Please help me with my BTL dilemma

I agree with Jonathan about facing your fears, overcoming them, and going for it.

However, I am concerned that you wish to let to a family member, for the reasons already expressed by other posters.

If you are going to get involved in property, you must treat it as a business. My experience is that that family and business generally do not mix very well.

You might think your brother makes the ideal tenant, but people - even family - do not always behave in the manner you would expect.

Please have a read of my Questions to ask yourself before becoming a landlord

http://www.propertytribes.com/questions-to-ask-yourself-before-becoming-a-landlord-t-5988.html

Property is not for everyone and, if your reasons for getting into it are of more benefit to someone else than you, it's likely to be a painful experience.

Buy a property as a business and charge the market rent to a personal that you have a professional relationship with (i.e. not family).

If your wife is really nervous about this, then buy a property and put it on a Guaranteed Rent Scheme, one like Northwood's, where the rent is paid on time, every time, regardless of the tenant pays or not.

Reply to the comment left by "LucyM " at "15/11/2013 - 09:39":

I am very glad you raised that point Lucy.

For example, whilst I know there are some good landlord education courses out there such as the NLA Landlord Accreditation course which costs £150 but there are also a whole ream of Charlatans running Get Rich Quick, become a property millionaire in a year type courses which are complete BS.

The same goes for all advisers. I have met with Simone and she is one of the good ones, she's on our panel of recommended professional advisers but it does pay to be diligent.
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Reply to the comment left by "Susan Alexander" at "15/11/2013 - 09:36":

Hi Susan

What a "Great" surname you have! LOL

Welcome to Property118.

I look forward to reading your posts, you may also wish to consider becoming a sponsor of The Good Landlords Campaign so that you can add a Bio to your member profile. Our motto here is that "sharing is caring". Many of our members do business with each other and several friendships have been created through this forum. Our primary reason for existence though is to facilitate the sharing of best practice amongst landlords and associated professionals in a social media, none sales environment. We operate on a not for profit business model for the benefit of our members and we are funded entirely by donations and sponsorships.

NOTE TO MEMBERS - I've never come into contact with Susan before and despite sharing the same surname we are not related, at least not that I know to 🙂

Reply to the comment left by "Christopher Browne" at "15/11/2013 - 09:50":

Hi Chris

Great comment but I feel I must correct you on a legal technicality.

Renting to a family member can never be mortgage fraud, at worst it is a breach of the lenders mortgage conditions. In other words, you can't go to prison or get a criminal record for it but a mortgage lender can demand repayment, repossess a property or appoint an LPA receiver mortgage conditions are breached so it is still VERY serious.
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Vanessa's comments about guaranteed rent are good, our version of the scheme is backed by FCC Paragon.

Rent collection and guaranteed monthly payment to the landlords on the due date, whether the tenant pays or not, costs just 5% of rent through our scheme. It's obviously subject to us referencing the tenants first and if tenants don't pay we will evict them and pay all legal costs associated with that too. Details via the link below if you are interested.

PS - I am Mark Alexander's brother.
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This sort of post concerns me, and to some extent the replies also.
Prakash's post is very basic. He seems to be able 'to push a button' and get £15k. He does not say what interest rate he is paying!! Wonga?

He says his relative is coming to the UK for 3 years to live in Milton Keynes. I presume he will check his immigration status? I am not familiar with the Milton Keynes area but a very quick look on Zoopla seems to indicate £160k could get a 4 bed house. I guess a 6-8% gross return?

So by 'pushing a button' and savings he seems to say he has £50k. Of course the 'pushing a button' will immediately register on his credit rating. And he needs to borrow a further £120 (buying and furnishing costs added) - LTV of 75%. He won't get the cheapest interest rate even if he does get a BTL mortgage.

In actual fact he is borrowing £150k on a £160k house. Clever?

Renting to relatives can cause problems with the lender. Moreover it will cause problems with HMRC unless it is proven to be at arms length.

Frankly I don't think P knows much about this. What is the rental level? What is the chance of being able to buy/sell quickly? What are void periods like? How will the property be managed? What does the cash flow look like?

