Updating post from Reddit.
My family member is looking for a better place to live she's currently paying £475 for a 110 year old house that hasn't had any significant improvements for 28 years. She's previously asked if I could be guarantor on a rented house which range from £600-750 a month. I've told her i don't want to do it. These days it seems you can't rent a house without a guarantor and she's struggling to find a new place due to demand.
Now you have a little back story, I've come to the conclusion I'd rather rent a house to her if all goes well. I've seen a house for £80k which I'm looking to put an offer of £70k on. And I'd be looking to charge her £550 per month. I can scrape together £17,500 deposit, £3500 stamp duty and £1000 solicitors fees. Still leaving me with a significant savings pot if anything goes wrong (enough to buy it outright).
My relative will be retiring in 6 years and will be claiming housing benefit, I'm lead to believe its still perfectly legal but everything has to be 100% done by the book.The main aim for me is to have a house paid for that my two children have to get themselves on the ladder when the time comes and my close relative can have a better life in the meantime.
Option 1) be mortgage free in 2½ years on my home and don't bother with B2L.
Option 2) buy the rental house outright and still owe £100k on my home in 2½ years when my fixed term ends. With an extra £550 income.
Option 3) a combination of both being on a mortgage which I'd prefer for 5-10 years.
All the above figures are estimated so don't get too hung up on numbers. I know I could fallout with her and I know I could potentially lose money if it does'nt work out. What advice do I need to hear before continuing?
Option 2 is probably your only choice.
Majority of the lenders and insurers will not allow you to rent to family.
Even if you have a mortgage free purchase, make sure you find out what your buildings insurance is going to be because you'll have to go the specialist ones which will charge you a premium for it - speak to a mortgage & insurance broker before you venture down this route.
Be the guarantor. Never rent to friends or family.
Not always. I rented off a family member and I never missed a payment for 7 years and then ended up purchasing it from them.
And never be a guarantor.
That can often not end well.
That's what I was told on here a few weeks ago.
Option 2 but I would never rent to family and friends.
Isnt there guarantor services people can use when they have noone to turn to
100% this although most of them aren't a get out - they just make the person personally liable to a bigger organization.
Housing Hand are a classic example - they act as guarantor but will pursue the tenant to the ends of the earth to get their money back after covering the insured amount.
But surely if a tenant is genuine and keeps up on rent payment then they never have to worry about that. The reason rent guarantors are needed is to add an extra level of protection for claiming rent arrears etc. even if you use a family member they would be liable to pay up if tenant fell into rent arrears and able to chase the tenants for the loss just like the big firms... To many tenants moan about not having guarantors but there are these services that fill that gap. Most will still moan because they are most likely to be the ones refused due to being a problematic tenant or classed too risky.
Being a guarantor for an older person is fraught with issues. You have an open ended financial commitment to them.
They may be absolutely fantastic tenants. They may be absolutely fantastic relatives. Her performance as the latter, if you act as guarantor, will almost certainly affect the latter.
Look at these as two issues.
Will you act as guarantor. Maybe, maybe not. Weigh up the pros and cons.
Buying a house for them to rent. You're tied up financially and every bit of advice I've read is never rent to family.
"Now you have a little back story, I've come to the conclusion I'd rather rent a house to her if all goes well. I've seen a house for £80k which I'm looking to put an offer of £70k on. And I'd be looking to charge her £550 per month. I can scrape together £17,500 deposit, £3500 stamp duty and £1000 solicitors fees. Still leaving me with a significant savings pot if anything goes wrong (enough to buy it outright)."
If you have enough to buy it outright, do that.
Why pay the bank 10s of thousands in interest on a BTL?
Use the £550 extra income (minus taxes) to over pay your residential mortgage.
Best of both worlds.
Though, Personally, I would never rent to family - the fact she cant get somewhere without a guarantor now suggests there is some financial issue that you may not be aware of and if she is unable to pay you'll feel obligated to let her stay "until she straightens things out".
>What advice do I need to hear before continuing?
Are you mentally prepared to evict them if you need to do so? Can you detach yourself from the emotions that will be in play if needed?
If the tenant stops paying (they may be unable to pay) do you have enough cash on hand to subsidise them until the eviction?
Do you understand the rules around when you can and can not evict someone? The amount of people that don't is quite high
What's your plan if the tenant moves out, or even passes away? Sell? Rent out again? Hopefully not a concern, but it could be time where you have no income for a period
You will be a landlord - do you know the main legalities involved? There is a fair amount of paperwork / certifications needed. Have you budgeted for these? Gas, EICR, EPC, maintenance, insurance, etc? Do you understand the deposit protection, along with right to rent, how to rent, etc?
Rent is an income - Do you know how to do the tax returns or are you hiring someone? Does it change your tax situation at all?
Have you read online about renting to friends and family?
I have looked into a similar situation
Some mortgages won’t lend to you if you explicitly say you’re renting to family members. The rationale being you’re less likely to evict them for non-payment, therefore rent / mortgage arrears more likely to build up