Why amazed? I'm currently living with Parents for negliagbe rent, so I can afford to pay a mortgage even if property remains vacant.Get your own house in order first, then consider profiting off providing someone elses.
Surely this is better than buying my own flat and then complaining when house prices go up that I wont see the money as my next house will be more etc...
Unlikely to pay CGT as rent would be under the thresh hold I believe.
I expect the rent to cover the mortgage as I will be competing with landlord who bought at the top of the market as opposed to the current prices, it would also be Interest only mortgage (Probably).
Anyone else done this or considered?
Thanks agian, Sam
1. Do you have a 25% deposit? That's the figure you'll need to get anywhere close to BTL deals.
2. Irrespective of 1, the vast majority of BTL lenders will not lend to a FTB landlord. You need to have a resi mortgage prior to having a BTL loan.
Its all to do with FTB'ers trying to stretch their borrowing capability to buy property they can't afford, obstensibly as an investment, but in reality they live in it.
3. This line "Unlikely to pay CGT as rent would be under the thresh hold I believe." shows you have much to learn about rental. Rental income is taxed as income, once the interest portion of the mortgage payment (plus other stuff) is taken off. The CGT element of a BTL kicks in when you come to dispose of the property.
4. The letting community will tell you otherwise, but it is the market that sets rents not the landlord, so this "I expect the rent to cover the mortgage as I will be competing with landlord who bought at the top of the market as opposed to the current prices," is meaningless. You will rent for what the market will stand. That will also have to be taken into account by the lender when making a decision on BTL lending.
5. "it would also be Interest only mortgage (Probably)." I know of only one landlord who has their investment on a repayment mortgage and their LTV is sub 20%. Noone but noone else I know has a BTL on repayment.
6. "I can afford to pay a mortgage even if property remains vacant." At least you have taken the possibility of void periods into account. Bear that in mind for the future, many landlords forget precisely that.
My advice to you would be to do a hell of a lot of homework on property before you invest in it, either as a place to live or as a rental. As the market stands you will have to be really f
king sharp to not make a hash of it, and that will impact you buying your home when the time comes. Keep an eye on the market, keep saving and buy when you see signs of the market returning. Alternatively when you can afford a place you are prepared to live in for a number of years, look into buying that.
If you want mortgage advice I'm happy to help, but YOU need to do some learning first.
2. Irrespective of 1, the vast majority of BTL lenders will not lend to a FTB landlord. You need to have a resi mortgage prior to having a BTL loan.
Its all to do with FTB'ers trying to stretch their borrowing capability to buy property they can't afford, obstensibly as an investment, but in reality they live in it.
3. This line "Unlikely to pay CGT as rent would be under the thresh hold I believe." shows you have much to learn about rental. Rental income is taxed as income, once the interest portion of the mortgage payment (plus other stuff) is taken off. The CGT element of a BTL kicks in when you come to dispose of the property.
4. The letting community will tell you otherwise, but it is the market that sets rents not the landlord, so this "I expect the rent to cover the mortgage as I will be competing with landlord who bought at the top of the market as opposed to the current prices," is meaningless. You will rent for what the market will stand. That will also have to be taken into account by the lender when making a decision on BTL lending.
5. "it would also be Interest only mortgage (Probably)." I know of only one landlord who has their investment on a repayment mortgage and their LTV is sub 20%. Noone but noone else I know has a BTL on repayment.
6. "I can afford to pay a mortgage even if property remains vacant." At least you have taken the possibility of void periods into account. Bear that in mind for the future, many landlords forget precisely that.
My advice to you would be to do a hell of a lot of homework on property before you invest in it, either as a place to live or as a rental. As the market stands you will have to be really f
king sharp to not make a hash of it, and that will impact you buying your home when the time comes. Keep an eye on the market, keep saving and buy when you see signs of the market returning. Alternatively when you can afford a place you are prepared to live in for a number of years, look into buying that. If you want mortgage advice I'm happy to help, but YOU need to do some learning first.
Teocali said:
Plotloss said:
I'm amazed that this is even a question, just goes to show the power of the last few years.
Get your own house in order first, then consider profiting off providing someone elses.
Why amazed? I'm currently living with Parents for negliagbe rent, so I can afford to pay a mortgage even if property remains vacant.Get your own house in order first, then consider profiting off providing someone elses.
Surely this is better than buying my own flat and then complaining when house prices go up that I wont see the money as my next house will be more etc...
Unlikely to pay CGT as rent would be under the thresh hold I believe.
I expect the rent to cover the mortgage as I will be competing with landlord who bought at the top of the market as opposed to the current prices, it would also be Interest only mortgage (Probably).
Anyone else done this or considered?
Thanks agian, Sam
Rental income is not a capital gain. If you're earning (which I assume you are in order to get a mortgage), then the rental income is likely to be taxable.
Of course the value of the capital would need to increase for this to be an option.
