Buying a second property a wise investment for your children?

Nice_guy

Evening Mse'rs!

Having recently had our first baby (6 weeks old on Monday ) I'm thinking what seeds I should be sowing now for her future.

Both my partner and I are 28 years old and are fortunate enough to hopefully be mortgage free in the middle of next year.

I'm considering the prospect of buying a second property which will be rented out and by the time our daughter is 20 will hopefully be paid off and intend for her.

My thinking behind this is quite simple, my outlay will be the deposit for the property, mortgage/buying fees and any repairs and maintenance that is needed over the years etc. Ideally the mortgage will be paid by the rental income, although I wouldn't mind making a contribution to the mortgage if needed (so I should be able to account for higher interest rates). I hope to take advantage of the capital growth of the value of the property as I am looking at this as a long term investment.

I view this investment as having a large initial cost (deposit), with costs along the way (mortgage top up’s and maintenance) but more so an investment of time, finding the right tenants year in year out etc. The idea of having a property owned outright that has been funded largely by rental income is obviously appealing.


What do people think of this as an investment for the future of our little one? Any pitfalls? Any other investments which I should be considering?

All positive/negative comments welcome.

Thanks,
Nice_guy

Leviathan2009

Don't jump onto the "Buy to Let" bandwagon - let the houses be bought by people who actually intend to live in them.

VIGILANT22

Nice_guy

Due to lack of social housing we have a demand for private lets.
BTL's are correctly a long term investment
They are also taxed as an investment, so you need to read up on that.
Currently you would require 25% deposit
When market recovers and equity increases you could increase equity and create portfolio..

Pitfalls
Rental void-no tenants, careful planning will allow for this
The ups & downs of the markets
"bad" tenants

Nice_guy

Leviathan2009 wrote: »

Don't jump onto the "Buy to Let" bandwagon - let the houses be bought by people who actually intend to live in them.

Care to expand a little further on your reply?

Leviathan2009

What is there to expand on? For those who wish to buy a house to live in - prices are barely affordable (regardless of ivory tower studies by the banks). A situation that is not helped by buy-to-let investors.

Find somewhere else for your excess cash - a Childrens Trust Fund for example?

greenface

Leviathan2009 wrote: »

What is there to expand on? For those who wish to buy a house to live in - prices are barely affordable (regardless of ivory tower studies by the banks). A situation that is not helped by buy-to-let investors.

Find somewhere else for your excess cash - a Childrens Trust Fund for example?

Just ate a bowl of alphabetty spagetti and shat a better response than that . Get a life and get over it.
Not every one wants to buy people historically need rentals I dont think OP is after making a quick buck get in and out get rich LL

Nice-guy
congratulations on the birth of your daughter.
Being young and soon mortgage free is a great position to be in ,so long as you dont overstrech for lean times &empty house periods. Be careful picking your house for such a long future (remember your grandkids could be living there)have you got funds covered if you decide to have more kids or change job etc .
I think youve got your head screwed on right and my 2 year old nephew will be looking for a bride around 2030 once he finishes playing on his PlayStation58. good luck

opinions4u

What do people think of this as an investment for the future of our little one? Any pitfalls? Any other investments which I should be considering?

It's an "all your eggs in one basket" approach and you could get your fingers burned.

There's no doubt that residential property, generically speaking, has been a successful way of making money over the past decades. But you should remember that from the 1989 peak it took house prices a decade to recover - and the growth in availability of mortgage funds we saw in the 90s won't be there going forwards.

Most recently, property prices have been pushed upwards by, predominantly, bank lending moving away from using depositors' savings and, instead, relying on wholesale funds to grow their asset portfolio.

This, as you probably know, ended up with the Credit Crunch. Given that such lending and growth strategies ended up with lenders effectively being insolvent, I would be amazed if there was the appetite for a return to such easy mortgage lending any time within the next decade. This will have the result of limiting mortgage funds which will, in turn, restrict house price growth.

The costs of mortgage funds will also be higher and this will impact the yield generated by your investment.

The other issue for me is the risk of one property making up the whole portfolio. You are totally exposed to the property market of that street. If the street/neighbourhood declines, which can and does happen and can be driven by a range of reasons beyond your control, your investment declines with it.

Any other investments which I should be considering?

- something that doesn't involve the high risk strategy of borrowing to invest
- something that broadens your portfolio beyond one property (so a managed fund which has a broader property exposure and access to the potential of emerging markets may be more appropriate).

See an IFA. Really.

nollag2006

I did this myself in May 2009 for our twin girls, and it's been a great success so far.

House prices in the area that I bought (Ealing, West London) are up well over 10% since this time, and are still rising rapidly, but I am sure they will cool off over the next few years. So there is still plenty of upside in the property market.

The rental income I get just about covers the mortgage and other outgoings (+ or - £100 per month), and its very tax efficient.

I would recommend that you speak to your solicitor about the most tax efficient way of holding the property to minimise any potential CGT / Probate tax exposure.

As others have pointed out, there are risks and hassles, but overall its a very good long term investment and could yield you a very nice little rental profit in a few years time.

Asheron

Why would you want to buy a house now? the bubble just popped. you want to buy a house in the peak ?

Aegis

Asheron wrote: »

Why would you want to buy a house now? the bubble just popped. you want to buy a house in the peak ?

You're about a year late with that comment, maybe more. Prices have been rising again lately, and the bursting bubble didn't seem to drag prices down as far as the HPC advocates thought it would.

There might be more on the horizon, but it seems a lot less likely now than a few years ago.

tradetime

Hi Nice_guy

not the route I would go, basically I agree more with the cons above than the pros, particularly as laid out by opinions4u.
This is a big investment, and I don't mean necessarily in monetary terms, though it's not insignificant in that either, so it's worth spending a little money and time in the planning. There are a few IFA orientated folks on here who can help you find an independent IFA, and I think it would be worth consulting one to give you a good selection of options available. You'll also want to find the most tax efficient way of investing for this purpose.

Like opinions4u, I would be troubled by the fact that you're investment would be very narrowly focused, exposed to just one asset class, and lacks any sort of flexibility in the way you can manage it. Narrowly focused investment strategies are best undertaken by people who make themselves an expert in the field in which they are investing.
Also, whilst there will be good experiences of people owning a second property as an investment, there are also some real horror stories, I've personally encountered both groups and it can be a real pain in the neck to administer, both in time and costs.

I suspect if I were to take the liberty of summing up your motives at this point, it would go something like: "We want to give our daughter (and her siblings, as these things have a way of expanding ) the best start in life possible." I really think this would be better achieved by adopting a much more diversified route, that would add a lot of flexibility in how you managed it.