Renting vs Buying Outright

SteveRadner

I'm new to the forum but thought this was a great place to start my investigation as I found nothing online that helps with my particular situation.

I am trying to get an understanding of whether I should invest some money I have inherited in buying a small flat in London - or keep it invested (where it is) and use the interest to pay more than half of my rent.

I could buy something small outright and just have the bills to pay and watch my investment value (hopefully rise), although I wouldn't be able to do anything else with that investment as I'd be living in it.

Or I can keep the money invested elsewhere, which gives me enough interest each year to reduce my London rent costs to around 300-400 per month. The investment is solid and has been making decent interest for a few years so will hopefully remain that way so I don't ever dig into the capital.

I am a sole trader with an average income but I know it'll be a few more years of steady income before a mortgage lender would go anywhere near me, if at all! So mortgages aren't really an option I don't think...

Renting or buying, I'd be in the same kind of area, in similar sized properties.

It seems as though buying outright is the best option but I'm starting my investigation into whether that is true.

Any thoughts on this?

[Deleted User]

Could you buy a 2 bed flat and rent a room out? I have a friend who did that and once he had enough for a house deposit saved from his tenants rent, he bought a bigger place, kept the old one, rented it out completely and then rented 2 rooms out in his new place...

JimmyTheWig

The first question is what are your medium-term plans? E.g.
Are you happy to stay in the same area of London for the next 5+ years?
What is your relationship status? Are you likely to need somewhere bigger to live in the next 5+ years due to a growing family?
[I know there are always unknown in life, but you can make a better guess at these answers that we can.]

My point is that it is generally only worth buying somewhere if you are in a position to stay there for 5+ years.


From a financial point of view it sounds like using the money to buy somewhere would make sense.

needabed

Property prices have roughly doubled in 10 years, will your investment do the same?

If your investment grows 15% a year, but properties grow 10% a year then you can wait.

SteveRadner

ringo_24601 wrote: »

Could you buy a 2 bed flat and rent a room out? I have a friend who did that and once he had enough for a house deposit saved from his tenants rent, he bought a bigger place, kept the old one, rented it out completely and then rented 2 rooms out in his new place...

That's a great idea but I doubt the money I have would go far enough in London to buy more than a 1 bed. Maybe a small two bed that needs a lot of work. I'll investigate that option - thanks!

needabed

SteveRadner wrote: »

That's a great idea but I doubt the money I have would go far enough in London to buy more than a 1 bed. Maybe a small two bed that needs a lot of work. I'll investigate that option - thanks!

Depending on layout you maybe able to rent the living room too... Also call a broker, you maybe able to get a small mortgage if you have such a large deposit.

SteveRadner

JimmyTheWig wrote: »

The first question is what are your medium-term plans? E.g. Are you happy to stay in the same area of London for the next 5+ years?

What is your relationship status? Are you likely to need somewhere bigger to live in the next 5+ years due to a growing family?
[I know there are always unknown in life, but you can make a better guess at these answers that we can.]

My point is that it is generally only worth buying somewhere if you are in a position to stay there for 5+ years.

From a financial point of view it sounds like using the money to buy somewhere would make sense.

I think yes, most likely to stay in the same place for next 5 years. If not, it would be because I was leaving the country for work and then I might just rent the place out anyway.

I'm not likely to have a growing family in next 5 years either.

Why not worth buying unless I am staying for 5+ years though? The property would go up in value and if I moved in 2 years, I'd still have saved money on rent.

Thanks.

princeofpounds

Property prices have roughly doubled in 10 years, will your investment do the same?

Will property prices?

What happened in the last 10 years is no guarantee of what will happen in the next.

OP - typically (and I can't guarantee this as it depends on individual circumstances) buying your own home is a good option instead of putting it into other investments of similar risk.

This is because there is no capital gains tax, and the investment returns are received after tax (i.e. you spend less of your taxed income in rent). It is also low risk (no risk of defaults on the return, for example.).

SteveRadner

needabed wrote: »

Property prices have roughly doubled in 10 years, will your investment do the same?

If your investment grows 15% a year, but properties grow 10% a year then you can wait.

That's what I'm trying to figure out. My instinct tells me property is a better idea. I can't ask the people who currently look after the money as they'll, of course, want me to keep it where it is.

SteveRadner

needabed wrote: »

Depending on layout you maybe able to rent the living room too... Also call a broker, you maybe able to get a small mortgage if you have such a large deposit.

Good point. But also remember how small London flats are, I've looked at a few in my price range where living room and kitchen are the same thing.

Worth thinking about though. I'll keep my eyes out for properties that would work that way.

Any advice on brokers? I've never done anything like that before and wouldn't know where to start...

needabed

SteveRadner wrote: »

Why not worth buying unless I am staying for 5+ years though? The property would go up in value and if I moved in 2 years, I'd still have saved money on rent.

Don't forget the costs that you won't get back - surveys, solicitors, stamp duty, van hire for your stuff, estate agent fees for selling etc.