Using Lodgers to Get Started in Property Investing
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- Опубліковано 25 сер 2024
- If you are thinking about taking in a lodger, there are a few key things to consider.
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Perfectly expained - Many thanks for sharing
you are very wecome, thanks for finding this video. Hope you like some of the others I have done?
Precisely what I was looking for, I only today learned about the tax and legal advantages of lodgers vs tenants and I'm looking at buying a 3 bed flat with cash in the north for c. £150,000 with 2 lodgers which I believe would be low on expenses as I'd already be paying for maintenance of the property I'm living in.
this 3 bed flat in the north that you would be buying for £150,000 cash and getting two lodgers, you would be living in the 3rd bedroom yourself, right?
Yes, having done some more work modelling scenarios, I can see £150k is optimistic (still possible) but with a mortgage I would always be more profitable because of leverage. I have also looked at Oxford which is surprisingly affordable in some areas. I'm looking at this as a way towards FIRE-ing by keeping my inheritance in the market, using some for the deposit and cutting my living costs enormously. I'd appreciate any insight you can offer regarding this as I'm planning to do this a year or so after I finish uni. @@KevinWrightProperty
The way I see it, most people have flat or house mates well into their 20s so I'd be doing what most others do and be likely to find people my age who I get along with. I'd charge slightly below market rent to get my pick of the lodgers.
One more thing I'd like to add, because I'd only be using a portion of my money for the deposit, I wouldn't have to worry about making mortgage payments. Any void period I could cover from my portfolio (worst case) which means I can take on max debt for a valuable property. The main issue I'll face is getting my income high enough to borrow lots of money, I'm not aware of any way I can borrow against my portfolio with a resi mortgage. @@KevinWrightProperty
I don't think my previous replies have posted so apologies if I repeat myself.
I would be living in that third bedroom, having done more modelling of different scenarios I can see it would be silly for me to buy with cash rather than a mortgage because of the leverage I get from the mortgage. I now know £150k for a 3 bed is optimistic in most good areas but with a mortgage I would have no problem putting down a deposit. I'm using a LISA to maximise my deposit and plan to buy a year or so after I finish uni. Having come up with this plan, I'm getting a part time job at uni to potentially begin paying off student loans ASAP before I get stuck paying 9%.
@@KevinWrightProperty
Exactly what I did too 👍
you and me both
Shhh you are giving away the secret
Im planning to buy a cheap property up north. I can pay for it cash but the lodgers will help me save for a second property, loke a flat I can rebt out or turn onto an airbnb.
not sure you are correctly understanding the meaning o the term lodgers - they aer people who you rent out a room to in the proeprty you live in. if you rent out to anyone in a property other than the one you live in, they are absolutely NOT lodgers, they are tenants with a whole load of rights that lodgers do not have. As a landlord you need to check out what your responsibliies to such tenants are.
Diligence is needed on the quality of the tenants, otherwise you could be taking on more trouble than you expect.
The rent from the te ants will help you build a deposit to buy a 2nd proeprty but that is going to take quite bit of time to build up so you can buy another property. It will no doubt work, just it will be slow.
New to your channel grate advice thank you I'm in the process of buying my first house and this is something I will be doing after a refurb renting one of the bedrooms and the front room downstairs if it covers the mortgage I'm happy seeing this advice from someone who's successful in property and started from renting rooms yourself it makes me positive that I'm on the right path.
Thanks Tim
thanks for finding my channel Tim. Good luck with buying your first house. Just remember most mortgage lenders cap the number of lodgers you can have at 2 max.
Also dnot miss out on some tax free cash when you can do that - the Rent-A-Room scheme allows you to earn £7,500 pa from lodgers tax free. You only pay tax over earnings above that
@@KevinWrightPropertyAlternatively, one could take expenses against the rental income if better.
Better for the homeowner to take the smallest bedroom and rent out the bigger one or ones for improved rental income.
If renting out the third bedroom when leaving, it might also need to become registered as a HMO, depending on the Council.
@@johnporcella2375 - what expenses are you referring to and as an alternative to what?
Great video mate, very informative.
glad you appreciated it Harry - check out my other videos, see what else you like
Kev great video and great idea
glad you think so Stephen
Very informative ❤
glad it helped you.
Good strategy 👏 👍
thanks Dan
my plan is pay off house as fast possible in two years. ill live in lounge. two lodgers can get large double bedrooms. ill have the single bed for my wfh. and the loft may be rented out in future to a third lodger once mortgage is paid off.
if you can pay off your mortgage in two years just by taking in two lodgers, that would be a substantial achievement - good luck
@@KevinWrightProperty it helps that the mortgage isnt that big, comparitively to the average wage ratio. couldnt imagine doing it though without an inheritance.
@@danbee415 - however you make it work, it will be an achievement
@@KevinWrightProperty one interesting scheme ive been reading about was supported lodgings, which according to random websites (my way of saying, im not qualified lol) online, seem to suggest that theyre part of my own household under care. and therefore since im single, do not contribute as an additional entity onto the property. so if its as good as it seems, is a way of not being a HMO but still getting the supported benefits.
theres supported lodgings supporting 16-24 year old people and over 21s can apply. Which is interesting.
theres numerous tax relief schemes like carers responsibility. but its all so complicated so i honestly have no clue what this will entail.
Can basically get potentially 10k tax free money, in exchange for something like 10 hours of care and support.
Though something to be mindful is to not exploit it for greed. theres been landlords who are supposed to be helping them, and they literally just dont care. all the while gettting 10k. The tax benefits are so lucrative, but brings about bad people.
