A couple of questions from a complete beginner

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    A couple of questions from a complete beginner

    Hello there
    I am thinking about dipping a toe into the waters of BTL & have a whole load of questions floating round my head. I'd be really grateful for answers to even one of these.

    The circumstances are as follows:

    (1) ,my sister-in-law is about to be turfed out of her rented house because the landlord is selling;
    (2) it’s an ex council house;
    (3) she’s entitled to housing benefit that, post benefit cuts, covers most of her rent (I believe £550 pcm)
    (4) she then tops this up out of her own pocket by about say £100pcm;
    (5) market value of the house might be c. £150k, meaning that the gross yield from HB alone is 4.4%, from rent in total if she continues to top up it’s 5.2%.
    (6) but they’re apparently asking for over £160k. so worst case the yield might be as low as (550*12)/165000 = 4.0%.
    She really, really doesn’t want to move. We somehow started to talk about us possibly buying the house and renting it out to her.
    Other things to mention:
    (7) She’s fairly certain to be in the house for the next 5 years, and probably the next 10. Absent a change in government policy she’ll remain eligible over this period.

    I’d be really grateful for tips on any of the following from experienced landlords. I have been playing with the numbers & have the following questions:

    a) Renting to a family member in this way – good or bad idea?
    b) Her housing benefits allowance – can I assume that this will go up in line with inflation?
    c) Tax rate – wife & I are in different income tax brackets, if the lower earner of the two of us owns the BTL then we’ll pay tax at that person’s lower tax rate, right?
    d) Do the gross yields outlined above look a bit piddling? I wouldn’t be doing this as a *pure* financial/business venture, but nor would I be in it to lose money hand over fist.

    #2
    Do not rent to people you don't want to evict!!

    Comment


      #3
      As above:

      Never rent to friends or family: Assist & support them renting from someone else: But rent to strangers. As a landlord you have to be prepared to be hard - and if the local paper report on yoru eviction to accept that glare of publicity.
      I am legally unqualified: If you need to rely on advice check it with a suitable authority - eg a solicitor specialising in landlord/tenant law...

      Comment


        #4
        And again.
        Don't even think about it!

        Comment


          #5
          Landlording rule 101 is "Don't let to family or friends".

          You can look it up on Wikipedia... it's in flashing red text it's that important a consideration.

          Apologies if this immediately feels like we are shooting you down - as you've gone to some trouble to think about things, that's obvious - but we have seen some right horror-stories on here in our time, and we will collectively advise you against this. Hopefully this collective strong position will make you re-think?

          Comment


            #6
            If you're getting a BTL mortgage on the property it will be condition to not rent to family. So if you complete the application and do so you're effectively committing mortgage fraud.

            From a landlords point of view if a tenant asks for a new kitchen for example and they get knocked back they'll either stay and accept it or move on. If your wifes sister is constantly going on about how bad it is and she needs/wants a new one it's a different argument.
            "I'm afraid I didn't do enough background checks apart from checking her identity on Facebook" - ANON

            What I say is based on my own experience and research - Please don't take as gospel without first checking the gospel yourself.

            Comment


              #7
              Do you have the 25% deposit needed to get a BTL mortgage?

              What will you do if the council refuse to pay your sister any house benefit, seeing it as a contrived tenancy?

              Comment


                #8
                Neither can you rely on HMGovt raising current LHA in line with inflaton, nor even maintaining current eligibility, wait for next budget statement in about 3 wks.

                Comment


                  #9
                  (5) market value of the house might be c. £150k, meaning that the gross yield from HB alone is 4.4%, from rent in total if she continues to top up it’s 5.2%.
                  (6) but they’re apparently asking for over £160k. so worst case the yield might be as low as (550*12)/165000 = 4.0%.
                  That yield isn't too bad, but it's less than ideal. You've not allowed for any repairs or maintenance or for your sister in law to be sanctioned and not be able to pay for some months.

                  (7) She’s fairly certain to be in the house for the next 5 years, and probably the next 10. Absent a change in government policy she’ll remain eligible over this period.
                  You will have to continue to pay for the property regardless of any change in policy.

                  a) Renting to a family member in this way – good or bad idea?
                  Not a good idea.

                  b) Her housing benefits allowance – can I assume that this will go up in line with inflation?
                  You should assume that it will go down, or be merged into a single payment of all benefits.

                  c) Tax rate – wife & I are in different income tax brackets, if the lower earner of the two of us owns the BTL then we’ll pay tax at that person’s lower tax rate, right?
                  If the Sister in Law is your wife's sister, she can't rent to your sister and her receive benefits.
                  If you do, it might come under scrutiny but would probably pass if it is done on a proper commercial basis.

                  d) Do the gross yields outlined above look a bit piddling? I wouldn’t be doing this as a *pure* financial/business venture, but nor would I be in it to lose money hand over fist.
                  You'd be doing OK, but not well.
                  £160k is too high a cost for a property being rented for £650 to a benefits recipient (for me), £130k or £750pcm would be more realistic where I am (although I don't rent to benefit recipients).
                  When I post, I am expressing an opinion - feel free to disagree, I have been wrong before.
                  Please don't act on my suggestions without checking with a grown-up (ideally some kind of expert).

                  Comment


                    #10
                    thanks very much for the quick replies, some real food for thought there.

                    @ Wannadonnadoodah - I checked and some lenders will allow you to rent to family members;

                    @ Mrs Mug - yeah, I have the deposit, and could probably even afford to pay cash for the BTL if I were to withdraw equity from my family home, but the tax disadvantages of this would clearly make it a non-starter. i'd feel fairly relaxed about the tenancy not being viewed as 'contrived' given that i'd only be asking the same rent as her previous landlord.

                    Comment


                      #11
                      You can "withdraw equity" in a reasonably tax effective way.
                      If you increase the mortgage on your own home to fund the property to let, you can still allow for the interest on the portion for the rental property against income tax.
                      When I post, I am expressing an opinion - feel free to disagree, I have been wrong before.
                      Please don't act on my suggestions without checking with a grown-up (ideally some kind of expert).

                      Comment


                        #12
                        Originally posted by TFP View Post
                        @ Wannadonnadoodah - I checked and some lenders will allow you to rent to family members;
                        You'll have to enlighten me which lenders are still doing regulated buy to let mortgages.
                        "I'm afraid I didn't do enough background checks apart from checking her identity on Facebook" - ANON

                        What I say is based on my own experience and research - Please don't take as gospel without first checking the gospel yourself.

                        Comment


                          #13
                          Dunno, but this morning I called a broker who said that several certainly do. He wouldn't say which, unsurprisingly, worried I suppose that I'd try to go it alone if he did.

                          Comment


                            #14
                            Originally posted by TFP View Post
                            @ Wannadonnadoodah - I checked and some lenders will allow you to rent to family members;

                            @ Mrs Mug - yeah, I have the deposit, and could probably even afford to pay cash for the BTL if I were to withdraw equity from my family home, but the tax disadvantages of this would clearly make it a non-starter. i'd feel fairly relaxed about the tenancy not being viewed as 'contrived' given that i'd only be asking the same rent as her previous landlord.
                            Your replies to the above suggests that you are still seriously thinking about going ahead with your plan, notwithstanding the flurry of naysayers. Neither of the above two posters were actually suggesting it was a good idea, and I suspect would probably say the contrary.

                            Just.... don't. Really. Have a browse through this forum for some of the horror stories about letting to family and friends if you really need to be convinced.

                            Comment

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