You clearly know far more than the rest of us on this topic though, so just do what you like.
scotal said:
1. Do you have a 25% deposit? That's the figure you'll need to get anywhere close to BTL deals.
2. Irrespective of 1, the vast majority of BTL lenders will not lend to a FTB landlord. You need to have a resi mortgage prior to having a BTL loan.
Its all to do with FTB'ers trying to stretch their borrowing capability to buy property they can't afford, obstensibly as an investment, but in reality they live in it.
3. This line "Unlikely to pay CGT as rent would be under the thresh hold I believe." shows you have much to learn about rental. Rental income is taxed as income, once the interest portion of the mortgage payment (plus other stuff) is taken off. The CGT element of a BTL kicks in when you come to dispose of the property.
4. The letting community will tell you otherwise, but it is the market that sets rents not the landlord, so this "I expect the rent to cover the mortgage as I will be competing with landlord who bought at the top of the market as opposed to the current prices," is meaningless. You will rent for what the market will stand. That will also have to be taken into account by the lender when making a decision on BTL lending.
5. "it would also be Interest only mortgage (Probably)." I know of only one landlord who has their investment on a repayment mortgage and their LTV is sub 20%. Noone but noone else I know has a BTL on repayment.
6. "I can afford to pay a mortgage even if property remains vacant." At least you have taken the possibility of void periods into account. Bear that in mind for the future, many landlords forget precisely that.
My advice to you would be to do a hell of a lot of homework on property before you invest in it, either as a place to live or as a rental. As the market stands you will have to be really fking sharp to not make a hash of it, and that will impact you buying your home when the time comes. Keep an eye on the market, keep saving and buy when you see signs of the market returning. Alternatively when you can afford a place you are prepared to live in for a number of years, look into buying that.
If you want mortgage advice I'm happy to help, but YOU need to do some learning first.
Thanks for the deatiled reply.2. Irrespective of 1, the vast majority of BTL lenders will not lend to a FTB landlord. You need to have a resi mortgage prior to having a BTL loan.
Its all to do with FTB'ers trying to stretch their borrowing capability to buy property they can't afford, obstensibly as an investment, but in reality they live in it.
3. This line "Unlikely to pay CGT as rent would be under the thresh hold I believe." shows you have much to learn about rental. Rental income is taxed as income, once the interest portion of the mortgage payment (plus other stuff) is taken off. The CGT element of a BTL kicks in when you come to dispose of the property.
4. The letting community will tell you otherwise, but it is the market that sets rents not the landlord, so this "I expect the rent to cover the mortgage as I will be competing with landlord who bought at the top of the market as opposed to the current prices," is meaningless. You will rent for what the market will stand. That will also have to be taken into account by the lender when making a decision on BTL lending.
5. "it would also be Interest only mortgage (Probably)." I know of only one landlord who has their investment on a repayment mortgage and their LTV is sub 20%. Noone but noone else I know has a BTL on repayment.
6. "I can afford to pay a mortgage even if property remains vacant." At least you have taken the possibility of void periods into account. Bear that in mind for the future, many landlords forget precisely that.
My advice to you would be to do a hell of a lot of homework on property before you invest in it, either as a place to live or as a rental. As the market stands you will have to be really f
king sharp to not make a hash of it, and that will impact you buying your home when the time comes. Keep an eye on the market, keep saving and buy when you see signs of the market returning. Alternatively when you can afford a place you are prepared to live in for a number of years, look into buying that. If you want mortgage advice I'm happy to help, but YOU need to do some learning first.
I appreciate there is a lot to pick up - more than I initally gave thought to whcih the above helps to point out.
Point 2 was something I feared may be a problem, as advised more research required!
Thanks agian all,
Sam
However, you don't need to be a resi mortgage holder to secure a commercial investment mortgage providing you have a significant enough deposit - 35-40%+
Commercial will offer you significantly higher yields and you could be looking at returns of 12-15% on your capital investment given the low costs of borrowing.
Clearly there are void costs to consider, but a relatively secure commercial investment at the moment ought to be around the 9% mark, and that might well be income secure for 10 years with minimal outgoings (i.e. if its let on a full repairing and insuring basis).
Commercial will offer you significantly higher yields and you could be looking at returns of 12-15% on your capital investment given the low costs of borrowing.
Clearly there are void costs to consider, but a relatively secure commercial investment at the moment ought to be around the 9% mark, and that might well be income secure for 10 years with minimal outgoings (i.e. if its let on a full repairing and insuring basis).
CzechItOut said:
Why not buy a two or three bed flat/house, live there yourself and rent the other room(s) out?
As long as the rental income is less that £4250 you don't have to pay income tax on it - and you will effectively have someone else paying a sizeable chunk of your mortgage for you.
Exactly, my new landlady does exactly that.As long as the rental income is less that £4250 you don't have to pay income tax on it - and you will effectively have someone else paying a sizeable chunk of your mortgage for you.
