Advice on cash purchase rental investment in London (for beginners)

Maikeru

Last year we sold our two bed flat in London Zone 4 to my parents-in-law and bought a house in Zone 5. Sadly we were hit with the 2014 London price hike and weren't able to benefit from selling to the in-laws as much as we could have done had we bought the house the previous year (though not being in a chain helped).

With a baby on the way now we're looking to make an additional long-term investment by remortgaging the in-law's flat (which is in my wife's name) to release capital for a cash purchase of a rental property. We don't want to stake too much on it - we're thinking a 1 bed flat for less than £200K near a station that will be easy enough to let out (to ensure we don't get stuck paying the mortgage in between tenants) and hopefully rise a decent amount in value over the next decade or so.

At the moment I'm looking at places close to Crossrail stations that are still relatively cheap for 1 bed flats (Ilford, Woolwich Arsenal etc).

I would really appreciate any:

1) General advice on cash purchases for complete beginners like us. Are auctions the way to go or do we really need to know what we're doing?

2) Advice on buying properties with a short lease. Any pitfalls to watch out for even if the agents assure us that the lease can be extended for x amount?

3) Any thoughts on 'up-and-coming' areas in London - I know nobody has a crystal ball but after the crazy rises in a lot of inner London places in Zone 2 last year I at least want to try and make an informed decision (unlike during the recession when we bought a flat in Zone 4, which went up in value but not as much as many places in Zones 2/3).

Thanks in advance!

Cornucopia

Woolwich & Abbey Wood are probably a good starting point.

Have you already agreed with a lender to remortgage your other property with in-laws as sitting tenants? This may be an issue. You may find it easier to leave that property as it is, and get a BTL mortgage for the new one. This is also more tax-efficient.

I would avoid short-lease properties unless they are substantially under market price i.e. 30%+

Maikeru

Thanks for that. Sorry just to clarify; the other property was bought by my in-laws but they live overseas and it is currently let to private tenants. It's still in my wife's name.

fairy_lights

I'm confused...if you sold your flat to your in laws how are you now re-mortgaging it?
I don't see how you're a cash purchaser either if you're remortgaging to get the funds.

Maikeru

We are remortgaging my in-laws' flat (with their approval, and it's in my wife's name anyway) to release capital in order to purchase another flat. The other flat will be purchased with the cash released by the remortgaging of the in-laws' one (thus it will not be on a mortgage). We will then give the rent earned from the new flat to our in-laws.

eddddy

Hi Maikeru

I think you're confusing everyone! (You'll need to be a lot clearer when you start talking to mortgage brokers, etc.)

Is the situation as follows?:

Your wife owns an unmortgaged flat, which has paying tenants - so your wife is a landlord.

You seem to be saying that your parents-in-law bought the flat - I guess you mean they gifted the cash to your wife to buy it.

So you have to be very clear that the flat belongs to your wife, and that your in-laws have no interest whatsoever in it.

So your wife wants to apply for a BTL mortgage on the flat on that basis.

Is that roughly correct?

Maikeru

Hi Edddy,

That's it in a nutshell! Sorry I seem to have confused things by mentioning the in-laws.

The only 'interest' the in-laws have in it is that they get the rental income, even though it's in my wife's name (because they gave her the money to buy it).

Out,_Vile_Jelly

Please join a landlords association and read up on housing law; there are far too many bumbling amateurs making tenants' lives a misery across London. Choose your managing agent wisely - they will cheerfully rip both you and the tenant off.

MobileSaver

Maikeru wrote: »

The only 'interest' the in-laws have in it is that they get the rental income,

How will the BTL mortgage be paid if the rental income goes to the in-laws?

G_M

It's not your inlaws property - it's your wife's.

Any loan from inlaws to wife and mechanism for repaying that loan, is entirely seperate and irrelevant.


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Auctions can be a good source for a cheap property, but it's a gamble. You have to either be pretty clued up on various specialist matters, or fork out money on solicitors, surveyors etc in advance of the auction, only to be outbid and see that money thrown away.

Maikeru

Out, Vile Jelly - we don't intend to make the tenants' lives a misery. The current property in my wife's name is let out through an ARLA-registered agent who charges a whopping 15% for the full service. We may do a reduced package for the next one but only if at least one of us feels confident.

Mobile saver - There will only be a mortgage on the current property. The new one will be bought with the cash released by remortgaging the current property (hence there will not be a mortgage on it).