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Shared Ownership Headache


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Hi all, I'm looking for some advice on what to do with my shared ownership headache. 

 

I bought a 50% shared ownership flat from a housing association in 2005 for £45,000 and, after being in negative equity for years, it now has £20,000 left on the mortgage and is valued at approximately £35,000 for 50%. I moved out of the flat about 18 months ago and bought a house with a family member. I have just finished refurbishing the flat with the intention of renting it out. I have been running through some figures but it doesn't seem as rosy as I thought it might.

 

At the moment I pay out £827 per month for the flat.

Rent I pay for the other 50%, including service charge: -£230 per month
Mortgage payments on my 50% share: -£500 per month
Council Tax: -£97 per month
Mortgage repayment date: October 2021

 

If I rent it out I then the situation could be paying out £375 Per month

 

The rental income for the flat: £500 per month
Letting agent Setup Fee: -£650 Per year (or -£55 per month)
Letting agent management fees: -£60 per month
Landlord insurance: Haven't got this yet, I guess about -£20 per month
Rental guarantee: -£10 per month
Rent I pay for the other 50%, including service charge: -£230 per month
Mortgage payments on my 50% share: -£500 per month (Mortgage interest approx £60 per Month)

 

After October 2021 when the mortgage is paid I should get £125 per month

 

If I purchase the remaining 50% after October 2021 I should get £215 per month

 

The rental income for the flat: £500 per month
Letting agent Setup Fee: -£650 Per year (or -£55 per month)
Letting agent management fees: -£60 per month
Landlord insurance: Haven't got this yet, I guess about -£20 per month
Rental guarantee: -£10 per month
Mortgage: £140 per month

 

My headache is whether I should just sell it, (I should also get back £5,505 of stamp duty because the house I bought after had the 2nd home stamp duty surcharge)? Rent it out as it is now at 50%? Or staircase and buy the other half of the flat so I can stop paying rent to the housing association (Service charge would still be approx £60) and maybe try and extend the lease. The property’s current lease runs until 2084.

 

Any help or advice would be appreciated and congratulations on reading all that.

 

Many thanks, Dave

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Hi Dave,

 

I also own a shared ownership property and am selling it to release the equity I have to begin my property investment adventures. Obviously I don't have any real experience to speak of but I think there's a couple of things I'd consider if I were in your shoes.

 

1. Are you allowed to rent out your shared ownership place? This is something I've looked into previously and my housing association would consider this sub-letting and it's not allowed. Assuming this is the case I'd consider remortgaging and stair-casing to buy the remaining 50% share and then doing your calcs based on that. Would also be worth treating it like a true BTL and looking at interest only rather than repayment

 

2. Have you calculated the yields and ROI for the property? I found this really useful when considering whether to staircase and buy the rest of my place or sell up and use my money elsewhere. On the face of it, it doesn't look like the numbers make sense as a rental property.

 

3. Your agent fees seem quite high. Like I say I have no experience but from what I've read I've been assuming 10% of rental income for this.

 

4. You don't appear to have factored in maintenance costs. Again no experience but reading suggests 10-15% set aside to cover expenses here. I would assume 15% as I'd rather have too much set aside for repairs and underestimate my profits than find I'm spending more and it's eating into them.

 

I found calculating these and comparing properties really easy with a simple spreadsheet I put together. Looking at net yield, gross yield and return on investment allow you to directly compare properties. Obviously there is a lot more to consider, if you compare a flat in an undesirable area that will sit empty for six months then it's going to make all of this pointless. This just helps as a guide in the first instances in my opinion. If nothing else it made me realise that my shared ownership property wouldn't make my money work hardest and as a result I've decided to sell and invest elsewhere.

 

I've attached a copy with my working of your flat in there. It should be self explanatory but let me know if you need help. As I've said I'm a complete novice so welcome your or anybody else's critique of my suggestions or spreadsheet. I'm learning as I go.

 

Anyway hope this is of some use. Good luck with whatever you decide

 

All the best

 

Adam :)

Rental Yields Calulation.xlsx

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  • 6 months later...

Just posting to say what a great response I thought that was from Adam!! We have 2 BTL properties and are just weighing up options for either a more expensive residential, or perhaps selling the lower yielding BTL to buy 2 more in a cheaper area (we are based in the South East).

 

I found your spreadsheet really helpful and have just tapped all our figures into it! Thanks for that, you're a gem Adam! :D

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