Sell and upsize or buy second property and rent current

Bazs

Hi,

Looking for some advise on advantages/disadvantages to both options.

Purchased 2 years ago for 150k the current property is located in the Shires and property historically has done very well here. 2 bed semi on private estate built in the early 60's. Is mine and my partner's first property and we will be looking at moving in around 12 - 18 months. Have done a lot of modernizing to the property as was in bad cosmetic condition and based on recent sales of similar property on estate I should be able to achieve around 240k or 850pcm depending on what option I went for. Current equity in the property is around 140k

Option 1.

If we were to go for the let option we would probaly go for 3 bed semi on the same estate (approx 280k) and then let the exisiting at approx (850pcm). The deposit for the new property would come from savings approx 40k.

Option 2.

Sell up at current value and look to buy 3 - 4 bed detached in similar / slightly better area for around 400k. The savings I have could be used for more deposit if the mortgage required it.

This "next step" question is somthing I have been thinking about since we moved in. For my partner and me neither option offers any obvious huge benefit to lifestyle as a 3 bed is more than adequate but its more a question of what will be better financially over say the next 20 - 30 years (obviously I realise no one can predict what will happen with the housing market)

I would love to get peoples perspective on both options as im sure many will have far more experience to draw from than I.
Any advise provided is greatfully recieved.

Kind regards,

B

Kit1

I too would be interested in this. We are thinking of downsizing so we can do some travelling but have also been thinking of get a BTL property so that we have some extra income.

The thing that has always put us of if looking after and getting the right tenants as we have never done this before. I wouldn't want to have to keep repairing property due to damage by the tenants which is my main worry.

Hope you get some good advice

dimbo61

Well done on adding £90,000 in value in 2 years!
The housing market must be really good in your area.
Now you pay TAX on any profit from renting and you need Consent To let from existing lender.
You maybe better off remortgaging on to a BTL to release some of the equity to put down a bigger deposit to your New Home.
Can you afford 2 mortgages ? both the BTL and the new Residential mortgage.
Are you going to live near your existing property? So you can manage the rental property? Or use a Letting agent? ( More costs)
You need to speak to a whole of market mortgage broker and find out how much your HOME would rent for

Annisele

Well, £850 pcm on a £240k* property is a yield of about 4.25%. (That's assuming no costs and no voids - realistically it'll be lower than that). From an income perspective, that's no really worth it. So, letting the first property is probably only worthwhile if you expect property prices to rise.

Personally I'd go for option 3 - sell the current house, buy the £280k 3 bed semi on the same estate, use most of the savings towards the purchase, get a smallish mortgage (£100k or so) and overpay as much as possible. But then I'd prioritise being mortgage free over increasing indebtedness to the bank.

My option 3 is much lower risk than either of your plans. The flip side is that if prices go up, your options 1 and 2 will be better for you than my option 3.

(*Edit - typo. Thanks attila_).

Daniel54

Annisele wrote: »

So, letting the first property is probably only worthwhile if you expect property prices to rise.

Even then, increases in value on the let property will be subject to CGT,which is not the case on the primary residence.

Personally I go for a nicer place to live and keep all of any capital gain in a tax free environment

Bazs

dimbo61 wrote: »

Well done on adding £90,000 in value in 2 years!
The housing market must be really good in your area.
Now you pay TAX on any profit from renting and you need Consent To let from existing lender.
You maybe better off remortgaging on to a BTL to release some of the equity to put down a bigger deposit to your New Home.
Can you afford 2 mortgages ? both the BTL and the new Residential mortgage.
Are you going to live near your existing property? So you can manage the rental property? Or use a Letting agent? ( More costs)
You need to speak to a whole of market mortgage broker and find out how much your HOME would rent for

Thanks, the market is good but the house was undervalued in my opinion and in need of repair. I have turned my hand to a lot of the work and successfully carried out improvements that I never thought I would be able to do. I think its down to a bit of luck, good timing and graft.

Thanks for the questions you raised, to be honest I know very little about the rental market having never let a property myself or even rented one. You raise some valid points in regards to the extra work involved in a rental property.

Bazs

Annisele wrote: »

Well, £850 pcm on a £280k property is a yield of about 4.25%. (That's assuming no costs and no voids - realistically it'll be lower than that). From an income perspective, that's no really worth it. So, letting the first property is probably only worthwhile if you expect property prices to rise.

Personally I'd go for option 3 - sell the current house, buy the £280k 3 bed semi on the same estate, use most of the savings towards the purchase, get a smallish mortgage (£100k or so) and overpay as much as possible. But then I'd prioritise being mortgage free over increasing indebtedness to the bank.

My option 3 is much lower risk than either of your plans. The flip side is that if prices go up, your options 1 and 2 will be better for you than my option 3.

Thanks Annisele,

Option 3 is valid but given that I have probably over 40 years of my working life left I would like to be a little more abitious at this stage in my life. I totally understand what your getting at though.

Bazs

Daniel54 wrote: »

Even then, increases in value on the let property will be subject to CGT,which is not the case on the primary residence.

Personally I go for a nicer place to live and keep all of any capital gain in a tax free environment

Thanks Daniel,

I must admit im warming to this option. Especially as I have no interest in carrying on this trend of buying more and letting them out as an income. My partner and me also need to consider things like schools in the area etc, as children wont be to far around the corner hopefully.

Do you know if you pay CGT on the value of the property price at purchase or at the point you start to let ?

getmore4less

Kids go for a 4 bed not a 3 bed,

you want more space, garden and parking

where is granny going to sleep once you have 2 kids with a room each

move once not twice.

attila_

I'm toying with this idea. Somehow it feels like your money is worker harder if you spread it over two properties and get someone to help you lay for the mortgage!

Same as you we have a look employment road ahead so being mortgage free isn't as exciting as potentially getting two houses mortgage free in the future.

Consent to to let should be fine provided you've been in your existing agreement more than 1 year. Tax is only payable on profit, so once you've paid mortgage, fees etc. there is very little profit.

attila_

Annisele wrote: »

Well, £850 pcm on a £280k property is a yield of about 4.25%. (That's assuming no costs and no voids - realistically it'll be lower than that). From an income perspective, that's no really worth it.

3.

I make that 3.6% or have I missed something?