20 years ago a friend, contrary to my advice, thought he would join the booming rental market. He was overseas and had the cash to invest. He bought a 3 bed house for £72,000 with a £55k loan, furnished it and rented it out to another friend for £600pm. A year later the friend was made redundant. There was a major crash in the sector. House prices fell. He could not sell at £55000 and had a 1 year void. Luckily he kept his job overseas and was just able to pay the mortgage.

My bank manager has been telling me for 5 years that banks expect house prices to fall if not in cash terms then in real terms and perhaps slowly for many years. Hence their preference for 40%+ deposits.

Yes it does not seem likely and a lot of people would be in a real problem if it happened suddenly.

So far the government is managing the problem by printing money. Does anyone remember Maggie and the M3 story of the 1980s? The government is merely trying to spread the problem over decades - so we don't really notice.

Yep there are always exceptions - London. But what happens when the foreigners stop buying? and the government printing press stops?

Nope I am not pedaling doom and gloom. What I am pedaling is understand the business and the economic environment and calculate your cash flow under various scenarios. If you don't you may be better off playing the lottery.

If I were the broker/lender and I knew the full story, I would not provide the loan.

I would like to say my previous post advising looking at the profile of the contributor was not referring to Simone's post. I liked her post, I think we must have hit the send button at the same time, as her post was not there when I wrote my message. I did not realise the amount of interest this question would get and the good advice that would be posted. My concern was a much earlier post. I know there have been times when I have taken not so good advice because that is what my heart wanted. I was genuinely concerned for this questioner, especially as he seems to have already borrowed £30,000 towards a deposit from a bank which is probably a short term loan, if so expensive monthly, then a mortgage on top.

Jeeze. One hopes your brother in law is not an axe murderer but just an average decent guy who will pay his rent and look after the place for you!! I would happily rent to either of my brother in laws.

There are many what ifs in property and many financially astute guys like bank managers and IFA`s who know a lot about the theory but not the practicalities of being a property investor. In fact many I have had dealings with simply do not understand it in depth except from their rather narrow corporate statistical perspective.

I`ve had two `relationship managers` at my bank who I end up advising. They may have been good bank managers but they sure were not property entrepreneurs. There are economists who will show you graphs till they are blue in the face and work 9-5 for 40 years at their `job` as economists but they ain`t property entrepreneurs.

My advice Prakash for what its worth is to listen to everyone and everything on here and elsewhere but then find someone who has been there and done it. Their advice is probably worth its weight in gold.

Ive been investing in Milton Keynes for 14 years. I bought my 1st investment property in 1983. The last 4 bed I bought in Milton Keynes was in May 2012 and I paid 100K. It rents out as a single let for £1000 pcm, a yield of 12% . It has a 75% LTV 5 yr fix mortgage @5.49% costing me £343 pcm . That cash flows positive at £657 pcm gross or £7884 pa or £39420 in the 5 yrs of the fix . That`s before I add any value through a refurb and add on any capital growth in that 5 years.

Keep the faith. Your kids will be proud of you that you funded their university education from property by taking a brave decision today. Ive got 3 daughters and I did just that. One got a masters, one got a 1st and the other one is just entering their last year now. Do it for them . Good Luck

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Reply to the comment left by "Jonathan Clarke" at "15/11/2013 - 14:23":

Hi Jonathan

Having been a landlord for nearly 25 years now, and having also worked for the largest bank in the world and been the founder of the UK's largest commercial finance brokerage and also a founder of the professional body for that sector I can look at this scenario from several perspectives.

Yes I agree that property is a great business and I also recognise that you have also done well out of it. I respect your enthusiasm for property investment, however, on this occasion I think the words of caution from several posters are fully justified.

I stand by what I said, I'm not convinced Prakash has thought this through properly.
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Reply to the comment left by "Mark Alexander" at "15/11/2013 - 10:29":

Apologises Mark - I assumed mortgage fraud and breaking the mortgage lender's conditions were the same thing.

So in layman's terms, I assume that mortgage fraud = liable for prison.... and "breaking the lender's conditions" = bad credit rating & potentially having the loan called in. Correct me if wrong.

I was clearly being a little over dramatic!