It’s no secret that Mrs Z and I will leave Chateau Zombie at some point.
But we are trying to figure out if it’s worth keeping Chateau Z as a rental property. And it’s hurting my undead brain.
People in the UK tend to go a bit mental for property. I’m convinced a lot of people actually view it as a risk free asset.
The ever volatile Zoopla values the Chateau at £200,000, and with a mortgage of £104,000 outstanding we have £96,000 in equity.
Zoopla also puts the property at a potential rental value of £950 a month. A yield of 5.7% if the numbers are to be believed. I have no idea if this is good or bad for a property, but it feels on the low side.
The first option – No BTL
If we just sold up and reinvested all the equity into a new place it, say the property was £350,000 (far more house than we would go for, but lets be prudent), less £96,000 equity and another £25,000 of savings to bring us below the 65% LTV at 64.41%.
This would leave a mortgage of £219,000. Let’s say we went for the current Nationwide offer of 2.14% fixed for four years. Over 20 years that would be £1,122 a month according to the MSE calculator.
The follow up option – With a BTL
What about if we tried to keep the place as a BTL and bought a new place. Greedy little Mr Z.
If we bought the same place and released just enough equity to reduce the LTV of the residential property to 80%. That would be £45,000 equity released, alongside the £25,000 of additional savings would mean a £280,000 mortgage would be needed.
Again with Nationwide there is a deal for 1.79%, cheaper than the first, but it is a tracker not fixed. Anyway, over 20 years that would be £1,388 a month. An extra £266 pounds a month being spent on servicing the mortgage.
The BTL would then need to be financed, with a mortgage for £149,000 at 75% LTV. With RBS you can get a 2.74% tracker for 2 years. This would mean a mortgage payment of £807 per month.
Off set against the rental income of £950 leaves a positive cashflow of £143 a month for the rental property. Hardly ground breaking. But overall leaving us paying £120 more a month.
Things are never simple
That’s a lot of numbers. But what it boils down to is that having two properties will cost more, £120 more a month if my numbers are to be believed.
£120 doesn’t seem like much to end up with two properties at the end of the day.
– This is all on introductory rates, which would need refinancing. Which costs money.
– Inevitable repairs will be needed. Which will cost.
– Interest rates will (!) go up at some point. Which will cost.
– There will be periods when it’s not occupied. Which will cost.
– It would leave me horrendously in debt
On the other hand, it would provide a nice stream of income in 20 years.
These numbers don’t seem great given the risks involved.
So, my questions are thus. How do you make a BTL work? Anyone with any experience? How passive or active is this income?