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  • Property-a-holics

    Dilemma - change current residence to BTL?



    All, I am a new member of PT having just signed up. It is a great resource for someone like me who is thinking of dipping toes into BTL waters.

    I would appreciate some feedback on what I am thinking of doing.

    I have a 3 bed semi-house in Wokingham, Berkshire which is estimated to be valued, however, will sell in this market for around 380k. The market seems to have gone soft with offers being made of 5 to 10% lower than asking price.  Would it be a terrible idea to keep this house as a BTL while I buy a bigger house as my main residence? The numbers are

    3 Bed Semi-detached - valued 400k/probable sale expected around 380k/ rent estimated around £1200 pcm. This gives a return of around 3.5%.  Me and my partner both have full time jobs and using the The Mortgage Works S24 tax calcultor shows profit of £4500 as of today and that drops to £3000 as of 2021/22 with the full tax rules coming into play. Of course this assumes neither interest rate nor rents change.

    The question is - we can buy a bigger detached house for just a shade above £500k which in good times would easily sell for £550k. We are thinking of a chain free buy which means we just let our 3 bed semi.

    I know the 3% stamp duty, tax etc means while this is cash flow positive but nowhere close to a good BTL investment. 

    However, I could make the case for keeping this house as a let to buy as we are getting a decent deal on the new house as well as the fact that we will be cash flow positive i.e have a profit of around £3000 p.a. after taking the new tax rules into account.

    Can some more experienced and informed brains on this platform share your thoughts please? I have seen potential buy to let properties in Nottingham around Beeston which offer much better yields but then I think it would be a good experience to get some landlord experience, get a bigger house chain free and see which way wind blows in 2 years time before deciding to sell up or keep?

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    With a lodger strategy I could get your semi converted to a 4 bed house in B Stortford earning £30000 pure tax evaded profit less normal monthly household operating costs unless you wished to declare any ilodger income above £7500!

    Sell your semi and buy a 4 bed in BS.

    There is a desperate shortage of lodger rooms.

    None of my tenants could afford to rent my flats on their own.

    They all buddy up

    You would fill a 4 bed house in BS overnight with lodgers.

    A tenant of mine advertised for a lodger

    100 enquiries later he chose a lodger!!!.

    For a lodger £600 all in for a quality room in a normal house is a great deal.

    You visit your resi house periodically.

    Nobody can prove it is not a house you live in if all bills are in your name.

    Your asset value is not earning you what it could

    You could afford to rent and make more tax free income out of your technical resi property.

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    Thanks for your thoughts Paul.  My mortgage broker was thinking of applying using same logic i.e. proposed a HMO plan for the bank. however this means I will have to keep a residential mortgage on my current 3 bed semi in addition to the residential on the new detached main residence. i am a bit wary as neighbourhood is retired folks who stay busy being nosey. They would not like the sight of lodgers and could tip off authorities. I am guessing lodgers are not allowed on normal residential mortgages?

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    No you are wrong.

    Most lenders allow two single lodgers.

    How would they or anyone else for that matter know you have 4!?

    If you choose to keep your resi property and be elsewhere your choice.

    Neighbours can't prove a thing if everything is still in your name.

    For another £50000 move to BS

    Lodgers pay £600 per room.

    There is no HMO stuff available as LL are selling up.

    You need to attain more lodger income down south.

    There is massive unsatisfied lodger demand in BS.

    Stansted Airport is expanding and there is nowhere for the workers to rent.

    For some bizarre reason LL in BS don't like unrelated households.

    A 4 bed resi house you could source lodgers easily.

    You won't get that where you are.

    Move your resi property to BS and make loads of tax evaded free money.

    This is what I intend to do if I can scrape enough resources together.

    Where will I be actually living?

    I will be everywhere!!

    HMRC will never really know; but officially I will be residing in my hoped for 4 bed house in BS!

     You need to come South to make some real tax evaded money on lodgers.

     Forget normal BTL

    Think lodgers.

    One unencumbered resi and one mortgaged resi is all you need.

    Shoukd bring you in about £50000 tax evaded free.

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    Have a look at Wilton Close in BS on RM

    There is town house being sold by a LL

    You could easily have 4 lodgers there.

