Accidental Landlord Becomes Lifestyle Choice

by Readers Question

8:31 AM, 5th February 2014
About 7 years ago

Accidental Landlord Becomes Lifestyle Choice

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Accidental Landlord Becomes Lifestyle Choice

Following divorce I have found myself owning the former marital home in Newcastle but with my kids having moved to Manchester.  For entirely non-financial reasons I jacked in a very good job there and moved to be with my young kids who live with me half the time.  I guess I’ve become an accidental landlord.  I have let the house successfully, with no voids or undue problems, for almost 2 years whilst renting myself in Manchester.  What was initially an emergency measure has drifted into an established lifestyle.

My new earnings are half my previous salary but with an excellent civil service pension and amazing flexibility (home working) that fits round the kids’ school etc.  That flexibility has a monetary value too in that I avoid commuting costs and before and after school care (besides I did move here to actually see them after all!!).  I am looking to increase my earnings but have decided to only take on better paid employment if it doesn’t compromise my time with the kids so it may be a tough ask in the medium term as they are 10 and 7 years old. Accidental Landlords Becomes Lifestyle Choice

I have £20k or so in the bank (plus around £60k in the house which has been valued at £230-240k) so I’m not flush by any stretch but with the market conditions, the rental track record of the house and plenty of hard work I wonder if I can make something of this BTL accident.

I like the rented house in Manchester and don’t want to unsettle the kids by moving more than absolutely necessary.  The landlord has owned it since 1972 and shows no sign of selling so I am happy to risk staying here for another couple of years whilst I get things sorted.  It is a far larger house than I could afford to buy right now even if I sold up Newcastle.  I’m also a little better off each month renting because the Newcastle house rents for far more than the £700 I pay here.

I’m now trying to move the whole arrangement onto a more business like footing. The reason I set out ALL of that detail is that it becomes very relevant when considering my options going forward.  In short, if you were planning a BTL empire, you wouldn’t start from here.

Looking at things objectively it seems I have 2 options. I can either:

  1. dispose of the house in Newcastle and buy in Manchester or
  2. continue to ‘rent to let’ so to speak.

I wonder what folks thoughts are on these choices?

I’m currently erring towards the latter as, on my current salary, I wouldn’t be able to buy a great house in the kids’ neighbourhood and secondly, having found myself as a landlord accidentally, I am interested in the potential for a BTL strategy to support my efforts to boost a potential deposit for an owner occupied house by withdrawing equity in say 2 years (market permitting) and then, in the medium to long term, go on to provide the funding for further purchases in much the same way it sounds like Mark Alexander did. I realise this may take some time.

After all that background I wonder what folks thoughts are on using this position as the key themes of my potential BTL strategy for the next 20 or so years.   Any thoughts you have are really most welcome and I’m sure they will be a great help to me in moving forward confidently but aware of the risks and limitations of my situation.

Many thanks for reading this and any thoughts you may have.

Regards

Andrew



Comments

Mark Alexander

8:38 AM, 5th February 2014
About 7 years ago

Hi Andrew

I think your strategy is absolutely spot on and I agree with your gut feeling to go with option 2, i.e. continue to rent where you are and let the property in Newcastle.

You are geared at around 75% LTV and you have a reasonable liquidity reserve. If you were to buy something else now I think you could be over-stretching yourself and potentially compromising the comfortable position you are now in but that doesn't seem to be in your thoughts.

Just watch out for the snake oil salesmen who will tell you they have a secret recipe to build a buy to let portfolio with no money. I have yet to find anybody who got rich off the back of these schemes, save for one or two people who sell the courses and wreck peoples lives in the process.

Thank you for sharing your story, I'm sure many people reading it will find it inspiring 🙂

I hope you don't mind that I changed the title by the way.

All the best

Mark

9:20 AM, 5th February 2014
About 7 years ago

Hi Andrew,

Well done for what you have achieved - your pragmatic approach and the fact that you now want to put things on a more professional footing.

I do not feel that you should sell the house in Newcastle. Regard it, and the mortgage on it, a commodity!

When buying and selling property there are always acquisition costs to factor in, so my feeling is to hang on to the property that you have and build from there.

The average BTL mortgage requires a 25% deposit, so you may need to boost your funds a bit.

Spend the next few months absorbing as much information as you can and finding a "patch" to invest in where there is high tenant demand.

Become an expert in that patch and start building relationships with estate agents and other landlords.

Slow and steady is the way to go.

I wish you the very best of luck on your property journey.

Michael Barnes

11:45 AM, 5th February 2014
About 7 years ago

I assume that you have a home owner's mortgage in Newcastle and not a BTL mortgage.

If you sell up and buy MAnchester, then you would need a BTL mortgage.

BTL mortgages (in my experience) are more expensive that home owner mortgages.

Mark Alexander

12:02 PM, 5th February 2014
About 7 years ago

Reply to the comment left by "Michael Barnes " at "05/02/2014 - 11:45":

Good point re the mortgage

If it is a residential mortgage then Andrew will need to obtain "Consent to Let" from his mortgage lender and also to make sure the property is covered by proper landlords insurance - see >>> http://www.property118.com/landlords-insurance-landlords-buying-group/
.

Groover

12:03 PM, 5th February 2014
About 7 years ago

Thank you for the replies and kind words so far. Do please keep them coming. I'm very interested in a broad range of views.

A couple of follow up points:
Vanessa - what would you suggest defines the areas you refer to? and what information do you think I should start looking out for?
Michael - I'm moving to a BTL mortgage now having realised I'd broken the terms of my residential mortgage. They are generally more expensive but my deal had come to an end anyway so it's time to move on. My new BTL deal will be cheaper than the SVR of my previous lender even accounting for the cost of refinance over the mortgage term. There are posts on Property118 setting out the pro's and cons of not advising your lender. On balance even if the rates weren't so advantageous I'd still rather keep it all above board.

Thanks Again,

Andy

Roger Lancaster

13:56 PM, 5th February 2014
About 7 years ago

If you like the property you are in and would consider purchasing it, why not ask the landlord whether he would consider a Rent Now, Buy Later scheme where by you could agree a price now to be paid in 5 years time which gives you security of tenure, the landlord a guaranteed rent for 5 years and you the chance to build up a deposit over the period. In addition you might consider doing the same with your own property eventually releasing the cash to re-invest closer to home or add to your deposit funds when you purchase your current property. Make sure you are careful about who you choose to oversee the scheme as there are potential dangers with Lease Options, of which this is a form, if they are not set up correctly and deposit funds correctly administered. Let us know if you need more information.

Groover

16:21 PM, 8th February 2014
About 7 years ago

Reply to the comment left by "Vanessa Warwick" at "05/02/2014 - 09:20":

Hi Vanessa, thanks for your kind words and suggestions. Can I just ask a couple of questions?

What would you suggest defines the areas you refer to?
How would I go about finding them? and
what information do you think I should start looking out for?

It'd be really helpful to get your perspective.

Andy

18:37 PM, 8th February 2014
About 7 years ago

Hi AG,

I get asked these same questions all the time!

I therefore wrote a post to cover them. It's called "How to get started in BTL ... in 10 easy steps".

http://www.propertytribes.com/how-get-started-btl-10-easy-steps-t-8255.html

If you have a read of it, it will answer the three questions you have ... and more.

If not, then please do ask for further clarification. 🙂


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