First investment for a 27yo, London or Manchester

Mark1987

Hi everybody, I'm a beginner in the estate market so I'd glad to receive some advices for my first investment. Thanks in advance for your help.

I'm a 27yo single guy, currently living in London, where I work with a £17k/year salary. The average for my job will be 30-35k in a few years and can reach 50k in some cases, but for the moment it's only £17k.

Since I'm tired to pay the rent, I was thinking about investing my savings, about 140k, in a property. Something to rent while I'm paying the mortgage and maybe to sell after, to buy something bigger and in a better place. Since my contract is not permanent, I don't know yet if I will settle down in London or anywhere else in the UK, so I'm not looking for a definitive flat.

With my little experience, I was thinking about:
1- Buy a flat/studio flat in Manchester with cash and rent it to pay my rent in London and sell it as soon as I find a permanent job somewhere.

2- Buy a 2-bedroom flat in London, with mortgage, using my £140k as deposit and try to pay the flat as quick as possible, renting one of the two bedrooms.

What do you think? Do you have any other idea?

(I said Manchester because I know the city very well since I lived there a few months, but if you know somewhere else to invest I would really appreciate your advices)

Thank you!
Mark

Cisco001

Too much hasstle to be a landlord if you are not live in same city.

Buy a place to live in and rent out a room is much easier. But what can you get for £200k in london?

Mark1987

Even if an estate agency manages my flat for me at distance? Of course I should pay them, but they will care about everything, I guess...

With a £140k deposit I was thinking about buying something for £220k in London. Isn't it enough for something decent to live in and to rent?

cinnamon442

You're going to have problems getting a mortgage because you don't have a permanent job. You either need two years worth of accounts to show that you have a steady income or someone to go on the mortgage with you who has a permanent job, or you probably won't be accepted by any bank.

A 17K income is also not enough to get you a 220K flat as even with 4.5 x your income and a 140K deposit, you're only at 216.5K max.

And thirdly, 220K in London for a two bedroom flat is wildly optimistic. Prices are rocketing and unless you look out in the suburbs with a 30 minute commute into Central as a minimum, it's unlikely you'll find anything that's cheap enough to afford anyway. :-(

princeofpounds

Buying flat elsewhere is likely to be tax- and operationally- inefficient (tax on income, capital gains, agency costs etc.) compared to providing your own housing. Plus it is harder these days to get a BTL mortgage without having your own residence first.

Buying in London on your wage, even with a 140k deposit, may not be that realistic. Depends what you want. It's a shame your time horizon in London isn't more settled, as it's hard to recommend buying for less that couple of years as the transactional costs are big. At least it wouldn't be hard to rent out if you do have to leave.

Having a lodger is quite a good option for young single people, as the income up to a certain level is tax free, and it's a flexible arrangement with much less cost and bureaucracy involved than renting a property out.

All these things are probably more important than which city to buy in on a purely financial basis. I would say Manchester, but that's because I think London is overpriced given interest rates that have never been high in history and an unprecedented demand from foreign investors for so-called safe-haven assets, which will probably turn out to be nothing of the sort in the long run.

But for practical purposes if you think there is a decent chance to be staying in London for a while, I think buying a home to live in is much more efficient for your personal finances.

Pixie5740

Mark1987 wrote: »

Even if an estate agency manages my flat for me at distance? Of course I should pay them, but they will care about everything, I guess...

With a £140k deposit I was thinking about buying something for £220k in London. Isn't it enough for something decent to live in and to rent?

A letting agent will charge about 10% of the rental income and you will also have to account for void periods. You will also have to manage the letting agent as you will still be legally responsible for things such as repairs, gas safety certificates, protecting the deposit. You really need to do your sums to see what kind of profit you'd make, remembering that you need to pay income tax on the profit.

Do you think that your budget would stretch to a £220k on a £17k income on a temporary contract?

Mark1987

I saw a few nice flats for less than £200k in London, but I don't think they are very well linked, maybe far from the stations and tube.

Even with a deposit of £140k my salary won't be enough? I mean without a permanent contract.

Cisco001

Don't really trust estate agent, also Manchester is a bit too far from London if you need to visit to solve something out.
Also don't forget you need to pay tax on it.

Mortgage usually allow 3.5 x salary? plus you need to allow stamp duty + solicitor fee + moving fee + furnture, etc

Mark1987

mmm I thought it was much easier. My salary could reach 20-25k soon, buy it may be in 2 weeks or two years. I can't know it now unfortunately.
I have the possibility to earn extra money, about 50-60k, selling another property. But it is nothing so quick, so I can add these money in a second moment.

[Deleted User]

£220k will get you an 'ok-but not great' flat in east London. Look at rightmove and see the large skew towards the east. I'd be hedging for as north and central as possible myself.

princeofpounds

Even with a deposit of £140k my salary won't be enough? I mean without a permanent contract.

Ask a good mortgage broker to be sure. You might be able to find something given the very high deposit, but the lack of permanent employment will be a big issue for getting the part of the loan that relies on your earnings.