should i buy property

debtfree1day

hello

situation is despite my username, and largely due to years of tight budgeting AND a large inheritance, I find myself with c 65k of cash (premium bonds, shares, and yes cash) - and no debt

Apart from mortgage debt - c110k on a property worth around 180k. The mortgage is being overpaid each month and I cut term a couple of years back from 18 to 11, but is at a very low interest rate - B of E + 0.75% for life

I am a consultant and earning decent money at the moment, although obviously this can change and at the moment, I guess I am cash rich and not sure what to do with excess apart from pay mortgage, but I am conscious I will struggle to borrow money again if I need it , and certainly not at the low levels of interest I am currently being paid, so I am a little reluctant to pay off, although would rather do this than earn 2% or something in an isa or keep buying premium bonds which pay around 1.2% interest (On average) so, THOUGHT I COULD GO TO AUCTION and buy a 2 BED terrace for c 70-80k (can always use the credit card), spend a few weeks doing up, licking paint, put a new bathroom and use a letting agent to give me c 600 pcm income, hopefully for the foreseeable, and provide me with a 2nd property to fund pension etc etc

High level, and lpoads of research, learning, thinking to be done, what do you think? pro's and con's of entering the buy to let market?

Thanks

TCA

Even without having a lot more information which would be required for some informed replies (your other investments, existing pension arrangements if any, etc...) the answer to your question is probably no.

Have a quick search through this forum and you'll find plenty advice on property investment, most of which will warn you against investing all your cash in a single asset class.

vectistim

What experience do you have?

If you're considering auctions, go to one or two (with your hands firmly in your pockets) and watch (ideally having looked at one or two of the properties first).

Depending where you are your yield expectations feel a little high to me. Some auctioneers set guide prices very low to drag everyone in for a good bidding war and the final price on a popular lot can be quite a bit more. The most extreme example I saw was a falling down Victorian house - you could put your arm in the cracks in the basement and the acros holding the roof up were poking through the roof. To me it seemed like an obvious demolition and building plot. The open day for viewings was really quite entertaining, there must have been about twenty of us crawling all over this building. The guide price they put on it was £50,000 - to me I thought it was worth about £100,000 but thought it would probably go about £130,000 - it actually sold for £250,000. Somehow the people who bought it seem to have managed to get away without knocking it down (I'm not even certain they had it underpinned, certainly I didn't notice any signs of that happening).

Only buy in an area where you know the market well to make sure you buy the right property at the right price. As you will find in the savings and investment board - diversification is usually the name of the game. That's difficult to achieve when buying a single entity - therefore it's all the more important that you only buy when it really stacks up (especially for your first one)

atush

Wioth only 65K to your name, probably not. Esp as you haven't mentionned a pension (which is where I would start) then follow with S&S isas.

Property can be a good investment, but not for all of your money, and certainly not in your case talking of buying using a CC. Madness.

When you have a pension and other investments up and running, and you can get a mortgage buying a property or two Might be a good idea with a small amt of your money, but only if you have skills. and experience in that sector.

dunstonh

so, THOUGHT I COULD GO TO AUCTION and buy a 2 BED terrace for c 70-80k (can always use the credit card), spend a few weeks doing up, licking paint, put a new bathroom and use a letting agent to give me c 600 pcm income, hopefully for the foreseeable, and provide me with a 2nd property to fund pension etc etc

How would the rental income impact on your tax position?
Do you have enough funds to pay the periodic repairs, maintenance and decoration? Have you factored those into your returns?

You mention one property for pension but typically people need 5-6 on average. So, what are you going to do with the rest of your shortfall?

Do you think that 10% yielding properties are easy to come by?

vectistim

atush wrote: »

Property can be a good investment, but not for all of your money, and certainly not in your case talking of buying using a CC. Madness.

I'd, perhaps optimistically, assumed he just meant use an interest free credit card to pay the 10% deposit on the day, which should be doable at 70-80k.

kidmugsy

debtfree1day wrote: »

The mortgage is being overpaid each month ... but is at a very low interest rate - B of E + 0.75% for life

... I am a little reluctant to pay off, although would rather do this than earn 2% or something in an isa

You'd rather pay off a mortgage at 1.25% than keep the money earning a tax-free 2%? Goodness me.

Thrugelmir

kidmugsy wrote: »

You'd rather pay off a mortgage at 1.25% than keep the money earning a tax-free 2%? Goodness me.

I'd be using the money to invest via my SIPP into a whole range of investments.

debtfree1day

Thanks for the advice. I think some of you took my opening a little too literally, it was meant to illustrate a chain of thought rather than a business plan so the 600pcm was illustrative, and in fact in my area may be more like 500pcm or 450pcm

To answer your questions

1 - pension. Got c 100k in a money contribution pension from previous employer

2 - pension sipp. Got around 10k I have put in, basically in March for the previous 2 years just lump sums and some odd shares lying about. As a consultant my money is in the business and I am subject to low rates of IT on the small salary I take, and corportation tax on rest which is 20% ish, so pension contributions are not as beneficial as they were when I was PAYE and higher rate tax payer, and this was one reason property has become of interest to me

I appreciate the advice of going to a couple of auctions for learning purposes and I am going to do this - if nothing else it will be interesting I am sure

My thinking is that I would buy a local property - within 3 miles of current base, and I would invest c 50k of my own money, and take a mortgage on around the same or perhaps a little more and buy at around 100-110k. This mortgage would be manageable from income I already receive each month, so in the event of vacant property I would be ok, (although not desirable), I would look to improve the property and obviously build a rainy day fund for boilers, problems etc. My timeline is around 3-6months at least by which time I would expect to have 80k saved, and therefore by using 50k, I would still have some emergency funds - which in my line of work is important anyway

for info, the CC comment was a little throwaway, it was really me acknowledging I may need to find additional funds depending upon where I in the market I end up....:)

I have little knowledge of BuyToLet mortgages so again another big area to explore

Thanks for all your guidance so far
Cheers

atush

I would look to buy cheaper if you can. So that your total investment incl mtg gearing is lower. And that you don't use more than say half your pot to begin with so properties of 70K or less. The best yields I see are with lower priced properties.

Do you have experience in building, maintenance, letting? Do you have family or friends that do? Will you manage it yourself, or employ a lettings agent?

debtfree1day

hi atush

where I am we have lots of 2/3 bed terrace type houses for around 70 + (less if renovation required) near the city centre - however they inevitably are let to students, benefits etc, few cahs paying families

outside of the city centre costs for similar property increase by 50/60%, include garden and appeal to young families and young professional types

I would rather avoid letting agents, although I sense if I am in the bottom end I may definitely have to go down this path...

I am handy (ish) - but for real building, or electrical/gas work I would need to find an expert (I have a couple of contacts but nothing brilliant)