Buying a second property a wise investment for your children?

Nice_guy

Some very good points made in this thread, thanks everyone for your replies.

I'm not sure I follow on some points regarding an 'all eggs in one basket approach' and suggestions that I should be investing in a more diverse investment that would allow more flexibility.

As far as having all eggs in one basket goes, I'm not sure this will be the case, as we will be mortgage free so if the investment has quiet periods we can always route funds to the second property if needed. I would think after a year or so of setting the second property up we hopefully will be in the position again to invest into another area.

When you say investing in more diverse investments that allow more flexibility, I imagine you are talking about stocks/shares, portfolios spread across various sectors etc? Sorry if I'm being a bit thick! I can see how these would add more flexibility as I could end the investment a lot easier than selling the property if it came to that. Also going to an IFA is sound advice but wouldn't he/she push any investment vehicle compared to investing into a single property? As essentially it won't involve them.

The property I buy will naturally be well researched, I think I have the ability to rent well too. As the property has the strong possibility of being rented to one of my employees, so ultimately if it is rented to one of my employees I will have control over their payroll and therefore paying rent on time shouldn’t be such an issue. This makes buying a property to rent out more of an attractive proposition.

The way I’m looking at it (which could well be misguided) is if I invest say £40k into a property, plus say 2k on a yearly basis for other costs, at the end of a 20 year period I would have invested a total of £80k. Say the property is purchased for approx £150k and in 20 years times I would like to think would be worth at least £250k. So my investment has grown from £80k to £250k, a rise of £170k, albeit over 20 years (£8500) per annum. Which roughly equates to 10% per year on the amount invested.

Now I have typed it all out like this, I would like to think there are other investments which would yield a 10% return. Or am I looking at completely wrong? The way I have worked it out is a very quick and crude method which doesn’t account for all costs and probably not all income generated from the property.

Further research clearly needs to be done, but thanks again everyone for your replies, this is such a fanatatic forum that has made such a positive change to our lives and hopefulyl that of our little one to one day.

Nice_guy

greenface wrote: »

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.

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

Thanks for the congrats - it really is the best feeling in the world! We still haven't stopped laughing at your post too, shat a better response from alphabetty spagetti - LOL

Jonbvn

Nice_guy wrote: »

The way I’m looking at it (which could well be misguided) is if I invest say £40k into a property, plus say 2k on a yearly basis for other costs, at the end of a 20 year period I would have invested a total of £80k. Say the property is purchased for approx £150k and in 20 years times I would like to think would be worth at least £250k. So my investment has grown from £80k to £250k, a rise of £170k, albeit over 20 years (£8500) per annum. Which roughly equates to 10% per year on the amount invested.

Some comments:

1. When are you going to pay-off the £110k you will borrow? Rent is unlikely to cover repayment of capital and interest on the mortgage.
2. 2k per year costs is far too optimistic. What about void periods etc?
3. Impossible to gauge what property prices will be like in 20 years.

jon3001

Nice_guy wrote: »

The way I’m looking at it (which could well be misguided) is if I invest say £40k into a property, plus say 2k on a yearly basis for other costs, at the end of a 20 year period I would have invested a total of £80k. Say the property is purchased for approx £150k and in 20 years times I would like to think would be worth at least £250k. So my investment has grown from £80k to £250k, a rise of £170k, albeit over 20 years (£8500) per annum. Which roughly equates to 10% per year on the amount invested.

Alternatively stick the £40K in an diversified investment portfolio and add £2K/yr of investments for 20yrs.

If the portfolio returns 10%/year then at the end of 20 years it's worth nearly £420K.

jon3001

Nice_guy wrote: »

As the property has the strong possibility of being rented to one of my employees, so ultimately if it is rented to one of my employees I will have control over their payroll and therefore paying rent on time shouldn’t be such an issue. This makes buying a property to rent out more of an attractive proposition.

So if the employee gets behind on their rent what happens? You're going to take it direct out of their pay?

Or do you deduct the rent before paying them the rest?

I don't think many employees would be happy with their boss having that kind of control over their finances.

RayWolfe

It's also illegal without court sanction.

covmutley

Historically, property has always been a good long term investment. Prices have lost track with earnings and another price dip is possible. But price rises have been partly due to lack of supply- less houses being built now than at any time post ww2. I cant see this lack of supply being corrected any time soon.

It is a gamble but at least you can sell, rent or live in it..

Nice_guy

Jonbvn wrote: »

Some comments:

1. When are you going to pay-off the £110k you will borrow? Rent is unlikely to cover repayment of capital and interest on the mortgage.
2. 2k per year costs is far too optimistic. What about void periods etc?
3. Impossible to gauge what property prices will be like in 20 years.

1. Very good point, like I said I haven't looked into the figures in great detail, just brainstorming a possible idea. But you raise a very valid point I will more than likely need to contribute to the mortgage payments if the property is rented single occupancy. However I think I will be able to cover the repayment if I go down the multi occupancy route. There may also be the possibility of adding to the deposit to make the mortgage repayments closer to the monthly rental level.
2. 2k per year is probably too optimistic as you say, however some years would be worse than others and I don't think it would average out too far away from this.
3. Naturally it is impossible to gauge what anything will be worth in the future, I suppose that’s the whole purpose of making an wise investment from the outset based on educated assumptions. Any investment is a gamble of some sort.

Thanks for the feedback, it is exactly the kind of reply I am looking for, helping me to critique the idea of buying a second property.

:beer:

Nice_guy

jon3001 wrote: »

Alternatively stick the £40K in an diversified investment portfolio and add £2K/yr of investments for 20yrs.

If the portfolio returns 10%/year then at the end of 20 years it's worth nearly £420K.

This is something I need to look into too, I know nothing about this kind of investment, i.e. the nature of the invest, level of risk etc. I feel more comfortable with property, but if returns are possible like what you have stated above, then it would be silly not to research into it further. I suppose this is where the IFA comes in.

Nice_guy

jon3001 wrote: »

So if the employee gets behind on their rent what happens? You're going to take it direct out of their pay?

Or do you deduct the rent before paying them the rest?

I don't think many employees would be happy with their boss having that kind of control over their finances.

Theretically after a deposit has been taken, a salaried staff memeber should not get behind on their rent. On pay day I will pay my employees as usual (cash) and then expect them to hand me over the rent. I could always deduct the rent before giving them their pay (with their approval of course). I know the few staff members I have in mind to possibly rent out to will not have a problem with this is the slighest, we have a very good relationship which is built on trust and respect - it works both ways.