I'm after some advice about buying a residential property to rent out.

Buying one

Is it best to remortgage my current house to buy one cash or just get a buy to let mortgage? Pros and cons to each please.

Which to buy?

Do I go for the one bedroom flat or a family home hoping the family tenants will look after it more? (I'm kidding myself here as i work in rental property's and see how they treat them)

Location

So do I buy in a nice postcode where the house will cost more or the slums which are cheap? The rental income will vary but not massively.

Tax man

The worst bit! How and how much of my profit will this chap want?

I know capital gains tax comes if/when I'd sell it and because I've not lived in it. There must be a way around this? (Maybe I split from the wife and go live in it for 18 months.

Allowances, I've read that there is an allowance that kicks in before you have to pay tax?

I'm handy enough to cover all aspects of maintenance and repairs so that helps running cost.

Realistically I could remortgage to buy a slim house outright but for one in my postcode it would have to be a buy to let.

Please share any other information you feel relevant as I'm just starting to explore this.

Hi RRS Daz, there is no simple answer to any of those questions.

1. You need to decide what you are trying to achieve in your investment. Are you after an income or a capital return.

2. Who do you want your tenant to be, unemployed single person, working family, students, professional sharers, multiple sharers etc etc etc

The answers to these 2 questions will help you decide the area and type of property to suit.

As for tax it will depend on your individual circumstance and again the answers to the above.

Don't forget flats will normally be leasehold and will involve a yearly ground rent and maintenance charge that will eat your profits up.

The interest portion of the mortgage is tax deductible but not the capital element.

I personally wouldn't pay cash for a rental property but everyone has a different view eh MY16 AUTOBIOGRAPHY Indus silver with some toys

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When you have decided, let me know a post code and type of property, (bedrooms, flat, house bungalow etc)

I might be able to get you a list of other properties similar, same post code or 1/4 mile+ radius to give you an idea for rental prices

rigsby wrote:

Hi RRS Daz, there is no simple answer to any of those questions.

1. You need to decide what you are trying to achieve in your investment. Are you after an income or a capital return.

2. Who do you want your tenant to be, unemployed single person, working family, students, professional sharers, multiple sharers etc etc etc

The answers to these 2 questions will help you decide the area and type of property to suit.

As for tax it will depend on your individual circumstance and again the answers to the above.

Don't forget flats will normally be leasehold and will involve a yearly ground rent and maintenance charge that will eat your profits up.

The interest portion of the mortgage is tax deductible but not the capital element.

I personally wouldn't pay cash for a rental property but everyone has a different view eh

npinks wrote:

When you have decided, let me know a post code and type of property, (bedrooms, flat, house bungalow etc)

I might be able to get you a list of other properties similar, same post code or 1/4 mile+ radius to give you an idea for rental prices

i have access to what been advertised, but no longer visible

Ah ok I'll pm you.

£ for £ you will get a slightly better rental yield (income) on a 1 bed flat but in my experience a family home would be an easier route.

You don't pay tax on the interest portion.

One point to get you thinking ................

if you buy a family home for £110000 (as per your example) and pay cash and lets say the house prices over 10 years go up 40% then you stand to gain £110000 x 40%= £44000 gross profit...not bad eh

Lets now say you invest your same £110000 using mortgages and putting deposits of 20% on each house meaning your £110000 could buy 5 houses valued at £110000 each. The value of these 5 houses is £550000 and you will still gain 40% on your investment which makes your profit £550000 x 40% = £220000 This strategy is called gearing up.

Still want to pay cash ?

Obviously I have plucked 40% increase over 10 years out of thin air but you get the idea.

Let me also say this is a very simple example that does not take into account your additional fees etc of buying several houses and of course you could lose a lot of money if house prices fall MY16 AUTOBIOGRAPHY Indus silver with some toys

2012 3.0 SDV6 Luxury gone, but a great motor

And don't forget the mortgage interest costs and costs of properties when empty, the mortgages still need paying etc

My brother in law does this and his best tenants are polish type workers, not too bothered on top knotch fixture and fittings but most respect the properties

rigsby wrote:

£ for £ you will get a slightly better rental yield (income) on a 1 bed flat but in my experience a family home would be an easier route.

You don't pay tax on the interest portion.

One point to get you thinking ................

if you buy a family home for £110000 (as per your example) and pay cash and lets say the house prices over 10 years go up 40% then you stand to gain £110000 x 40%= £44000 gross profit...not bad eh

Lets now say you invest your same £110000 using mortgages and putting deposits of 20% on each house meaning your £110000 could buy 5 houses valued at £110000 each. The value of these 5 houses is £550000 and you will still gain 40% on your investment which makes your profit £550000 x 40% = £220000 This strategy is called gearing up.

Still want to pay cash ?

Obviously I have plucked 40% increase over 10 years out of thin air but you get the idea.

Let me also say this is a very simple example that does not take into account your additional fees etc of buying several houses and of course you could lose a lot of money if house prices fall

npinks wrote:

And don't forget the mortgage interest costs and costs of properties when empty, the mortgages still need paying etc

My brother in law does this and his best tenants are polish type workers, not too bothered on top knotch fixture and fittings but most respect the properties

Yes you can get rental guarantee and some Insurers include it for "free"

If you are doing this for the capital gain then you could fix the mortgage rate so you know exactly what your costs are on a monthly basis, for piece of mind.

To keep the costs down picking a property with exposed brickwork will work out cheaper on maintenance as no external painting required, a double reception room is usually better than 2 small ones, go for good bedroom sizes, if its a family home make sure there is a bath rather than a shower cubicle. Look at the parking situation, pick a low maintenance garden, make sure the boiler is reasonably up to date etc etc All these things will help. MY16 AUTOBIOGRAPHY Indus silver with some toys

2012 3.0 SDV6 Luxury gone, but a great motor

The green deal scheme can be your friend too, as grants can be had for insulation to lessen the cost of running the house, cheap 'leccy & gas cost are better for tenant who are on a tight budget

Thanks for the replys guys.

Yeah capital gains is more important to me as I'll either sell these for a pension top up or gift them to the kids.

I can do bathroom swaps if it had showers, I'm also gas safe registered plus have completely renovated my own home. I also work for a company that has the insulation offers on.

I've read that capital gains tax has to be paid upon selling the house if you haven't lived in it for minimum of 18 months, so wouldn't you just live it in for a few years having split up with the wife?

Also in laymans terms if the total outlay per month of the rental is say £600 and the income is £600 then no tax would be pay able or am I talking crazy as they still say you making a profit as someone is paying your mortgage off.

I read there are allowances such as cost of decorating it every year but how do I find out more detials on this and the amounts?

There are lots of costs that you can deduct before you calculate the tax liability but you must be able to prove them if asked.

Some things that you can deduct are, interest payments (but not the capital element) , all professional fees that relate to letting, buildings insurance, ground rents, maintenance charges, repairs (but not improvements), gas safety and electrical tests, some travelling expenses, cleaning costs and lots more.

The golden rule is it must relate wholly and exclusively to the rental activity. Costs that you incur prior to the first let tend to be capital costs and are not allowed to be deducted against income tax.

So if you buy a house and spend £3000 getting it ready, most of that would be capital expenses and not deductible.
If you pay £400 per month on a repayment mortgage there may only be £100 you can deduct, if it were interest only it would all be deductible. MY16 AUTOBIOGRAPHY Indus silver with some toys

2012 3.0 SDV6 Luxury gone, but a great motor