TimCrighton said:
However, you don't need to be a resi mortgage holder to secure a commercial investment mortgage providing you have a significant enough deposit - 35-40%+
Commercial will offer you significantly higher yields and you could be looking at returns of 12-15% on your capital investment given the low costs of borrowing.
Clearly there are void costs to consider, but a relatively secure commercial investment at the moment ought to be around the 9% mark, and that might well be income secure for 10 years with minimal outgoings (i.e. if its let on a full repairing and insuring basis).
Genuine question Tim, how is the current situation affecting landlords. Presumably there is downward movement in value, and a number of properties are losing their tenants (through the firms going bust)?Commercial will offer you significantly higher yields and you could be looking at returns of 12-15% on your capital investment given the low costs of borrowing.
Clearly there are void costs to consider, but a relatively secure commercial investment at the moment ought to be around the 9% mark, and that might well be income secure for 10 years with minimal outgoings (i.e. if its let on a full repairing and insuring basis).
There is no question that the situation is having a major impact, but equally we are starting to see more equiries for freehold purchase, particularly of well let local investments. I think the days of simply buying from an auction catalogue without a knowledge of the area are behind us (talking the smaller end of the market here i.e. sub £1m). I believe that people want to have an understanding of their tenants business, and also an understanding of the area in which its located.
I guess we've probably seen (here in Hampshire) 15-20% come off Capital values over the past 12 months and where there is a motivated seller this could be as much as 30%. Rents have yet to drop significantly although there are more incentives by way of rent free periods or fit out contributions being made to facilitate deals for certain. This has an impact on small landlords with vacant units, but those now in the market to purchase are in a great position - look hypothetically at buying a small industrial investment (2500sqft) - well let at £10psf to a small distribution firm on a new 10 year lease, thats probably going to be a 9%'er in the current market I would think. You know the company in the area and they have a good reputation. We're talking an approximate capital value of £275k, assuming you could fix borrowing on a 10 year fixed at say 5% (which you ought to get if you're borrowing 50% say), then you're talking about a 4% return on your borrowed funds and 9% on your capital - not bad. Commercial also incurs less management hassle than resi - the tenant is responsible for insurance, maintenance of the property etc assuming its let on FRI (full repairing and insuring terms). You should recieve the property back in a clean, tidy and lettable condition at the end of the tenancy.
I suppose the unknown is tenant failiure risk and this is probably well represented by the increase in yields. I think that providing people 'go back to basics' and understand the tenants business and do their due diligence in researching before they purchase there are some great deals to be had.
Retail is a sector that is struggling for certain, and retail yields have probably seen the biggest chance over the past year, particularly in tertiary locations. This are perhaps representing 10-11% at the moment, depending on the situation.
I don't think I could ever advise that it was absolutely the 'right' time to buy, there is always an opportunity cost but I believe that there will be some great opportunities over the next 9-12months and it will certainly be seen as a good time to buy for those with some capital to invest.
I guess we've probably seen (here in Hampshire) 15-20% come off Capital values over the past 12 months and where there is a motivated seller this could be as much as 30%. Rents have yet to drop significantly although there are more incentives by way of rent free periods or fit out contributions being made to facilitate deals for certain. This has an impact on small landlords with vacant units, but those now in the market to purchase are in a great position - look hypothetically at buying a small industrial investment (2500sqft) - well let at £10psf to a small distribution firm on a new 10 year lease, thats probably going to be a 9%'er in the current market I would think. You know the company in the area and they have a good reputation. We're talking an approximate capital value of £275k, assuming you could fix borrowing on a 10 year fixed at say 5% (which you ought to get if you're borrowing 50% say), then you're talking about a 4% return on your borrowed funds and 9% on your capital - not bad. Commercial also incurs less management hassle than resi - the tenant is responsible for insurance, maintenance of the property etc assuming its let on FRI (full repairing and insuring terms). You should recieve the property back in a clean, tidy and lettable condition at the end of the tenancy.
I suppose the unknown is tenant failiure risk and this is probably well represented by the increase in yields. I think that providing people 'go back to basics' and understand the tenants business and do their due diligence in researching before they purchase there are some great deals to be had.
Retail is a sector that is struggling for certain, and retail yields have probably seen the biggest chance over the past year, particularly in tertiary locations. This are perhaps representing 10-11% at the moment, depending on the situation.
I don't think I could ever advise that it was absolutely the 'right' time to buy, there is always an opportunity cost but I believe that there will be some great opportunities over the next 9-12months and it will certainly be seen as a good time to buy for those with some capital to invest.
Plotloss said:
I'm amazed that this is even a question, just goes to show the power of the last few years.
Get your own house in order first, then consider profiting off providing someone elses.
Agree, in fact having myself 2 adult children, one renting and one buying a £340k flat in London in January 2008, the one renting is financially better off.Get your own house in order first, then consider profiting off providing someone elses.
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