Is this a good idea? (Good investment)

Alphamare

Firstly please can I ask you to ignore typos my hand is in a cast plus there is a delay on the iphone.

We have saved a 10% house deposit and can afford to buy a 170000 house by the end of the year. We have the 10% ready to go on up to 125000 which only buys us a house that I would want to live in for 5 to a max of ten years.

Our thinking is to buy a house under this and live in (plus over paying by 10% per month, we can fix for five year) then continue to save. We will be able to buy our 170000 house with 20% deposit then in five years and won't need to move again as it gets us what we want for a long term home.

We are thinking of then renting out the first property as a retirement plan. It would be when it had 25% in it to do so.

Have made an offer (waiting to hear back) on a property that was on the market for 130000 of 10500. It has been on the market empty with no chain for a year.

Is this a good investment/idea. Also how high can we offer if rejected before making the plan unrealistic?

I appreciate that we may sound stupid but I am hoping that there is no such thing as a stupid question. We are married and 30 and trying to get going with sorting our lives out for the future.

We have no debts except my hubby has vehicle finance but it's a work vehicle so doesn't count as it goes through his books as a work expense.

Thank you all very much.

jimjames

Alphamare wrote: »

We are thinking of then renting out the first property as a retirement plan. It would be when it had 25% in it to do so.

Have made an offer (waiting to hear back) on a property that was on the market for 130000 of 10500. It has been on the market empty with no chain for a year.

.

If you can get a house supposedly worth £130,000 for only £10,500 then that would be a bargain in most of the UK.

I'm guessing you've made a typos somewhere though or it is very unlikely your offer will be accepted.

I'm not sure why you want to buy a house that you don't want to stay in long. Could you not get the house you want but wait a bit? Otherwise you are paying 2 lots of stamp duty.

20% of £125k is £25k
20% of £170k is £34k

Re-reading your post I'm still not entirely clear what you are proposing.

Alphamare

It is 130000 it's been on the market for over a year. It's empty and chain free. We have offered 105000 and waiting to hear back. I was wondering how close to 125000 we could go without making it a poor investment. We have 10% right now for up to 125000. We will have 10% of 170000 by the end of the year. We cannot buy what we want in a long term home for up to 125000 but there are properties we like enough to live in for five year. We would have then after five years saved 20% deposit for our 170000 home. What we want is available between 150000 and 170000. Within five years with over paying by 10% on the 105000 offer we would then have at least 25% equity which is enough to convert to a buy to let. We can then buy our forever home.

Which means long term we save another years rent. Get on the property ladder sooner and own two properties. The first being part of a retirement plan. I am unsure where I was unclear?

jimjames

Ah ok.

If you can wait until the end of this year to get the house you want then personally I would do that. The ideal house for BTL might not be the one that you want as the house to buy now. You may also find that BTL mortgage isn't available at the time you want to move (as happened in 2008/9) which then affects your plans.

Maybe save up and do the BTL once you have your forever house?

Alphamare

This particular house is quite nice for us in terms of facilities. We could always sell or stay longer if buy to let wasn't there. It was tenanted before it was out up for sale so for this one at least we know that it's rentable.

bigadaj

Buy to let is a business, so you need to consider this if this is your intention. There's hassles and cost in dealing with tenants, also the potential for voids means you might be paying for two mortgages totalling over £300k for a time and need to budget for this.

You'd be better posting on the mortgages board, as there are many issues to consider and you need to think about the implications, if house prices fall or rise, interest rates rise dramatically etc

Thrugelmir

You need to flesh out your plan fully financially. Taking tax into account it not prove so attractive as you imagine.

Alphamare

Thrugelmir wrote: »

You need to flesh out your plan fully financially. Taking tax into account it not prove so attractive as you imagine.

Thank you this is why I have asked the question here as we don't know any of this. If I could perhaps be directed to somewhere that I could find the information I need that would be great.

It would be for retirement so perhaps not financially attractive while we are till working but very attractive as a pension plan otherwise it wouldn't be being done all over the country?

dunstonh

We are thinking of then renting out the first property as a retirement plan. It would be when it had 25% in it to do so.

You typically need 5-8 properties (depending on location) to be reliant on property. Repaying the mortgages, paying the capital gains tax on disposal and covering dead periods and refurb and repair being the main reasons. Are you prepared to go that far?

You also need to be prepared for the fact that property values over the last 40 years are unlikely to see the same sort of boom that we saw in the last 40 (40 years being the period of the credit boom and the start of easy money - the easing up of lending started in the 70s but went crazy in the 2000s). Easy money has gone. Supply and demand is still likely to have an influence on pricing though.

Alphamare

We had no delusions of easy money and no scope to have a giant portfolio.

What we do have is the ability to cover both mortgages if it came to needing too. Although would be easier when it's rented. We would only ever have both properties which would both be paid off by retirement.

We will be making other pension plans this is would be diversity I guess. We would have that income which if I work at today's prices would cover all our living expenses such as electricity water etc in our own home. Judging off our usage. Then pensions (we both will have 35 years NI contributions (self employed) and a private pension each (undecided on this just yet we are focusing on house first) and savings.

jamesd

The general plan to buy a place you can afford to cut out rent is a good one, as is the plan to let a place that you will have previously lived in, since that maximises tax relief. Longer term you'll need to diversify into non-property investments but for now what you're considering is fine.

However, there are some alternative options you should consider:

1. Why can't you buy the £170,000 house? A loan to value problem? It seems that affordability is fine so one way to more rapidly get to the desired deposit level is to get a 0% for purchases credit card each and put all possible normal spending on the cards. The money you aren't immediately spending can go into the savings account where you're building up your deposit, getting you to 10% of £170,000 faster. It's a straight trade of better LTV for worse affordability which can be a really good thing for those who have good affordability results.

2. Why buy a house at £125,000 an lock in for five years? Why not buy a flat for perhaps £80,000 and move after a year or two? Not as nice a the house but you get to your target faster with the help of the lower mortgage and running costs of the smaller property.