Advice Needed - Investment opportunity?

tabz155

Hello,

I was hoping I might get some advice/opinions on whether a potential property purchase as an investment is a good idea.

I am a 27 y.o. single male in full-time, permenant employment earning £40,000 per year (with potential for significant salary increases in the next few years), living in Edinburgh. No present or historical debts or defaults. Student loan. Excellent credit history. No regular monthly outgoings other than: rent (£300pcm); Council Tax (£60pcm); utilities (£60pcm) and petrol/road tax/insurance etc. (£100pcm - car is paid in full).

Managing to save around £500pcm and have around £9000 in savings.

A 3 bed flat for £95,000 has come up in my hometown in need of refurbishment and modernising. I think I could get the price knocked down to around £85, 000. From my research property still seems to be increasing in value from recent sales. Also a very strong rental market in the area with limited property available.

I do not own any property at present so this would be a first-time purchase. I would like to purchase with my brother who is a fully-qualified joiner and capable of carrying out most work required. He would be living in the property and updating and I would be living in Edinburgh and continuing to rent.

Q's:
(1)Does this seem like a realistic arrangement? i.e. will a bank lend to us with this arranegment?
(2)Is a property investment of this type likely to return, and in what period? I would consider renting after modernising, but would I need a new mortgage and a higher desposit?

I'd appreciate any advice,

Cheers.

Fire_Fox

Welcome! Does your brother have any funds to put down? Is he self employed and can he provide solid accounts? Realistically how long can both of you commit to this, what if one of you gets a wife/ serious partner/ child will you want to sell?You will need a minimum 10% deposit plus costs of buying, materials, money in case one of you falls ill or injured and cannot work, tenant does not pay or trashes the place. Best to see an independent mortgage broker.

Nobody can tell you what your investment will return, depends on the rental and sales markets, how long you own for, many have lost tens of thousands of pounds in recent years. You need to do the maths yourself, best case and worst case scenario including all costs including taxes, insurances, factor, costs of buying and selling. Do you know what your target market is for a three bed flat, is it families or students?

kingstreet

in need of refurbishment and modernising

Be careful. If the property is too far gone the essential repairs will make a retention likely.

This means the lender holds back some, or all, of the mortgage money you need to purchase the property. In the best case retention scenario, you would need to find a larger deposit to "bridge" the retention, then get the work done within a fixed timescale to get the retention lifted and the monies released to you.

Projects where renovation/modernisation is required suit only those with healthy cash reserves.

googler

I take it your hometown is somewhere removed from Edinburgh? Is it in Scotland?

What research have you done on prices to show that they are increasing in this town? You're proposing to 'knock down' the asking price of your target property by over 10%. When you come to sell it, everyone will know what you paid for it, and they'll perceive a downward progression in price. There's no guarantee that they will find your house plus refurbishment to be worth what you paid for it. None at all.

Bear in mind it's perfectly possible for real individual prices to go down, but averages for an area to go up at the same time. With FTBs not moving, and previous FTBs not being able to move on from the houses they bought as FTBs, most sales activity is at higher levels. An average derived from sales data will therefore go up in the absence of sales at lower levels. If you look at individual or tightly-controlled groups of houses, they're actually dropping in price.

Pay no heed to the various telly programmes on refurbing and reselling houses - most, if not all, of these were made 5 or 6 years ago.