buying a house....

[nightcrawler13]

so it turns out the myth of the media that it is impossible to get on the property ladder has been keeping me from the truth for years....

you can buy a house with just 10k saved up?!

i mean, obviously you dont just find this down the back of the couch, but it's not really that much is it? I always thought you needed 60k or something towards a place....

so with this newly acquired info it'e become my mission to buy a house before i go travelling in 2/3 years time. My plan is to buy a three bedroomed terrace in the rusholme / fallowfield area of manchester, there are always people wanting to live here due to it's closeness to uni's and city centre, live there for a year and rent out the other two rooms.

I can get mortgages where i pay back £350 - £400 a month, average rent in the area is 250 a month, a lot of places charge £300. So if i charge £325 all inclusive i will have my pick of tenants, live rent free and they will pay off my mortgage!

Then after a year i'll sign it over to one of the hundreds of estate agents that run the place entirely for you and take a cut of the cash, that mean i can go on my TEFL adventure for as long as i like, with the safe knowledge that i will come back to security instead of my mothers spare room

the only problem with all of this is that it seems too good to be true, and that usually means it is...

so can the older wiser folks here please point out any holes in my plan that i seem to be missing?

[Rufus Gwertigan]

Seems a good plan, but I would be careful about how mortgage interests change as well as the reliability of tenants on paying their cash.

Don't forget that if you sign it over purely for letting that you will have to inform the mortgage company and insurance changes etc. Also what again if tenants don't pay up? If you are tossing it off in another country are you in a position to come back to evict etc?

Properties in Rusholme and Manchester have been going down a little in price, would it be wiser to stuff your cash in a good ISA or something and come back to that? I don't know.

[Ed209]

charge less rent and contribute a fair share yourself?

[Ed209]

You are.

This is a young lad trying to make his way in the world and make that first step onto the propety ladder. All he's looking to do is charge the market rate for a room in his house.

[lost]

I think the amounts you are looking at would make the rent taxable income, plus when you moved out you'd have to keep the house to a certain standard as the rules between live in landlords and not I think are quite different. If you were somewhere unreachable and something major went wrong with the house that the rent didnt cover, I'm not sure how estate agents would treat that.

Edited October 13, 2011 by lost

[TheGayTent]

How cheap is Manchester???

A studio flat round here costs more than £350pcm !

[eFestivals]

Then after a year i'll sign it over to one of the hundreds of estate agents that run the place entirely for you and take a cut of the cash, that mean i can go on my TEFL adventure for as long as i like, with the safe knowledge that i will come back to security instead of my mothers spare room

the only problem with all of this is that it seems too good to be true, and that usually means it is...

what you've missed there is any empty time at the property, or renters who don't pay the rent. If you want to be safe you should allow 2 months a year where you get no rent. That might seem excessive, but it happens more than you might think.

You've also missed any property maintenance that might be needed, which can easily swallow 2 months of the rent you've given for quite a small problem, particularly as you'll be relying on the agent to source a contractor for you.

If it was all as easy as you're believing then everyone would be doing it. As it happens, I'm currently looking at houses to buy, and tomorrow I'm off to see one that's been rented out for five years and is on the market at the same the owners paid for it that five years ago (which gets to mean that it's actually over-priced at the asking price) - I'm guessing it's the case that they've got fed up with having to subsidise something that isn't appreciating in capital value and where the rent doesn't cover the mortgage.

The rent is taxable, and any capital gain on the property when you sell is taxable because you've used it as a commercial enterprise - and in theory* HMRC will pick up on the fact you've been running the property commercially if you've rented thru an agent and not privately.

(* whether they do or not is another thing, but their new computer system is supposedly smart enough to link stuff like this together automatically.)

Edited October 14, 2011 by eFestivals

[Katster]

i mean, obviously you dont just find this down the back of the couch, but it's not really that much is it? I always thought you needed 60k or something towards a place....

[eFestivals]

PS: the general feeling is that house prices are going to go down in price further over the next couple of years, and in the longer term (prolly 5 years away, but could happen at any point with the world's economy how it is, it's happened in some euro countries already) interest rates are going to rocket and so cost you much more on the mortgage.

I did exactly what you're thinking of doing back in the late eighties - funnily enough in the gap of a double-dip recession, exactly where we are now - with interest rates at about 9% when I bought. Within a few months I was paying 18.5%, and the house ended up getting repossessed. Around 5 years later I got another mortgage (keeping quiet about the repossession, something you couldn't get away with now), and off the back of that new mortgage the original mortgage company caught up with me wanting £50k for their losses on that mortgage (from a mortgage I'd had that was only £75k).

It's not the guaranteed win you're thinking it is. Things can turn to BIG shit very easily, and where nothing about that is within your control.

Then again, a friend of mine started out like this (tho started in better economic times, in the late 70s), and has kept adding to his houses over the last 30 years or so. Last time I saw him he was clearing £60k a month profit on his houses (most of which are now mortgage free).

It comes down to the luck of the market. Are you feeling lucky, and do those possible uncontrollable consequences scare you?

Edited October 14, 2011 by eFestivals

[eFestivals]

nightcrawler, are you self employed?

If you are you'll need at least 3 years accountswith all the relevant tax documentation to back those up to get the mortgage.

[Purple Monkey]

Hrm....maybe not the best of time to be jumping on a ladder made out of twigs, already has too many people on it, that's on fire and planted in sand.

