Advice on 2nd Property Purchase - is it still a good investment ?

mikeyw

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I’m really tempted to free up some equity from my current home (value £330K – £80K mortgage) and buy a 2nd home but the cautious side of me is holding me back. Can people please advise which way they think I should go ?

I live in a very desirable housing area (Harrogate) where demand is high and prices are high. Because of this most young couples are renting and there is a good buy to let market.

I’m thinking of a 2/3 bed town house / terrace or a 2 bed flat with a budget of around £170K. Really I’m better buying something at £150K that needs £10K spending on it but not sure much will be available at that level.

In people’s experience what tends to let better in a town with no real student population ?

For my £170K I’m probably only going to be looking at £700 per month rent so barely covering my interest only mortgage. Obviously I’m banking on the market increasing over the next 3-5years which is the minimum I’d probably hold it for.

Another consideration is to buy off plan but it seems hard to find any new developments in the area.

Also an option is buying into a Town Centre Apartment in the rapidly expanding Leeds – Again for £170K I’d probably get a 2 bed apartment bringing in about £750 per month.

As it’s my first foray I’d probably use an agency to let the property to take some of the stress out of it. Would you agree with this ? It looks like around 10% is the standard rate – is this correct?

A lesser risk is to go for an area with cheaper property like Hull where I’d imagine £120K may get me something of similar spec but naturally the rental rates will be lower.

It all seems pretty straightforward but there has to be a catch somewhere ? – I suppose that is an unoccupied property but is that really going to happen assuming the house is well maintained and in a desirable location.

I read the other day in the express that property prices could double again the next five years….probably a bit optimistic but does show there is still a lot of positivity around….if I didn’t take the plunge and this happened I’d be very annoyed with myself.

Finally the mortgage situation is a little unclear to me. Am I right in thinking I’d need to raise the deposit on my existing mortgage say £17K then take a second (interest only) mortgage (£153K) for the 2nd property – is this the best approach ?....would it make sense to change my current mortgage to interest only as well obviously giving us a bit more cash each month to help out with repairs & under occupancy etc.

Sorry for so many questions but is it true I can buy the house in wifes name to avoid so much tax (as she works part time)...would she have to e the name on the mortgage as well ?

It's a big learning curve but we've all got to start somewhere I suppose !

For those who feel it might not be a good investment at the moment please could you let me know why.

Thanks in anticipation for any help / guidance / advice you can offer me before taking the plunge !!

Mike

Doozergirl

I do not feel that capital gains substantial enough to negate the risk involved in a second mortgage are very likely in the next few years. I were to have a buy to let, then I would expect the rent to cover both capital and interest paymetns at the very least.

Taking money from your own home means that you are borrowing the full value of your second property; that means you should covering the interest and capital payments on the full amount. plus covering for maintenance, agency fees and void periods. How would you cope with two mortgages if interest rates were to rise even marginally?

Perhaps housing value only rises in the long term, but I would rather wait and buy a long term BTL when the market is comparitively low, not now when it's hard for first time buyers to afford anything at all.

I say this as someone who is happy to play the market. We buy to sell on, to rely as little as we can on the what the market is doing and chip away at our own mortgage before attempting to pay off a second.

Investing in new city centre apartments is financial suicide in my opinion. I would not and will not, ever. I want my investments to hold some charm, not be an mass produced identikit of everyone else's BTL. If prices do take a turn for the worse and you have to bail out when eveyone else is doing the same, how do you make yours look any better than the other 1000's of similar apartments?

dunstonh

You want to borrow to invest in an asset class which is above long term average value. Plus at a time when rental yields are not much better than savings accounts.

If you can budget for a 30% potential loss and accept that sort of potential loss then there is no reason why you shouldn't give it a go.

Of course, dont forget income and captial gains tax will take a chunk.

And hope you dont get a bad tenant.

royalsteve

Doozergirl wrote:

I do not feel that capital gains substantial enough to negate the risk involved in a second mortgage are very likely in the next few years. I were to have a buy to let, then I would expect the rent to cover both capital and interest paymetns at the very least.

