£38k savings - should I buy a flat or keep saving?

the_3rd_dynasty

I'm 29, I've just recently been made unemployed and I've now moved back in with my parents temporarily.

However, despite earning an average wage and previously living in London, I have managed to save a total of £38k

There is an area near me where I can buy a 1 bedroom flat in a sort of reasonable area for around £25k. Therefore, I have the following options and would very much appreciate your thoughts on what would be best to do while looking for a job at the same time:

Buy a one bedroom flat outright with no mortgage for £25k, possibly spend £5k renovating it and...

1. ...then sell for a profit.

2. ... rent it out to students at the nearby University and find work anywhere in the UK. (rental potential £320pcm).

3. ...live in it but I have to find a job in the area.

4. Buy it but do nothing to it and sell in two years for a profit.

5. Do nothing and keep the money in savings accounts.

To me, buying the property seems like a no brainer as not only could I either live in it rent/mortgage free but I could also rent it out if necessary and it's bound to be an appreciating asset too. Not only that I would anticipate on still having £8k savings in reserve for emergencies too.

Am I right, or am I missing something? What are your thoughts?

mynameisdave

Where on earth are you going to buy a 1 bed flat for 25k?

Doesnt even appear to be that cheap in Stoke on Trent

CloudCuckooLand

the_3rd_dynasty wrote: »

it's bound to be an appreciating asset too...

Its great to be positive in life, and all that, but making assumptions like that is dangerous, when your hard-earned savings are at risk.

Which location has £25k flats that have yet to gain value during the biggest boom period in modern history, but will appreciate during the worst austerity measures since WW2?

SouthCoast

the_3rd_dynasty wrote: »

I'm 29, I've just recently been made unemployed and I've now moved back in with my parents temporarily.

However, despite earning an average wage and previously living in London, I have managed to save a total of £38k

There is an area near me where I can buy a 1 bedroom flat in a sort of reasonable area for around £25k. Therefore, I have the following options and would very much appreciate your thoughts on what would be best to do while looking for a job at the same time:

Buy a one bedroom flat outright with no mortgage for £25k, possibly spend £5k renovating it and...

1. ...then sell for a profit.

2. ... rent it out to students at the nearby University and find work anywhere in the UK. (rental potential £320pcm).

3. ...live in it but I have to find a job in the area.

4. Buy it but do nothing to it and sell in two years for a profit.

5. Do nothing and keep the money in savings accounts.

To me, buying the property seems like a no brainer as not only could I either live in it rent/mortgage free but I could also rent it out if necessary and it's bound to be an appreciating asset too. Not only that I would anticipate on still having £8k savings in reserve for emergencies too.

Am I right, or am I missing something? What are your thoughts?

Property prices can go down.

Running_Horse

You can get a flat in Washington for around £10,000 in a "gated community".

http://www.rightmove.co.uk/property-for-sale/property-30538379.html

Does gated mean a prison?

the_3rd_dynasty

CloudCuckooLand wrote: »

Which location has £25k flats that have yet to gain value during the biggest boom period in modern history, but will appreciate during the worst austerity measures since WW2?

Paisley in West Central Scotland (I should add that I'm now based near Glasgow). Paisley is certainly not a leafy suburban area but it's not a total midden either. It's also not far from Glasgow city centre, has good transport links both rail and motorway, and very near to a University and Hospital. If you try a search on Rightmove for one bedroom flats you will find a few that come up for £25k. They probably need a bit of work done to them but for a property that small I'm sure £5k would cover it.

Even if I only got £100/month rental income, it would still be more than I'd get with the money in an ISA.

The idea of living mortgage free is so tempting but maybe I'm being blinded by the dream of owning my own place?

mynameisdave

Running_Horse wrote: »

You can get a flat in Washington for around £10,000 in a "gated community".

http://www.rightmove.co.uk/property-for-sale/property-30538379.html

Does gated mean a prison?

I know they say you shouldn't judge a book by its cover, but unlike traditional gated communities I don't think those gates are to keep the undesirables out :eek:

mynameisdave

The one rightmove is advertising as a 26K auction guide price and near the Uni... If that has a 320pcm potential then it has a rental yield of 14%

If that flat sells for £26k my guess is it needs a lot of work!

googler

the_3rd_dynasty wrote: »

Even if I only got £100/month rental income, it would still be more than I'd get with the money in an ISA.

OK, so you buy for £25k, spend £5k on refurb so it 'owes' you £30k.

You take in £100 per mth rental, but have to deduct expenses from this - repairing things that tenants break, fixing appliance or heating breakdowns, maybe even common repairs, if these are tenement flats you're looking at....... so let's say you get £80 per mth for 3 years - that's £2,880 income.

What if the value of the property drops by more than £2,880 in this time? If you had to sell at that stage, that leaves you with zero profit, and you've actually lost money.

If these flats are selling for £25k now, what were they selling for 3 years ago?

Running_Horse

A few years ago I considered selling my house and using the equity to buy a flat mortgage free. In the meantime I met my wife and became a dad so took out a big new mortgage for a dream house. You get used to a certain amount of luxury which can't be got from a pokey flat. Maybe you are young enough not to worry about that, or are willing to forego a certain amount of comfort to make a fast buck. But for most people it makes sense to buy the best property you can reasonably afford at the time, near decent work opportunities. Only you know the answer to your question, but I can remember a time when prices not only dropped, but slumped for years on end. Things do go wrong.

CloudCuckooLand

Prices fell by 8% in Q1 2010... http://www.ros.gov.uk/pdfs/Statistical%20Report(final)%20-%20Jan%20-Mar%202010.pdf

Doh. Not the best plan in the world.