Buying next door as BTL property

Hi all,

Random question I thought i’d consult the oracle on…

I live with my partner (not married, I own the house) and our next door neighbor has decided to sell. On the face of it we’re tempted to make an offer (it’s not on the market yet so there is an opportunity to avoid estate agents) with a view to letting it out on as a buy to let.

My missus has a fair chunk of cash sitting around not earning any interest from inheritances etc and is thinking of buying the property in her name (we’d continue living in our current house – it’s a semi). She’s currently decided if it’s a good idea or not – our current thinking is thus:

Pros
– It’s next door and currently owned by a builder, so we know it’s in good nick with no hidden skeletons. It’s very nice inside and could go on the rental market straight away
– It’s had a nice extension put in, which we were thinking of doing the same to ours at some point (if / when we have kids). If she bought next door presumably we could do a bit of a switcheroo at some point and change which one we rented and which one we lived in. I understand this would be a faff, but less disruptive than building an extension.
– We could manage it ourselves with little bother as it’s next door
– The numbers seem to add up based on having it rented out for 10 months a year, even with the changes to buy to let tax discounts that are coming in
– The stamp duty would be less as she doesn’t own another home and thus doesn’t get hit by the 3% surcharge
– The property is 30 seconds away from a main line train station into London (30 minutes) with off street parking – it should rent fairly easily
– We’d get to choose our neighbours (this is quite a big plus!)

Cons
– A 75% LTV mortgage would be required meaning that we wouldn’t get the best rates
– There aren’t that many properties for rent in the village meaning that it’s hard to judge the rental market – there is a 3 bed that is similar (minus the extension) that’s been on the rental market for 10 days down the road. This is on for 1550 pcm but is furnished (We would be renting unfurnished)
– It would take up most of her liquid assets to fund the deposit and stamp duty
– The property is quite expensive for what it is (495k for a large 3 bed) but seems about right for the village based on right move sold prices. But it’s still fundementally half a million quid for a 3 bed house.
– She’d be looking for interest only as a fairly long term investment (more than 5 years) – depending on the rental she gets for it, it’d be between 2 and 5 years before she had earned the stamp duty back

What things should she consider? And what is the best way to judge the rental value of a house?

(P.S. I realise my missus is a monster for considering becoming a BTL landlord etc etc)

I’m not sure I’d want to live next door to my landlord.

Off the top of me head she’d be paying about a grand a month in interest and getting £1500 ish rent .
Seems like a goer if it’s in a high growth area.
What trainline is it on?
When interest rates go up you could be clobbered though…

If you’re suggesting £1550 pcm for a half million pound property, that doesn’t sound right to me or it’s not a great rental location.

Around where I live, which is 2.5 miles from a train station with a 25 min mainline journey to Euston, a 2 bedroom £230k house rents for £1k.

If you’re suggesting £1550 pcm for a half million pound property, that doesn’t sound right to me or it’s not a great rental location.

That is about the going rate in Surrey (3-3.5% yield). I’m not sure where the OP is.

Brookwood in Surrey, so on the Waterloo mainline. Properties about a mile away seem to go for 1400 unfurnished. I figured 1500 based on there being a smaller property up the road for 1550 (but it’s been on for 10 days – is this a long time?), it being next to a station and bigger.

Worse case we could cover the mortgage should interest rates go up, she’d also have some savings left. Tho if interest rates went up significantly, this would be a rear guard action prior to a sale (probably of our current house and we’d move next door).

Mortgage looks to be about 800 a month as an interest only.

1500pcm on a £500k house is a crap rate of return. You could buy 5x terraced houses in the north, not pay as much stamp duty, and get double the rent. The only advantage over a savings account is £400k of it is someone else money (but the interest will probably be around 3.5% as well).

On the other hand the reason rent’s are comparatively low in the SE is because house prices are still rising, so the asset is worth 10% more every year. The other extreme is places like Teesside where rent’s are about 8% but prices are static/falling.

Basically you’re taking a big punt on house prices rising because that’s the only way you’ll make money.

Even buying 2x flats with the money would get you a better return (and lower stamp duty), a £250k flat near a station will go for £1000-1100pcm or so. And more properties means less chance of them being empty at the same time.

We’re / she’s not keen to base it on the value of the house increasing, tho I accept it probably will.

I bought our house in 2012 for 310, apparently it’s now worth about 420 – 430 based on next door’s valuation, which is crazy.

£250k flat near a station will go for £1000-1100pcm or so

I agree, probably better to go for a flat (or two) than a house.

the big driver for me would be to pick who you live next to in a semi detatched….

For me the big problem would be living next door to renters (even if you can choose them yourselves) as the first lot you get might be model tenants, the next lot could have all night parties, have loads of people round parking all over the place and generally being a nuisance.

