You just pay a bigger % into the mortgage? Depends how much she cares I suppose.
Mortgage and flat ideas
- Thread starter Tee Hee Johnson
- Start date
You just pay a bigger % into the mortgage? Depends how much she cares I suppose.
You just pay a bigger % into the mortgage? Depends how much she cares I suppose.
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Soldato
This really, your not losing anything by selling the flat, you'll roll the capital into the new house, the only thing you have lost is the liability of tenants. Seriously don't, you will regret it. The *only* positive would be for your girlfriend in that if you two go wrong she can get her own place back and leave you
And capital growth. Assuming the new house is the same price regardless of keep or sell and assuming the flat is neither profit nor loss, just covers its own costs over the entire term of ownership:
(Easy round number used for simplicity)
100k flat Let out
200k home
VS
200k home
Assume you keep it for 20 years, if the housing market doubles in values (not unreasonable) so a 100% increase you now have:
200k flat let out
400k home
VS
400k home
in the first situation (keeping the flat and buying a new home) you have a value increase of 300k vs the second situation where you only have a 200k increase.. And thats assuming it just washes its face, it wont.... in most parts of the country this will be profitable, so additional income that can be used to pay off mortgage/savings pot/pension/help with living expenses etc.
Its not all good though, you will have to pay tax, you will pay more stamp duty (quickly paid off from rental income!) and if you or the agent get things wrong it can get expensive quickly if you have a problem tenant.
Base all your maths on it being empty for 2 months out of every 12, and assume interest rates will go up to about 5%.. If its still profitable then its definately worth keeping, especially if you think the area is going up in value!
All this is IMO, and I have times where I very seriously consider selling all the rentals and going back to having a simple life.... But when its going right its nice to provide people with a home, deal with issues quickly and correctly and be referred to as the 'best landlord we have ever had'. Dont go into it for the wrong reasons, and dont go in blind. There are legal obligations and things you HAVE to get right and HAVE to do. Know what these are and ensure they are done and done right (regardless if you are managing it or are paying an agent to do it, the agent is acting on your behalf so their mistake IS your mistake!!!)
Would I do it again knowing what I know now? Yes, in a heartbear!
Soldato
I dont think it's quite so straight forward.
Let's say they have 10k deposit, in your first scenario where they keep the flat and rent it out, they'll need a 190k mortgage on the house.
We'll say 20 years for the mortgage term to keep to your example and the monthly payments are going to be £1150 ish (using 4% avg rate at a guess for high LTV)
If they sell the flat, that'll give 110k deposit so a 90k mortgage required on the house.
Again, 20 year term and the monthly payments are under £500. (used 3% avg mortgage rate to reflect much better LTV)
So, they'd need to answer some questions based on more exact figures:
-Does the cheaper mortgage give them more value than the rental income of the flat?
-Would they be able to invest the money saved on the cheaper mortgage to outperform any increase in the property value over the time?
It may well work out better to keep the flat rented out but it's not as easy as just looking at the increase in value of the 2 properties over time.
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Consider whether 50:50 is fair too, if you marry and divorce she'll get more than 50%.
Soldato
Agreed, it is a very very complex thing. When we were considering it I started out with a simple spreadsheet modelling my numbers and gradually added complexity to it as my understanding grew/changed and that helped us understand that for us, in our circumstances it made sense and was reasonably profitable in the short term and the long term potential is huge.
Long term trend of house prices:
But of course this could easily go down, and that might happen at a time when you NEED money but its all tied up in a property that you would have to sell at a loss.. You always need a plan B (and useful to have Plan C-Z).
Start with a simple spreadsheet about purchase with the cash from selling and purchasing it without, understand the price difference in Buy to let (or rather Let to Buy in this instance) mortgages and go from there, then model incomes/costs etc over time. You will learn as you go and you will find out that things you assumed were wrong etc.. I think we ended on version 19 before actually going ahead but that worked for me and gave us enough indication that it wasnt a horrible idea.