Selling a house and renting it back

[Woollyhat]

Cards on the table - I have a couple of houses let out in Burnley and am interested in the property market - but am very small time.

I'm interested in the idea of buying a house from someone who has been there for a while, and renting it back to them. I'd buy at a normal market rate, taking into account the condition etc, and rent it at the same market rate.

What's in it for me? I'd hope to get a settled tenant who wants to stay in a house for the long term - this is always a better prospect than constantly changing tenants and the costs and disruption that involves.

Whats in it for them? I could fund any major improvements required for a house (maybe new windows, boiler, roof etc etc) that perhaps the occupant can't afford but needs. The occupant would not have to move from a home they want to live in with all the disruption that entails for them. They would also receive a big lump of cash which might be useful for whatever reason.

I'm not pretending to be some philanthropist, this would be a business venture for me, but in essence the worst case for me is that the person I buy from is only a tenant for a short period and then leaves (accepting tenants can cause issues if they so choose - but this is the case with any tenancy). Both parties could also save money as there would be no need for Estate Agents (although legal fees would be as per normal).

This wouldn't be a complicated equity-release scheme with hidden fees / % etc - it would be a straightforward purchase and let, in (legally) separate transactions.

Not touting for business, but anyone have any thoughts as to why this isn't more common / doesn't happen more often? I have thought about it as an idea for a while but never done anything about it.

[Likeavydra]

I have a really good idea regarding football fitness leagues, but I'm keeping it to myself!

[bfccrazy]

Cards on the table - I have a couple of houses let out in Burnley and am interested in the property market - but am very small time.

I'm interested in the idea of buying a house from someone who has been there for a while, and renting it back to them. I'd buy at a normal market rate, taking into account the condition etc, and rent it at the same market rate.

What's in it for me? I'd hope to get a settled tenant who wants to stay in a house for the long term - this is always a better prospect than constantly changing tenants and the costs and disruption that involves.

Whats in it for them? I could fund any major improvements required for a house (maybe new windows, boiler, roof etc etc) that perhaps the occupant can't afford but needs. The occupant would not have to move from a home they want to live in with all the disruption that entails for them. They would also receive a big lump of cash which might be useful for whatever reason.

I'm not pretending to be some philanthropist, this would be a business venture for me, but in essence the worst case for me is that the person I buy from is only a tenant for a short period and then leaves (accepting tenants can cause issues if they so choose - but this is the case with any tenancy). Both parties could also save money as there would be no need for Estate Agents (although legal fees would be as per normal).

This wouldn't be a complicated equity-release scheme with hidden fees / % etc - it would be a straightforward purchase and let, in (legally) separate transactions.

Not touting for business, but anyone have any thoughts as to why this isn't more common / doesn't happen more often? I have thought about it as an idea for a while but never done anything about it.

I’m guessing because a mortgage in Burnley will generally be equivalent or less than rent?

Also, there aren’t many times people need a lump sum of that amount unless they had big plans to move abroad etc..... where they wouldn’t need to rent a house here and just straight sell it to the highest bidder.

If a small loan was needed for home improvements then people could get a loan/release equity onto their mortgage and probably end up paying a similar amount to what renting a house would cost but still own their house too.

[bfccrazy]

A little off subject - I’m looking at buying a second property soon hopefully but looking at the amount of stamp duty payable is daunting on top of everything else. Anybody had any experience in that side of things?

[Woollyhat]

Firstly, I think (certainly don’t know) there are quite a few situations where it might work:

- No / small mortgage but poor credit and significant repairs required. It isn’t always easy to get credit, even for relatively small amounts (£2-3k) required for boiler / roof / kitchen etc).
- Want the cash for a car / holiday / lifestyle (not saying this would be everyone’s choice)
- Mortgage trap - can pay the mortgage but bank won’t lend the money for whatever reason.

I agree a mortgage would almost certainly be less than renting (this is generally true).

That said, maybe that’s why nobody actually does it!

Secondly, on stamp duty.

There are some ok (renovation) properties in Burnley under £40k which attract no stamp duty (even additional stamp duty from memory).

It depends what you’re after and how you plan to finance - Burnley properties offer a decent yield but limited capital gain. They are relatively cheap so depending on your situation this might suit you.

I haven’t bought any significant houses and paid additional stamp duty as it really cuts into costs.

[tim_noone]

Id like the large lump of cash and probaby wouldnt move in..... seriously you wouldnt fund anything you do it before theý move in.long term let is favourible imo.

[Woollyhat]

Oh and finally, that lump sum might only be a small amount if the owner only had (say) £10k equity - not everyone would be outright owners of their house.

[tim_noone]

Oh and finally, that lump sum might only be a small amount if the owner only had (say) £10k equity - not everyone would be outright owners of their house.

Aahh... I misunderstood your post. Theres companies that operate these schemes.do a bit of groundwork on them would be my advice.

