Please help me with my BTL dilemma

Reply to the comment left by "Mark Alexander" at "15/11/2013 - 14:33":

Hi Mark - I agree caution at every stage. As long as one doesn`t suffer too much from analysis paralysis. With what Prakash has said so far its also difficult to assess what level of thought he has put into it up to this point . I look forward to his response to the replies which will give us all a better insight.

If we did deeper into property entrepreneurship as a whole there are many sub categories of personality types involved. Some are ultra conservative and risk adverse and some are `fly by the seat of their pants` type of guys. But maybe that`s for discussion another day 🙂

Great replies and insights
I do understand that sentiments shouldn't come in business but I have to start somewhere.
whereever I go I hear stories of tenants making the landlord worse off and taking them for a ride. I don't want to start with that scenario. I trust my BIL. he has got a good job and can pay rent at market rate (we are not going to mess around that).
And more he maintains a portfolio of properties of his and ours together in india.
and he is on a legal visit 🙂

On the financial front
I've got 15k (from personal loan 4.8%) and wife got 20k savings and trying to get 10k more on wife's loan. and go and search for a BTL mortgage.
From what I read BTL mortgage is based on rental yields.
we both work hard and our outgoings are very minimal and save a lot.
From what I calculated
year 1 we wont be making any money (we can afford it). and we would have paid 20k of the 30k loan we have.
y2 onwards we would make around gross 7%

the advantage would be
1. BIL/and us would save on letting agent cost
2. if there is any problem he can deal with it rather than calling me at midnight
3. maintain the property as one of family's rather than landlords'
4. we might get appraisal in the property value.

Hi Prakash,

Basing business decisions on the comment "whereever I go I hear stories of tenants making the landlord worse off and taking them for a ride" is very dangerous imho.

I have been a landlord for 10 years with over 20 properties, and I have only ever had two delinquent tenants.

You only ever hear of the horror stories.

It reminds me of a programme called "Britain's worst teeth". If it was "Britain's best teeth", no one would watch it.

One of the biggest fatal mistakes of any property investor is to take things as granted without making their own enquiries and do their own intense due diligence.

What happens if your BIL's circumstances change and he is forced to move out after 3 months? You are going to have to rent to a complete stranger!

You have been given some great advice, but you seem intent on going your own way. Take the advice you have been given, do your own research on the points raised, and then decide what is right for you.

Please listen and start understanding that you need to treat this like a business and that renting to your BIL might not be a healthy way to start.

And, even if you do start that way, your BIL WILL move on at some point and then who are you going to rent to? How will you feel renting to strangers who could "make you worse off"? Will you sleep at night then?

Property investment is a long term game, so buy a property that is going to suit tenants in the future, not just your BIL.

Reply to the comment left by "Christopher Browne" at "15/11/2013 - 16:17":

It is a very common misunderstanding Christopher.

Mortgage fraud usually relates to obtaining a mortgage by deception. In other words, misleading a mortgage lender into providing a mortgage which would not have been granted if they had know the full circumstances. This might include things like providing false income or employment details, conspiring with a surveyor to increase the valuation, , telling lies about where the deposit money comes from, manipulating the purchase price to make the transaction appear to have been completed at a higher value than it really was (e.g. not declaring incentives such as cashback structures though agents), money laundering, conspiring with a solicitor to mortgage a none existent property - stuff like that. Proper criminal activity.

Breaching mortgage conditions includes things like falling into arrears, changing the use of the property from residential to commercial, knocking two properties into one, failing to insure it, not paying the ground rent & service charges on a leasehold or any other conditions the lender imposes, e.g you can't live in the property yourself and neither can you immediate family members.

I may well write an article about this as I often speak to people who don't know where the line is drawn between the two things. Therefore, don't feel bad about know knowing, you do now and you've also inspired me to write a new article :_
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Prakash, you have already decided so I wish you luck. But for good reason you may find it difficult to get a BTL mortgage. I am not a financial adviser because those roles are regulated. But frankly any adviser trying to explain to the regulator why he obtained a £150k mortgage for you knowing you only had £20k savings would have serious problems - and for good reason. Don't think for one minute that the short term loans are not recorded. This kind of 'investment' is what caused the bubble pre the crash. From your bullishness I suspect you can call on other sources of funds. If something goes wrong you will have to.

My opinion is mainly focused on the issue of renting to family as it is a breach of buy-to-let mortgage conditions and I wouldn't be comfortable with that, if it were me. In addition, even if all goes well the BIL will eventually move out. Has Prakash considered a property in Bristol first - great area for letting - and if all goes well use that property to fund another in MK (possibly timing now an issue I realise)? If Prakash has not considered purchasing a property to let in Bristol, the purchase now seems to be focused on renting to his BIL, which does not seem the best way to start in BTL, particularly due to the issues raised above.

Firstly, may I say that renting to family is not a breach of mortgage conditions so long as you take the correct mortgage product in the first place, a Regulated Buy To Let mortgage.

Regulated Buy To Let mortgages allow you to rent to immediate family with as little as 25% deposit.

As I said in my previous post, many of my clients do the same thing and as long as your B.I.L. is in a financial position to pay the rent on a monthly basis, I really don't see a problem.

What I am concerned about is taking out a loan in order to fund another loan (mortgage), especially before taking the appropriate financial advice.

Please do give serious consideration to all of the financial implications as much as the more personal ones as they could come back and haunt you.

I do however, still stand by what I say .... property investments are still the way to go as long as you find the right one.

Reply to the comment left by "Simone Gilks Adv CeMAP, CeCM" at "17/11/2013 - 19:22":

Simone - but how likely is it that Prakash would choose a Regulated buy to let mortgage? The general btl mortgages, like the one we have with BM solutions states "This Offer is made on the understanding that the property will be occupied by non-related persons as declared on your application. A related person is defined as a spouse, unmarried partner of the borrower whose relationship with the borrower has the characteristics of the relationship between husband and wife, parent, grandparent, sibling, child or grandchild. Your rights under mortgage regulation could be affected if this is not correct."

So it looks as if brother-in-law may be accepted if the mortgage were in Prakash's name on the product we have, but NOT if his wife was on a joint buy-to-let mortgage as it is her brother.

I understand your point on regulated btl mortgages allowing one to rent to family but the general off the shelf type mortgages tend to have similar terms to that above.

Hi Yvette, I think you have just made a very good point for the need to seek professional advice. A broker such as Simone will be able to search the market for the most appropriate product. Good brokers have software with filters on products, one of which will be regulated BTL mortgages. I have a feeling BM Solutions used to offer these, not sure if they still do though and even if thry do they may not be the best option for Prakash. Regulated BTL mortgages obviously don't include the conditions which you have cited, they are also subjected to full consumer and regulatory protection in the same way as an owner occupier mortgage would be.
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Reply to the comment left by "Yvette Newbury " at "17/11/2013 - 20:15":

As Mark suggested, had this been mentioned to the lender there would have not been an issue, BM Solutions allow immediate family to occupy a But To Let property as they offer Regulated Mortgages, so all you need to do is notify them and see if the offer could be changed.