For me the big problem would be living next door to renters (even if you can choose them yourselves) as the first lot you get might be model tenants, the next lot could have all night parties, have loads of people round parking all over the place and generally being a nuisance.

Suspect we could identify people like this, and worse case we’d just not renew their tenancy.

This is a big factor!

the big driver for me would be to pick who you live next to in a semi detatched….

Whilst true, it works both ways, would you want to live next door to your landlord and worry about being evicted if your baby stops sleeping through the night, teenage son wants to play electric guitar, or you’re partial to some E’s and wizz at the weekend (I imagine that last one despite being very popular amongst STWers when sat behind a keyboard, probably isn’t so popular if they’re your neighbours).

and worse case we’d just not renew their tenancy.

Thing is, the venn diagram of bad tennants, and those that would leave without a fuss is probably a fairly small overlap!

Suspect we could identify people like this, and worse case we’d just not renew their tenancy.

Well, very much in the same way as anyone renting a house out, they would naturally choose who they think will be the best tenants yet it isn’t always the case. Can’t remember who it is, but someone on here had some real horror stories with tenants that he thought were going to be fine – and once they are in (if they don’t want to leave) it can be very difficult to remove them.

Totally see your point, but given the choice of a complete lottery (next door sell to a random couple) or at least taking a punt, it still seems better to choose no?

However, we digress 🙂 So far i’ve taken away the fact that the return is pretty crap at about 3.5-3.75% – that is still better than her current investments. I guess the risk is a lot higher (mainly in ISAs and such), tho to get more her other option would be shares, which is higher risk again.

If it were me (and I was wedded to the rental idea) I would immediately move to the property with the extension as I can’t imagine that will add much value to the rental price (as it isn’t a bedroom)) but it would improve your home life.

If it were me (and I was wedded to the rental idea) I would immediately move to the property with the extension as I can’t imagine that will add much value to the rental price (as it isn’t a bedroom)) but it would improve your home life.

This is an interesting point, I guess we could just up sticks entirely but not rent out the other house. Our current house needs some work done to it (not least a new boiler) – so we’d not be able to rent it out straight away.

We’re not 100% wedded to the rental idea. The thought hadn’t crossed our mind until 3 days ago (when our neighbour told us)!

Surely if you are thinking of renting it out you need to convert it in to 20 1 bedroom flats ?

Personally I wouldn’t buy a property next to my own.

Tennant wouldn’t like it, and it will certainly be constant worry for you every time you hear a bang etc

Thinking out loud, option B is, don’t buy it and if the new owners turn out to be dicks we sell and buy somewhere else but combine my equity with my partners cash pile.

Maybe I’m odd but on 2 occasions I’ve lived next door to the land lord. It was fine

Must say, it wouldn’t bother me either. We’re pretty relaxed about most things – tho obviously the tenant wouldn’t realise that! The benefit for them is that if they need something fixing, it’ll get fixed pretty sharpish.

Maybe I’m odd

You just might be you know.

😉

I’m not sure I’d want to live next door to my landlord.

+1

Having seen my neighbour in action and the constant flow of tenants (in his 4 cottages) near him. He’s constantly looking and hassling folk, whether its gardens or other stuff.

Could also be linked to him been a dick though 🙂

Will you be charging market rate or an affordable rent that pays the mortgage?

Alternatively with the current shortage of housing you could maybe not buy it and perhaps let a family who want to have the security of owning their own place a chance to get onto the housing ladder?

Alternatively with the current shortage of housing you could maybe not buy it and perhaps let a family who want to have the security of owning their own place a chance to get onto the housing ladder?

Indeed, but as I noted in my first post my partner is a monster 😉

Have you considered the tax liabilities when the rules change in a couple of years?
I’d have thought with a 75% LTV you might be in for a surprise how much tax you’ll need to pay, especially if your GF is a higher rate payer. The new rules will effectively tax turnover, not profit.

I would buy it if I could but I would not want my partner buying next door as if we separated we would be neighbours. The return seems about right for surrey you would get 4% gross on flats. My brother owns 2 adjoining semis and used to live in 1, like the op he chose the tenants carefully.

Living next door to your tenant’s could be a real nightmare especially if they don’t pay the rent/start wrecking the place. I would not furnish it as in my experience unfurnished rent quicker. As for the oh don’t buy it evil landlord thing there is lots of affordable housing it just may not be were people want to live or believe they deserve to live. Such is life.

As the king says 75% ltv is way out my comfort zone. I would only buy it for cash and then 3-3.5% yield is q tasty

We’ve factored in the tax changes that happen. If we separated, we’d not be neighbours as it’s a rental…

These are all good points – i’m now very undecided where I sit – she’s reading the thread as well and is going to have a think.