Buy-to-let options, which would you choose?

uk_american

I’ve been considering buy-to-lets for a while and have been following the threads here and have read two of the buy-to-let books recommended in G_M’s comprehensive new landlord post. My long term goal is to own a b&b, once I have another 10 years of pension contributions. My head is spinning a bit with options so would appreciate any insight from those of you who do this on a regular basis.

Age 40, I currently live in/own a mortgage-free 1 bed flat. I’ve been squirreling away the cash I would have put towards a mortgage and am now up to 160k. The near-term plan is to move into the boyfriend’s house where I spend most of my time anyway. My job is stable and I have been with the same company for 12 years; I save 3k/month.

Similar flats in the building have sold for for 165-167k in the past 12 months, or they rent at 700-750 month. Maintenance fees and water costs 1200/yr. I am in Essex in a commuter town for London, there are many young professionals and families here. As well there is a university here with good masters programs so young as well as mature students.


Here are options I’m considering:


1. Rent out my flat and buy another 1 bed flat. Use the 160 savings to buy another flat for cash. Decent 1 beds here run from 140-170, new builds up to 210. Decent 2 beds run from 155 – 185, new builds 310 (eek!). I realise flats are often not as profitable, but demand is steady here due to the uni and train line.

2. Buy a 2-3 bed house, they rent out here at 950-1k/month. Combine 160 savings with a buy-to-let mortgage of 90, going with someone that allows overpayments. Houses in the area of good schools in good condition go for 250k. Having run the numbers conservatively, I think I can clear a 20 year mortgage in 10 years based on rental income plus my current salary overpaying it.

3. Buy a 2-3 bed house but wait until I can afford the 250k to be a cash buyer. Based on current salary/savings rate, that will be July 2017.

4. Buy a 2-3 bed house. Sell my 1 bed flat, assume 160, then combine with 160 savings and buy outright for cash with some funds left over.

5. There appears to be a market for 'serviced flats' here. I have previously done airbnb and was approached by a number of companies seeking short term (2-3 month) rentals, for both private companies and council employees on secondment. There is a company locally who has 4 flats (2 1 beds and 2 2 beds) and stellar reviews on tripadvisor. They charge 620/week (!) single occupancy or 850/wk double occupancy (includes continental breakfast). They have the newer build flats so this may make the newer builds an option.

6. Anything else?

My current thought is to turn mine into a rental, gain some experience as a landlord and then go with option 3.

I’d appreciate any and all thoughts. Having grown up poor and never held a mortgage, I am a bit risk adverse in this area of borrowing so probably would lean away from holding multiple buy-to-let mortgages. Although from my numbers I recognize it probably makes more sense to do so. Feel free to be direct and honest if I am missing anything here.

Thrugelmir

Do you have any pension provision?

If you are saving £3k a month. Pension route maybe far more tax advantageous.

G_M

and by buying for cash you miss out on the tax advantages of a BTL mortgage. You need to do the maths:
* what would a mortgage cost you?
* what tax savings would you make?
* what would you earn with the cash you save by getting a mortgage?

AdrianC

uk_american wrote: »

Similar flats in the building have sold for for 165-167k in the past 12 months, or they rent at 700-750 month. Maintenance fees and water costs 1200/yr.

4.3% yield... before voids, decorating, internal maintenance, etc etc. Hardly a scintillating return, is it?

2. Buy a 2-3 bed house, they rent out here at 950-1k/month. Combine 160 savings with a buy-to-let mortgage of 90

4.5%, as above, but don't forget the external/grounds maintenance.

You clearly work full-time, so do you have the time to manage the property? What happens when your tenant rings you, screaming that the boiler's exploded into a shower of water and sparks, just as you're ears-deep in a meeting or whatever? If you can't cope with that, you'll need an agent, so 10% off those yields.

OK, there's the potential for capital growth as prices rise, but set that against purchase costs - including SDLT - and knock off CGT.