@@KevinWrightProperty it may even work for me, only 21 or over can apply. and i prefer younger people anyways who're more marginlised in that sense, given that at 16 i was just as clueless and was addicted to video games. im 23 now
Have a spare room in Romford haw do I get a louger
try Gumtree or things like that
Oh Mate thank you, In birmingham there's city wide article 4 so I'm thinking of buying a house and renting out 2 rooms ( 2 lodgers). Will be a fantastic way for me to start my property journey as I will buy a run down house, do it up, live there and have lodgers. So effectively live rent free and hopefully pull some money out in the refinance for my 2nd property 😊😊
Just a couple questions:
1. Do I need landlord insurance or would home insurance be sufficient?
2. What are the mortgage lenders like when it comes to having lodgers - Is it easy to get consent to let for 2 lodgers?
3. Do I need to get them to sign a lodger agreement? If yes, would I be able to evict them easier than a traditional AST?
Welcome Liban, thats exactly how I started out.
1. check with your insurance broker, but you are not a landlord if you have lodgers, only if you have tenants - is my understanding
2. uniformly they are fine with up to 2, not fine with more than 2
3. you can do and lodgers dont have anywhere near as many rights as AST tenants do
@@KevinWrightProperty What was your exit strategy? Do you still have the property under your name?
@@liban2 I sold it years ago but what I did is not the relevant thing - you do what best serves you, not just copying me.
1. There is greater risk by having lodgers, so you may need to ask an insurance broker if there is a need for extra cover,
2. Ask them! The Bath Building Society has a mortgage product that insists on having a lodger!
3. No, you do not need to get them to sign anything; I never have. However, it makes sense to tell them the rules of your house to stop arguments and misunderstandings. They are, in effect, guests, and certainly not tenants, for as long as you live there.
Will Mortgage lenders allow it?
yes they will, up to two lodgers with most lenders.
Thank you . Need to inform hmrc? If it’s bellow 7500?
@@Savaaritech no it just goes as an entry on your tax return, as the 1st £7,500 is tax free under the rent-a-room scheme
Is 2 lodger the absolute cap or can it be more. If there is a possibility what are the requirement to do so. Do we have to get an hmo license?
Also, a separate question are there any work around in limiting sharing facilities ie having en-suite kitchenette to the lodgers.
Check with your mortgage lender for the maxmim number of lodgers they will permit under the T&Cs of the mortgage you have. For most main residence lenders, two is the max. If you exceed your lender's allowable max, you will be in breach of your mortgage T&Cs - that is not a good thing to be doing.
A lodger has a bedroom, nothing else. If you put any type of additional facility, such as the ensuite kitchenette etc. you will also breach your mortgage lenders T&Cs Kawayan.
I thought more than two would then be deemed an HMO?
Ask your mortgage lender. Who knows...they could relax their rules! As for a HMO license, it depends on the number and the local authority.
Lodgers are supposed to have shared facilities for the Rent-A-Room scheme.
I should not put any sort of kitchen in their bedroom as a fire risk. Let them use the house kitchen where you can keep an eye out. One lodger I know burnt his pizza to carbon he was that dozy!
would you need to do a self assessment?
self assessment on what?
@@KevinWrightProperty from the rent off the lodger ?
@@UltraJamZHD if you mean should you do due diligence on the prospective lodger as to their ability to pay the rent - yes, exactly same as you would for an AST tenant
If you are using the Rent-A-Room scheme and stay within the £7,500 limit, you do not even have to inform HMRC.
@@johnporcella2375 lol thankyou ! 9 months later! 😂thank you!!!
Do you need to get a selective license from the council to have a lodger as a mortgage holder for a leasehold?
to my knowledge there are no licences required to let a room in your home to a lodger, leasehold or freehold.
No.
Couple of questions Kev,
I have a house that I have applied to split into to two flats (upstairs and downstairs) one to live and one to rent, but the Local Planning Authority has just advised to make the upstairs flat an Annex because they say there is not enough garden to share???
First of all, I am able to rent this to anyone ? I don’t want it to be just relatives.
Secondly , if the address is the same how am I going to pay Council Tax on the Annex.
And final question, I have a friend who was in a similar situation but his was rejected and he managed still managed to have two address on his property due to VOA (valuation office agency) contacting the address management and council for him to pay two council tax for his property. How is possible that he managed to formalise his two flats even though he was rejected ??? And he was able to rent
So you got turned down for permission to create 2 flats Bashir, that means you need to re-think your whole idea here. What you need to know is that you will find it highly problematic to get a mortgage if you create a self-contained annexe, its not approved of by mortgage lenders at all a) main res lenders don't allow you to rent out part of your property (unless it is purely a room rented to a lodger b) BTL lenders don't permit you to live in part of the property either - so both ways you are stuffed.
How did your friend manage it? by doing it illegally I would guess.
@@KevinWrightProperty, thanks for your reply, I don’t have a mortgage on my property ( it’s fully paid off) and they have not officially rejected the two flats but have recommend it or us to make it an Annexe and I am doing little research to see if I could still rent it and what option do I have to legally rent the upstairs flat?
Regarding my friend, he actually never went to them, they came to him and one they saw the property has two kitchen, they ( VOA ) contacted the local council and gave him two addresses for two council tax. He disputed at first but after agreed and rented the property.
So, according to him, he is only following the authorities wish.
@@bashirmohamed6148 - what you can and cant do legally is not really my area of expertise, finance is, so I cant really guide you on that.
Great that you don't have a mortgage on the property, as long as you are never going to need one in the future, you have more freedom in what you want to do.
Caveat - when, at some future point, you want to sell the property, any prospective buyer will struggle to get a mortgage on it, for the reasons previously explained, so your buyers will be restricted to those who have cash and that generally means you have to sell it at a reduced price.
Bottom line is, you get extra rent for the next few years great, but you have made the property less desirable when you come to sell it.