[eFestivals]

Hrm....maybe not the best of time to be jumping on a ladder made out of twigs, already has too many people on it, that's on fire and planted in sand.

While there's much that you say there that's true, there's also another factor playing out very strongly in the housing market at the moment, that I suspect means that prices won't fall much further - but it's ultimately going to depend on how many house owners lose their jobs and can't keep up their mortgage.

While most house owners have equity (that's meaning a profit) in their house, they are tending not to see it as a profit but instead as a loss. Their opinion on whether it's profit or loss is not being set by the profit they've made, but by the on-paper profit they'd have made at the peak of the market, and how much they've 'lost' since that peak.

The feeling of loss most people have is making them hugely reluctant to drop their prices ... and with so few houses on the market currently (and it's still falling) compared to more normal times they're often still able to hold out for a price that can be reasonably considered to be above market price - the few people who are looking to buy are very keen to buy, and with so few options open to them they're often caving in to the seller's wishes so that they can buy (this is my experience of trying to buy right now).

Alongside that, the govt is deliberately trying to inflate our way out of debt (it means the country has to pay less off in real terms), which is also holding up those house prices because they're falling in price on a proportional basis against inflation.

[eFestivals]

I bought my house in 2007... and I am just about to come out of a five year fixed rate mortgage at around 6%... While interest rates have been much lower... So I know what its like to buy in a boom Basically I am paying through the fucking celling for somewhere to live At least the increase in interest rates won't be a big deal for me...

Although, I needed somewhere to live so its all kind of besides the point anyway

if you've got at least 10% equity in house, then you'll be able to re-mortgage right now at a percentage of 5% or less - a fair bit less if your equity is 20+%.

[sonny]

While most house owners have equity (that's meaning a profit) in their house, they are tending not to see it as a profit but instead as a loss. Their opinion on whether it's profit or loss is not being set by the profit they've made, but by the on-paper profit they'd have made at the peak of the market, and how much they've 'lost' since that peak.

Edited October 14, 2011 by sonny

[eFestivals]

Do you mean because basically a semi detach for example will always be 25% more "valuable" than a terrace for example (throw away numbers to expand on the point)...

nope, nothing like that at all.

So although you bought it two years ago for 150k and now its only worth 130k...

it wasn't the negative equity victims I was talking about - they're not in any position to sell at all. They'll only be getting out of the market in the short-term if they're forced to by repossession.

I'm talking about the types who might have bought for (say) £100k, and believed their house to be worth (say) 150k at the peak a few years ago. Today it might be worth (say) £120k, but instead of seeing that as a £20k profit from the £100k they paid, they see it as a £30k loss from its peak at £150k.

[eFestivals]

BTW, 192.com is a very useful tool when buying.

You can look up when a house was last sold, and what price it sold for - which is useful for judging a person's mortgage position and how much they might move on their quoted price.

I don't know how they get their price info, but having checked properties where we know for certain the selling price (ones we've owned in the past) the prices they give are accurate..

Edited October 14, 2011 by eFestivals

[abdoujaparov]

I think Neil hits the nail on the head above... If anything I would make sure you can afford the house with no tenants etc... So plan on having 0 tenants for 12 months a year.

[windy_miller]

Don't forget the all the solicitors fees, stamp duty etc. It all adds up.

Funnily enough I just sold my house and the house I was supposed to be buying fell through last week, so I have had to move into rented accommodation for the time being. The whole thing has been a nightmare (we put our house on the market over a year ago) and is incredibly stressful. Don't think buying a house is a walk in the park.

[eFestivals]

Don't forget the all the solicitors fees, stamp duty etc. It all adds up.

it does - but nowadays adds up to less than it did over 20 years ago.

[TheGayTent]

more to the point, whichever mortgage provider you go to for a buy to let mortgage (because that's what you'll need if you're not living there) will want proof that you can cover at least the interest payments on the mortgage with no rent income, ie from your own resources. If you're out of the country with no obvious income, it's hard to see how you would do that. So your chances of getting a buy to let mortgage, in a risk averse market, is basically zero

[abdoujaparov]

It's much cheaper to not get a buy to let mortgage and then change after a week. The interest rate offered won't go up, usually just a £50 admin fee.

[TheGayTent]

they will still want evidence that you can cover the interest payments on the mortgage without rental income

[abdoujaparov]

They may do - but the fact is, do it that way, and you will be offered better rates of interest.

[abdoujaparov]

When ivory towers crumble...

I personally don't give a rats arse about people owning properties and renting them out etc... but given your consumption moral stances and ivory tower self righteous beliefs I would of thought this would of been a big no no to you...

Guess I got you wrong...

[abdoujaparov]

Walking contradiction you are...

You have clearly made your money in the world and now you stand back and lambast others for seeking what you have obtained. Asking them to cut back after you have consumed...

It doesn't take a genius to join the dots to work out that you have created yourself a comfortable existence beyond most on here. To the extent where you can afford to have only one income earner in the family allowing your wife to home school your children. While you nobly suggest this is a choice we also know that your family created a financial environment fruitful enough to support this set up.

Then you stand there before others and look down on them for their consumption. Ivory Tower hasn't crumbled, its collapsed...

But I am just an idiot... but an idiot who can see through your contradictions never the less...

Edited October 14, 2011 by abdoujaparov