Buy another flat or not?

ttaylor

Hi money savers

A few years ago I came into some money and my father advised me to invest it in a property, so I bought a flat and rented it out to the same people ever since.

In this time I have been away at university and in a few months I will be returning home to go into work, luckily I already have a job lined up.

I am torn with what to do with my flat, and this is why I am here looking for some advice.

I have just about enough equity in my flat that I could re-mortgage and buy a second flat for myself. This means I could leave my first flat rented out and it could be a retirement income, looking far into the future.

Or I could ask my tenants to leave and move in myself, this would mean a smaller mortgage but no future retirement fund, and I would hate to have to kick out my tenants who have been so good the last few years!

The last idea I had was to rent somewhere for myself, this means I wouldn't have to kick out my lovely tenants, and I'd have a bit more freedom with where I can live, but still at the end of the day I will own one flat.

Any ideas as to what would be the best choice?

G_M

If you have good, reliable, long-term tenants in there who wish to stay, and assuming their rent is covering your mortgage (if you have one) and tax, running costs, repairs etc, I would be tempted to leave them there.

As for yourself, factors to consider:
* can you easily get/afford a mortgage?
* would a mortgage cost more, or less, than rent (taking into account the higher running costs of ownership over rentaing)?
* how stable are you? Is your job long-term? Might you want to move in, say, 12 months? Many people when young, or starting out in careers, are more mobile and renting lends itself to this.

ttaylor

G_M, good evening to you

If you have good, reliable, long-term tenants in there who wish to stay, and assuming their rent is covering your mortgage (if you have one) and tax, running costs, repairs etc, I would be tempted to leave them there.

Yes it is on a buy to let mortgage, I put down a large deposit which means that I could increase the loan and still meet the criteria. I agree I am tempted to leave this as it is. Do you think using this as a retirement fund is a viable option or am I thinking too far ahead?

* can you easily get/afford a mortgage?
I can borrow more from the BTL mortgage and put down 20% on another place.
* would a mortgage cost more, or less, than rent (taking into account the higher running costs of ownership over rentaing)?

The cost of another mortgage would be less than the same property would be to rent, possibly £1-150 less a month, but as you say I need to also consider maintenance on top of this. Also there would be the increase in the BTL monthly payment. It gets rather complicated doesn't it?
* how stable are you? Is your job long-term? Might you want to move in, say, 12 months?
I like to think it will be a stable job and I certainly hope I will stay there more than a year, but I guess you never know in this economy.

G_M

Pension advice is another whole ball-game, but some basic principals:

* it is never too early to start. The longer you save/invest/ give your property value time to grow, the greater the end-result. A pension investment made in the last 5 years before retirement is virtually pointless.
* Most people your age barely consider it, let alone take action. But that is not a reason to do as they do!
* Diversify. Never put all your eggs in one basket. Suppose you spend 40 years relying on property for your pension, and, I don't know, in 2048 Labour turns really socialist again and Nationalises all housing! Or the Conservatives remove ALL restrictions on house-building on farmland plus give developers grants to do so - millions of new houses are built and the price of housing crashes! 40 years is a long time....
* so your flat is a good investment, but how about some long-term stock-market investments too? Or gold? Or.....?

And a lot can happen to you in 40 years too! You may decide to use the flat to fund something else in that time: marriage, kids, start a business, spend a year writing a book upa mountain somewhere - you might consider the flat your 'pension' now, but that plan may change...

japmis

If I could, I would buy a second property. Good tenants are like gold dust, and rent is dead money (I know, I've been paying it for nearly 15 years).

sandsni

How sure are you that the tenants you have now are likely to stay long term? If they're likely to stay then hold on to them for as long as possible.
I'm also increasingly unconvinced that rent is "dead money". Once you buy a property you're responsible for all the maintenance and repair as well as the mortgage. The only real difference is that at the end of the 25 or 30 years or whatever you own a pile of bricks and mortar on a plot of land (assuming you have the freehold). I'm beginning to wonder if I saved all the costs that go with owning a house in a big pot would I be any worse off than a renter in the end ;-)

G_M

sandsni wrote: »

.... The only real difference is that at the end of the 25 or 30 years or whatever you own a pile of bricks and mortar on a plot of land (assuming you have the freehold). I'm beginning to wonder if I saved all the costs that go with owning a house in a big pot would I be any worse off than a renter in the end ;-)

Interesting thought:

suppose for 25 years you rented, but instead of just paying the rent, you also put aside each month (in say a stocks/shares ISA) an amount equal to what a home-owner spends on maintenance.

At the end of the 25 years, would you have enough to buy a property outright (ie to match what the home-owner now has - a mortgage-free home).

?

sandsni

G_M wrote: »

Interesting thought:

suppose for 25 years you rented, but instead of just paying the rent, you also put aside each month (in say a stocks/shares ISA) an amount equal to what a home-owner spends on maintenance.

At the end of the 25 years, would you have enough to buy a property outright (ie to match what the home-owner now has - a mortgage-free home).

?

Now I'm intrigued. Might do a bit of research on the likely % increase in house value over 25 years compared to % increase if I used the maintenance money to invest elsewhere. Of course I'll have to base it on the assumption that the state won't make me sell my home to pay for residential care in 25 years

Thrugelmir

sandsni wrote: »

Might do a bit of research on the likely % increase in house value over 25 years compared to % increase if I used the maintenance money to invest elsewhere.

Be interested to see your results. As the only thing that's certain at the moment is uncertainty!

xylophone

In your position, I think I would be inclined to leave the situation as it is for a couple of years and rent, to give myself time to see how the job panned out.

Does your prospective employer offer a pension scheme?