Buying a share in a BTL
Posted: November 28th, 2018, 12:35 am
Gee, this ended up being a terribly long post so I will summarise at the end; feel free to skip.
One of my friends has an investment property (2 bed terrace) which he put on the market last week. He has owned it for years. He bought it for his father and when his dad passed away he rented it out.
It's on the market for £265k, rents to long term tenants for £1k pcm so circa 4.6% gross yield.
The price looks reasonable based on the house next door going for £240k in May 2014 and next door but one going for £295k in June 2018. If all these houses are identical this means they went up 23% in 4 years.
The price reflects the fact that it is tenanted. He assures me these are not sitting tenants but they have been excellent and it would take a few months to get vacant possession. I doubt he wants - at this stage at least - to give notice because he'd rather keep the cash flow and obviously it might be attractive to an investor. The house only just went on the market.
My wife and I have been planning to get a BTL but never got round to it, just talked about it.
Anyhow, my friend bought the place by remortgaging his own house and needs to clear his own mortgage of £160k within the next couple of years, hence it's on the market.
I crunched some numbers and quite honestly on a 75% LTV BTL repayment mortgage the rent barely covers the repayments over a 25 year term. Problem is I don't have 25 years; I'm 54 so more like 10 years. That would leave me having to sell it in 10 years or sell our own house and downsize / relocate.
I guess selling in 10 years is fine but I do dislike the idea of having to. It would also put us in a lot of debt with an illiquid asset in the lead up to retirement.
For better or worse I thought I'd sleep better just helping my kids with a deposit when they come to buy, but since they are 19 and 22 that may not be for some years, say 7.
I got to thinking and wondered if my friend was being forced to sell the whole house whereas what he really wanted was to pay off his £160k mortgage.
So I asked if he'd be interested in me buying £160k worth of it or thereabouts. Obviously £160k would be 60%. To my surprise he said he was.
We could buy 60% of it without needing a mortgage which makes me happier. In 10 years we will have paid off our own mortgage.
Summary
Any gotchas I need to be aware of if buying 50% - 60% of a BTL from a friend I trust, no mortgage required?
Obviously legally it would need to be all above board.
Off the top of my head I think we need to discuss how long we each want to keep the house for and hopefully get aligned on that.
I guess too he could sell his share and I could end up owning with a stranger or having to buy him out. Not sure if we can avoid that though selling the whole thing is the obvious way out of it.
Would I still get stung with the 2nd home stamp duty on my share?
Would I be better sticking £160k in say bank prefs that are yielding circa 6% or high yield shares? I guess the answer is Yes if house prices don't rise and the market doesn't tank. As it happens, I think the risks for shares are to the downside. House prices, who knows? They have levelled off around here.
One of my friends has an investment property (2 bed terrace) which he put on the market last week. He has owned it for years. He bought it for his father and when his dad passed away he rented it out.
It's on the market for £265k, rents to long term tenants for £1k pcm so circa 4.6% gross yield.
The price looks reasonable based on the house next door going for £240k in May 2014 and next door but one going for £295k in June 2018. If all these houses are identical this means they went up 23% in 4 years.
The price reflects the fact that it is tenanted. He assures me these are not sitting tenants but they have been excellent and it would take a few months to get vacant possession. I doubt he wants - at this stage at least - to give notice because he'd rather keep the cash flow and obviously it might be attractive to an investor. The house only just went on the market.
My wife and I have been planning to get a BTL but never got round to it, just talked about it.
Anyhow, my friend bought the place by remortgaging his own house and needs to clear his own mortgage of £160k within the next couple of years, hence it's on the market.
I crunched some numbers and quite honestly on a 75% LTV BTL repayment mortgage the rent barely covers the repayments over a 25 year term. Problem is I don't have 25 years; I'm 54 so more like 10 years. That would leave me having to sell it in 10 years or sell our own house and downsize / relocate.
I guess selling in 10 years is fine but I do dislike the idea of having to. It would also put us in a lot of debt with an illiquid asset in the lead up to retirement.
For better or worse I thought I'd sleep better just helping my kids with a deposit when they come to buy, but since they are 19 and 22 that may not be for some years, say 7.
I got to thinking and wondered if my friend was being forced to sell the whole house whereas what he really wanted was to pay off his £160k mortgage.
So I asked if he'd be interested in me buying £160k worth of it or thereabouts. Obviously £160k would be 60%. To my surprise he said he was.
We could buy 60% of it without needing a mortgage which makes me happier. In 10 years we will have paid off our own mortgage.
Summary
Any gotchas I need to be aware of if buying 50% - 60% of a BTL from a friend I trust, no mortgage required?
Obviously legally it would need to be all above board.
Off the top of my head I think we need to discuss how long we each want to keep the house for and hopefully get aligned on that.
I guess too he could sell his share and I could end up owning with a stranger or having to buy him out. Not sure if we can avoid that though selling the whole thing is the obvious way out of it.
Would I still get stung with the 2nd home stamp duty on my share?
Would I be better sticking £160k in say bank prefs that are yielding circa 6% or high yield shares? I guess the answer is Yes if house prices don't rise and the market doesn't tank. As it happens, I think the risks for shares are to the downside. House prices, who knows? They have levelled off around here.