    Ideal for airport workers

    Forget normal BTL.

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    Just saw that. Moving my family would be  a big challenge with schools, my job etc. I like the idea of having a second house and earning a bit on it. Selling my house and moving is probably out.

    I could however buy something like you suggested on a second residential mortgage. Not sure if lenders will lend even if I meet the income criteria. Surely the lenders will be curious as to why I need a second residential mortgage when my main home and job/ family school etc is in Berkshire!

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    As far as I am aware it is illegal to have two resi mortgages.

    My strategy only works if you can achieve a mortgage free property.

    Which is why it will rarely work .

    You need to be a rich LL to sell property to be able to buy an unencumbered resi property.

    Plus as you suggest there is donestic upheaval.

    So you are really trapped.

    Better off trying to jack up rent as much as you can.

    Not that easy.

    Inevitably many will realuse that the PRS is no longer effective.

    Perhaps a FHL?

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    No it not illegal to have two residential mortgages, as long as neither property is let.

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    Really!!!!!!!!!??????

    So you are saying that if lodgers are taken on and NOT tenants then 2 resi mortgages are possible?

    But of course MMR could restrict the ability of a LL to get 2 resi mortgsges.

    You would need to be on a very good income

    But you have certainly got me thinking!

    Subject to MMR compliance 2 resi mortgages are seemingly possible.

    I do doubt that many LL would be able to achieve 2 resi mortgages due to MMR.

    But I suppose it is possible!

     I would think that lenders would be very wary of a LL wanting 2 resi mortgages.

    Gaming the system to avoid S24.

    Buy two 4 bed houses and live in one for 15 days and the other one for 15 days.

    Lodgers in both at say £500 per room.

    6 lodgers in total at £500 each

    £36000 tax evaded lodger income!!

    Could be a new business model!

    No S24

    No eviction problems

    I still can't believe you can have 2 resi mortgages.

    Most lenders though won't take rental income into account.

    Be interesting to see what the lender criteria is for two resi mortgages.

     I guess for plausibility the 2 resi properties would need to be far away from eachother.

    Can't really have 2 resis next to eachother!

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    Paul, it may be very difficult to get two residential mortgages thanks to MMR, but not impossible if you earn enough through your day job.

    > £36000 tax evaded lodger income!!

    I think it may be better to use the term .... £36000 tax AVOIDed lodger income!!

    Remember that tax evasion is illegal, avoidance is not (or shouldn't be)!

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    Well I only use the term evaded cos that is what it is.

    Well yes from my figure of £36000 you would deduct £7500 as the RAR A but why declare more when nobody will ever find out.

    There is simply no way for HMRC to detect how many people occupy a residential property.

    The RAR A relues on the alleged inherent honesty of honeowners to declare any lodger income in excess of the RAR A!

    Yeah like any LL with 2 resi properties is going to do that after being forced because of S24 to reduce to 2 or more resi properties where he is forced to live at various periods in a month.............allegedly.

    What I suggest could be done is clear tax EVASION.

    Never in a month of Sundays could it be considered as AVOIDANCE.

    But it is very low level evasion and not something that HMRC is that significantly concerned about.

    Personally I don't know why Govt just acceots it can't detect these homeowners with lodger income exceeding the allowance and just abolish the RAR A and advise that live-in LL can earn as much lodger income tax free as they like.

    However in exchange for the tax free status of lodger income I believe it should be a requirement that a lodger LL for any lodger numbers should be licenced as the scope for abuse would be tremendous especially in more diverse areas of the UK.

    Most lodger LL wouldn't have any problem with this and such a licence prevebts them from tipping over into Mandatory HMO licencing though they could do so if they wished mindful of the HMO regulations for 5 occupiers or more.

    The UK currently has millions of spare rooms which could be far better utilised and would certainly lessen homelessness.

    Tax free lodger income would be a very wise move by Govt.

    After all there is a sort of rough ceiling as to how much lodger income could be earned with a 4 bed house.

    My two 4 bed house strategy would only cost the Govt about £15000 in lost tax revenue.

    A mere trifle compared to the amount they are losing to AirBnB etc.






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