Buy to let advice please

[swee'pea99]

I know there are some people here with direct experience, so I'd be grateful for any thoughts.

Munchkin Major is currently in her first year at university, and in digs. For years 2 thru' 4 they get thrown out into the wilds. She and my wife have been doing some digging around, and the story I get is that rental accommodation thereabouts tends to be pretty scummy, and costly. So they've come up with this wizard plan whereby we buy a three bed house, let out two of the rooms, and the rents cover the mortgage, essentially allowing my daughter to live rent-free. She's confident she'll find it easy to find two fellow-studes who will be happy to take rooms - they have to live somewhere, and this will be a decent non-scummy place. So what could possibly go wrong?

I feel way outside my comfort zone, juggling large sums of money (increasingly hard to come by these days) in an area about which I know, in truth, virtually nothing. So I thought I'd see what if anything anyone hereabouts thought of my womenfolks' plans for world domination.

Any thoughts & advice much appreciated.

 

[Levo-Lon]

Can you afford the deposit..intrest rate..repair and moddifications..tennant law
will 2 room rents cover it? Can you wait and cover cost while rents are sorted via student loans or what ever payment system is granted?
Students trash houses...as they dont care..party friends ect ect..
You will be able to rent it for years and it will be a investment..is a plus..

id not want a property of mine full of teenagers..i used to date a girl at warwick..lol nightmare

 

[Cubist]

A mate of mine did this at Uni. He bought a nice four bed Victorian terrace in Sheffield and rented out the spare rooms, reducing his cost of living and giving him a house to rent/ sell after his course. I suspect current house prices may not mirror those of 1980s Sheffield. I have considered this for my kids, though I will be lending them any deposit over and above their current savings if necessary should we go ahead with it. (Out of my pension lump sum as I'll have retired by the time this is needed).

Pitfalls will be based on student property standards required..... I'd be tempted to overdo the good landlord bit rather than try to cut corners, which will mean your daughter will be living in a decent environment rather than putting up with the Young Ones' style houses I lived in in Fir Vale and Darnall.

 

[Spinney]

I think most folks's buy to let experience on here is in buying a house that is completely let out - i.e. the whole house is rented to one family with one tenancy agreement.

There are several options in your situation:
- you own the house and she rents from you, and sublets two of the rooms (permission to do this would have to be in the tenancy agreement)
- you own the house and rent it out to mulitple occupants, one of whom is your daughter
- she owns the house and lets two rooms to lodgers (I think this is the option you are describing).

There are different rules, regulations and pitfalls in all three situations! Under the forthcoming tax rules, if you don't want to pay the extra 3% stamp duty it needs to be the 3rd option (otherwise you are buying a 2nd home). The advantages to the 1st and 3rd options are that your daughter is clearly the boss in the house.

This is quite a good website for asking questions, but is almost entirely about 'normal' residential letting: http://www.landlordzone.co.uk/forums/
however it does have some lodgers advice here: http://www.landlordzone.co.uk/content/lodgers-and-the-rent-a-room

If you google HMO (houses in mulitple occupation) you may find some useful info.

https://www.citizensadvice.org.uk/h...-a-lodger-what-you-need-to-think-about-first/

But also you need to think about what will happen when she finishes uni - if it is her house she will not pay capital gains if she sells it, if it is your house you can continue to rent it out (but without a tenant with a vested interesting in keeping the place half-way decent, so at this point you will turn into a Bastard Landlord* and will want to rent it out to non-students who have jobs that pay enough to pay your rent...

(*as used in various CycleChat discussions of rented property...)

 

[swee'pea99]

you will turn into a Bastard Landlord*

Will I need a waxed moustachio to twiddle, or is that optional?

Many thanks - that's immensely helpful - really clear, direct, to the point: just what I needed. I shall check out the sites you recommend. Or at least I shall get my wife to - it was her bloody idea after all! Seriously tho', I'll do some more reading up at those sites, but that's a fantastically helpful starter for ten. And thanks meta lon & Cubist as well - helpful food for thought there. I don't think trashing is likely - she's a chemist, and her friends' idea of a good night out is a good night in. Could be famous last words...

 

[Spinney]

Will I need a waxed moustachio to twiddle, or is that optional?

I manage quite well without one!

Many thanks - that's immensely helpful - really clear, direct, to the point: just what I needed. I shall check out the sites you recommend. Or at least I shall get my wife to - it was her bloody idea after all! Seriously tho', I'll do some more reading up at those sites, but that's a fantastically helpful starter for ten. And thanks meta lon & Cubist as well - helpful food for thought there. I don't think trashing is likely - she's a chemist, and her friends' idea of a good night out is a good night in. Could be famous last words...

The house will need a basement for the meth lab, then?

 

[Andrew_P]

I am in the same position I came to the conclusion I would gamble on a studio flat close to the University that would cost similar to the rental cost - and sell at the end of her education and hopefully it would be cost neutral. Quite a gamble though. The alternative would be to rent it out until it was cost neutral. She is on a gap year at the moment so won't need to decide until closer to the time.

The danger would be if one or more of the flat sharers stopped paying the rent but tried to stay on site. I would imagine even if you and your daughter had the heart to evict mid term the chances of filling that space would be low until the next new year. Also the risk of my daughter managing students with me at a distance would worry me, parties etc.