[J50]

I think it does happen and is a reasonable idea. But it happens to those who are motivated sellers and there are lots of people out there offering to buy at below market value and would rent back (minimum 5 year fixed tenancy required). So you're basically looking to step in and offer a fairer market value for the property than the BMV sourcer would. But you won't find a 'normal' seller usually as why would they look to sell? I think there are regulations on finding someone like this so worth checking those out. You'd also have to find a way to agree the price which is never easy. And they's probably want someone to pay their costs. Just thinking outloud...

[J50]

Stamp duty is 3% on 0-125k purchase for BTL.

[Woollyhat]

Thanks J50 - I agree I’d have to be between the BMV buyers and that agreeing a price is always tough (especially if you try and cut out estate agents - which in themselves probably add 1% ish to the cost).

Some interesting thoughts - I don’t think this is a large scale opportunity and the tough bit would be finding that “perfect proposition”.

FYI, I’m pretty sure <£40k is exempt: “You must pay the higher SDLT rates when you buy a residential property (or a part of one) for £40,000 or more, if all the following apply:

it will not be the only residential property worth £40,000 or more that you own (or part own) anywhere in the world
you have not sold or given away your previous main home
no one else has a lease on it which has more than 21 years left to run” but might be misinterpreting.

https://www.gov.uk/guidance/stamp-duty- ... l-property" onclick="window.open(this.href);return false;

[J50]

Oh yes sorry <40k exempt, but if pay say 100k would be liable to 3% of 100 not 3% of 60.

Didn't realise there were houses out there <40k...

[bfccrazy]

Stamp duty is 3% on 0-125k purchase for BTL.

Looking at spending quite a bit more than that on a house I’ve found and letting out the current house I have - It’s a bit of a weird situation and going through the motions speaking to a few people for more info but always find knowledgable people on here for all sorts so thought i’d chance asking.

[bfccrazy]

Oh yes sorry <40k exempt, but if pay say 100k would be liable to 3% of 100 not 3% of 60.

Didn't realise there were houses out there <40k...

You have to dig but there are quite a few decent ones around here for that price.

[bfccrazy]

Oh and finally, that lump sum might only be a small amount if the owner only had (say) £10k equity - not everyone would be outright owners of their house.

Would have to really dig to find the person I guess, after they have gone through paying a deposit, estate agent fees, broker fees possible etc ..... having only 10k equity in a house is pretty much breaking even to step back into the rental market .... i’m Not saying your idea can’t work but I feel it’d be tough to find the right people in the right situation to go for it.

[aggi]

A little off subject - I’m looking at buying a second property soon hopefully but looking at the amount of stamp duty payable is daunting on top of everything else. Anybody had any experience in that side of things?

I looked into this a while back (not professionally, just helping someone out) and the extra SDLT was mainly payable. There are some minor loopholes if you're buying before November 2018, have sold a residence in the past and haven't lived in your current property but that seemed to be about it. If it's a simple case of letting out the house you're currently living in and buying another then the cost of avoiding it would probably be higher than the cost of the SDLT.

[bfccrazy]

I looked into this a while back (not professionally, just helping someone out) and the extra SDLT was mainly payable. There are some minor loopholes if you're buying before November 2018, have sold a residence in the past and haven't lived in your current property but that seemed to be about it. If it's a simple case of letting out the house you're currently living in and buying another then the cost of avoiding it would probably be higher than the cost of the SDLT.

Seems to be looking that way to me too but thought I’d see if there are any other options before going down that route.

[Woollyhat]

I guess over the long term, the higher SDLT shouldn’t stop a rental purchase being viable, and I think you could get around it by selling one house every 3 years, although this would be a slightly dubious tactic.

[aggi]

I guess over the long term, the higher SDLT shouldn’t stop a rental purchase being viable, and I think you could get around it by selling one house every 3 years, although this would be a slightly dubious tactic.

Probably wouldn't work. You need to sell the house you're living in within three years to claim back the SDLT, not a buy to let property.

The other issue is the tax changes which is gradually making letting properties less efficient. Not being able to deduct mortgage interest from the rent for tax purposes is starting to bite for a lot of landlords.

[Steddyman]

The government have really cracked down on the BTL market in recent years because lots of people were getting into it on the back of books from the likes of Rob Moore presenting it as the easy path to passive income.

You used to be able to offset your tax bill against your mortgage payments but that is being phased out (quickly). Also they increased stamp duties and placed loads of process and governance requirements to prevent casual investment in property.

https://www.whatmortgage.co.uk/news/buy ... crackdown/" onclick="window.open(this.href);return false;

[dpinsussex]

A little off subject - I’m looking at buying a second property soon hopefully but looking at the amount of stamp duty payable is daunting on top of everything else. Anybody had any experience in that side of things?

I had to pay 15k stamp duty on my latest house purchase.