Taking money from your own home means that you are borrowing the full value of your second property; that means you should covering the interest and capital payments on the full amount. plus covering for maintenance, agency fees and void periods. How would you cope with two mortgages if interest rates were to rise even marginally?

Perhaps housing value only rises in the long term, but I would rather wait and buy a long term BTL when the market is comparitively low, not now when it's hard for first time buyers to afford anything at all.

I say this as someone who is happy to play the market. We buy to sell on, to rely as little as we can on the what the market is doing and chip away at our own mortgage before attempting to pay off a second.

Investing in new city centre apartments is financial suicide in my opinion. I would not and will not, ever. I want my investments to hold some charm, not be an mass produced identikit of everyone else's BTL. If prices do take a turn for the worse and you have to bail out when eveyone else is doing the same, how do you make yours look any better than the other 1000's of similar apartments?

Totally agree with your last paragraph, unless you are lucky enough to get in when prices were very low and now are fairly high but have levelled due to oversupply of identikit (like it) flats....i live near Reading where this has happened

Jim_B_3

The numbers the OP quotes indicate around 5% yield before tax, costs, voids etc. It wouldn't even cover the interest on the loan. The OP would be sucking up a regular loss; presumably he hopes he can do this for long enough to sell the flat with enough profit to cover all his losses and make a little extra. Given that we're at something of a plateau at the top of a yomping bubble, I hope he can suck up these losses for the next decade or so.

Let's make it clear now, by the way. The Daily Express has three news desks; Diana, House Price Increase, and everything else. They're about as trustworthy on house prices as they are on MI6 and Mossad jointly assassinating Diana to stop her marryig Elvis.

lynzpower

Why dont you have a look on the internet to find out how many new build flats there are to rent in Leeds? My mate has been looking adn said theres shed loads vacant, and she is looking to barter down the rent in one , and she knows it will be below the mortgage rate.

There was a development up round my way, a fairly large one, pretty much all vacant for some months, as an executive development. Walked past the other day and there was lots of "kids" stuff in the windows, my gut feeling is that they have let to the council or housing benefit now, I expect as they have gotten desperate for tenants.

Personally, I wouldnt bother. If you have the money to be coughing out of your own pocket for voids, repairs and the repayment part of your mortgage then why not overpay your own mortgage?

Jorgan_2

Property can still be a good investment. You need to make sure you buy at the right price in the first place. I would avoid new build, especially apartments at the moment. If you can buy below the market value, maybe something that requires updating, cosmetic rather than structual preferable, you should be able to add value to the property.

Do your research, be thorough, you should be able to tell by the brief description given in an EA's advert whether a property is good value. Buy to let or property development isn't the easy way to making money, despite what TV & magazines tell you.

With regards to the tax question I think you would be better off putting the property in joint names, depending on what investments you have in yours, as you will be able to use both your allowances against tax. I may be wrong & someone more knowledgable will be able to answer properly.

bikerqueen

Jim_B wrote:

Let's make it clear now, by the way. The Daily Express has three news desks; Diana, House Price Increase, and everything else. They're about as trustworthy on house prices as they are on MI6 and Mossad jointly assassinating Diana to stop her marryig Elvis.

:rotfl:

that is so true...

Jim_B_3

bikerqueen wrote:

:rotfl:

that is so true...

You've been suckered in too, Bikerchick. Elvis was behind it all along! His old house sold recently for far more than he paid for it. Coincidence? Ah huh.

mikeyw

Grief some pretty negative views

Maybe I'm been naive in thinking property is still a good investment.

Thanks for the tip on the city centre property - think i'll give that a wide birth !

I'll keep my eyes open but may be more cautious.

In terms of paying off the mortgage sooner wouldn't an appreciating property give me more benefit than saving a couple of years interest on the mortgage ?

I guess you guys are talking through experience here so i'll sit on the sidelines for now unless a bargain comes along.

Anyone got any positive to say on investing in property at the moment ?

libitina_2

http://www.home.co.uk/guides/house_prices_report.htm?location=harrogate&lastyear=1