 

[BrumJim]

Key risks:
1) Negative equity, caused by general house prices or lots of new big student flats opening up nearby.
2) Place gets trashed. Students don't tend to come with any references, as they lived with their parents before going.
3) Residents failed / kicked off course / fell out and left, resulting in rent arrears.
Key problems:
1) Can be hard work, with frequent tenant changes, continual repair and upgrade work (HMO standards for alarms, locks, etc), electrician called out every time the mcbs trip, (how many students does it take to change a light bulb?) and risk of break-ins during the holidays.
Key costs:
1) see problems.
2) Insurance
Key benefits:
1) High yield compared to renting to non-students
2) At the end, selling should be easy, or the option of using a property management company, and just paying bills and taking rent. No need to undertake maintenance and checks, or find new tenants. There should be plenty of specialist student property management companies in the local area.

A lot of people seemed to be doing this when I was at University, and I heard no horror stories.

 

[Sbudge]

I think the biggest issue must be what's your capital base. The greater the amount you need to borrow (relative to the value of the property) the greater the risk. With worries about the global economy and/or interest rate rises on the horizon I'd be *very* cautious unless you've a substantial amount of cash to add to the mix as a deposit etc.

From family experience if you are thinking of doing it entirely based on loan/mortgage paid by rental revenues then I'd advise against it...you're just too vulnerable to changes/risk factors. If on the other hand you can commit a big chunk of capital to the enterprise then you may be able to buffer any short term issues and it could be a good opportunity.

 

[swee'pea99]

Excellent! Many thanks for all your comments - really helpful food for thought. CC never lets yer down!

 

[Ganymede]

Re the trashingness of students - one of the ways landlords get accountability for the students is to ask them to have a guarantor. My nephew asked me to be his but I refused because I know what it entails (turned out fine in the end for him btw, I would have helped if he was desperate). This means the guarantor is responsible, but it's a method full of pitfalls, as a lot of people who sign to be guarantors don't understand what they're signing. Have a google around the subject.

Disclaimer: I don't have experience of this as a landlord!

 

[Joshua Plumtree]

Re the trashingness of students - one of the ways landlords get accountability for the students is to ask them to have a guarantor. My nephew asked me to be his but I refused because I know what it entails (turned out fine in the end for him btw, I would have helped if he was desperate). This means the guarantor is responsible, but it's a method full of pitfalls, as a lot of people who sign to be guarantors don't understand what they're signing. Have a google around the subject.

Disclaimer: I don't have experience of this as a landlord!

A student renting a property generally needs a guarantor along with a substantial deposit. Did this for my son in Sheffield last year along with five other parents.

Picked up my lad at the end of the student year. Did an inspection of the house. Everything seemed ok. Handed back the keys.

About two weeks after everyone had left for the summer, we received a bill for £1500 for repairs caused by negligence and threatening legal action if we didn't pay. In the end, we all payed up just to avoid the hassle (I live 160 miles away from Sheffeld).

It also turns out that all the deposits had been used to make repairs during the year, despite the fact that, as far as I'm aware, all deposits have to be kept by a third party in case of disputes.

He's currently on a work experience gap year, but I've already told him that there's no way I'll be a guarantor for his final year!

 

[srw]

Just because you can cover the mortgage with the rent now doesn't mean you'll be able to do it in three years time. You need to convince yourself, and for that matter the mortgage company, that you can cover the rent if interest rates go up. And you need to allow for tax and stamp duty - the rules have just been tightened up, and there's a risk they'll be tightened up again.

Unless I thought I could pay off the whole mortgage within 5 or 6 years I wouldn't do it, but then I'm highly risk averse.

 

[Spinney]

A student renting a property generally needs a guarantor along with a substantial deposit. Did this for my son in Sheffield last year along with five other parents.

Picked up my lad at the end of the student year. Did an inspection of the house. Everything seemed ok. Handed back the keys.

About two weeks after everyone had left for the summer, we received a bill for £1500 for repairs caused by negligence and threatening legal action if we didn't pay. In the end, we all payed up just to avoid the hassle (I live 160 miles away from Sheffeld).

It also turns out that all the deposits had been used to make repairs during the year, despite the fact that, as far as I'm aware, all deposits have to be kept by a third party in case of disputes.

He's currently on a work experience gap year, but I've already told him that there's no way I'll be a guarantor for his final year!

Not sure if it is too late now, or if you can be bothered, but unless landlord can show this was done I think they can be sued/fined for something like twice the deposit that they should have safeguarded with a third party.

 

[Licramite]

In essence its not a bad idea if you can afford it - but I not expect to make much out of it. It and it's contents are going to get pretty trashed on a regular basis, having your daughter there might help. Of course students don't always pay the rent. I f your subletting utilities and council tax is in one name only so your daughter would probably be that person and could get stiffed if the others don't pay.
its not a bad idea, but be prepared for a lot of hassle and not making much money out of it, but the offset of that is you won't be paying for your daughters rent and as long as you could afford the mortgage occupied or not it would give her a stable base for her course.
Renting afterwards I would put it in the hands of a letting agency, lifes to short for landlord hassle.
(he who rented his house for 7 years with an agent and had 7 years of hassle including having it trashed twice with no rent being paid - so maybe my advice is not so valid)