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

UK007BullDog

Everyone has to make up their own mind. I know people who lost a fortune on the stockmarket and are again playing in there.

If you want no risk then put your money in a savings account of sorts. Of course banks can crash too.

In the end it is all a risk but at least you can have a bit more control over brick and mortar than shares and panicky share dealers.

So far a few people in the media who have tried to talk the market down and it just has not happened.

I can only speak of my area here in the SE London. I have seen that the agents are very busy in the rental and just cannot get enough properties to rent out or sell. There are more renters and buyers than properties, hence the price is more up than the rest of the country. London is a different animal to the rest of the UK. A lot of the main companies are hiring like crazy and their staff need palces to live, quite a lot are used to more upmarket properties.

I had money in stocks, shares and funds and did not bring the return I had hoped for. If I had put the money in housing a few years ago it would have nearly doubled.

So I am taking my chance now to see how it goes.

Also if the market was so bad why are so many foreigners buying up anything from very cheap to properties worth millions? Because London is the metropolis of commerce and business and as mentioned before people have learned from the last crash and will not panic sell as they did then.

meanmachine_2

UK007BullDog wrote:

as mentioned before people have learned from the last crash and will not panic sell as they did then.

People have learnt NOTHING.

If people had learnt, then property prices wouldn't have gone up 20%pa and would be broadly in line with earnings and not in a super bubble.

People are stupid and they are greedy.

People never change.

mikeyw

Fascinating arguements for and and against going for it.

I'm still undecided but all your advice is very much appreciated.

stphnstevey

I agree with you Bulldog.

Some people are so negative, I am surprised they get out of bed cause of all the "risks" a new day brings there way.:rotfl:

dunstonh

stphnstevey wrote:

I agree with you Bulldog.

Some people are so negative, I am surprised they get out of bed cause of all the "risks" a new day brings there way.:rotfl:

There are risks and then there are risks. Plus everyone has a different view on risk.

On a mortgage buy to let, the worst that can happen is that you can lose your own home as well as the buy to let. Many people would not be willing to accept that risk. On an investment risk scale, mortgaged buy to lets are higher risk than stockmarket investments yet you dont see people saying they are going to borrow money to invest on the stockmarket.

stphnstevey

dunstonh wrote:

There are risks and then there are risks. Plus everyone has a different view on risk.

On a mortgage buy to let, the worst that can happen is that you can lose your own home as well as the buy to let. Many people would not be willing to accept that risk. On an investment risk scale, mortgaged buy to lets are higher risk than stockmarket investments yet you dont see people saying they are going to borrow money to invest on the stockmarket.

Property is higher risk (mainly more labour intensive) than shares, but the returns are much higher to compensate for this, due to the gearing involved with property, which isn't available with shares.

However the volatility with property is alot less than with shares. Where share prices change on a daily basis, property prices tend to change on a monthly, quarterly or yearly basis. As you said, no one will lend you money to buy shares, this is because banks don't see shares as a safe, secure investment. However they fight each other to lend you money on property!

This does mean your taking on credit. But not all credit is bad, in fact if we didn't have this system working well for the majority of the population, then only a few people would be able to buy houses. You have to be able to 'manage' debt and if your not good at this, forget it!. As I said, property is much more labour intensive than some 'fire and forget' shares. But 'managed debt' in the right hands can be extremely advantagous. You are effectively using someone elses money to build your fortune.

The potential is there to lose your own home with BTL. But you can do things to limit this (eg. run your property business as a limited liability (ltd.) company). Besides, I would rather wait it out or let the BTL go and declare a loss, rather than let it get anywhere near loseing my own home. Property is a LONG TERM investment and you need to plan for the bad times as well as the good.

I think there is a much bigger risk of losing my 'freedom' in retirement. Simply investing in a pension is planning to be poorer at retirement (ie earning a lower salary when I retire, than I am now). By investing in property, I am planning for my earnings to INCREASE over my retirement period.

Doozergirl

For me, there's a great deal of difference between using property investment as a business and buying a second property for expected capital gains.

Of course, there's money to be made in property, but for my husband especially, it's full time work. If we had bought a decent condition BTL for capital gains in the last 2-3 years in our local area, we'd have made less than nothing. I've nothing against people buying second houses for the long term, but if they are looking to do it without doing any work, then I would certainly pick a moment in time where property is comparitively cheaper than it is now. If it's long term gain you're looking for, then there's no harm in waiting.

dunstonh

Property is higher risk (mainly more labour intensive) than shares, but the returns are much higher to compensate for this, due to the gearing involved with property, which isn't available with shares.

I would say returns are higher. A medium risk portfolio would have doubled in the last 6 years which puts it in line with property and thats without gearing. However, when I say portfolio, I am talking about diverse range of investment sectors and not just stockmarket. If you stuck it in an index tracker then you would have made very little but thats what you get for novice investing and anyone putting that sort of research into buying investments shouldnt be buying property which equally needs decent research.

Simply investing in a pension is planning to be poorer at retirement (ie earning a lower salary when I retire, than I am now). By investing in property, I am planning for my earnings to INCREASE over my retirement period.

Pensions are just a tax wrapper. They dont make or lose money. The pension tax wrapper may not be as good as it once was but what matters is where you invest the pension. If your pension fund hasnt grown by at least 9% a year since before the stockmarket crash then it is invested poorly. I'm not talking about hindsight fund selection but just simple sector allocated portfolios using sector average returns. Problem is that many people have pensions that havent done well (because they are invested incorrectly) and they see property as a a change to make money. Whereas they could alter their pension fund range and that side of it would change. It shouldn't be seen as an alternative but a supplement.

cupid_s

You would really need to be making enough in rent to cover a repayment mortgage plus 15% to cover estate agents fees and extra insurance. As you've said what you could get for this property would be barely enough to cover interest only repayments. If you could get somewhere cheaper with a greater rental potential so you can cover all costs easily then great. But I'm not entirely sure it even possible in todays market.

I know someone who recently bought a 1 bed apartment in leeds as an investment. And they can't even get enough rent to cover the mortgage as other flats in the complex are being rented out cheaper.

meanmachine_2

I don't have a significant problem with people "investing" in property, provided they are aware that it is a high risk.

But people aren't. They think it's safe as houses, so to speak.

And after a 8 year bull run, people forget the risk involved.

People who spread that risk by having lots of investments are smart.

Those who remortgage the family home and sink their entire savings into an overpriced new build are suicidally stupid.

I wonder how many people will bleed out of the woodwork claiming "nobody never told me nufink of the risks" should prices go into reverse.

The answer: Too many. And they won't get an iota of sympathy from me.