Is this a good time to put money into real estate?

Gulash

Is this a good time to invest in property? Or there will be a huge crisis in 5-10 years and we will end up having a house worth half of what we paid 5 years ago?

HappyMJ

Gulash wrote: »

Is this a good time to invest in property? Or there will be a huge crisis in 5-10 years and we will end up having a house worth half of what we paid 5 years ago?

Invest...probably not....but that really depends on what you're paying for the property and what it would achieve on the rental market, your need to borrow, your tax situation and several other factors.

If you're going to live in the property then any time is a good time to buy as long as the mortgage payments that you have to meet are less than the rent charged on the property.

I don't think property prices will ever fall by half. They might go down a little more and stagnate for a while but they won't fall by a large percentage. That of course depends on where you buy and what happens in the local economy. If a large employer leaves town making thousands unemployed then that causes an exodus of the population and prices fall dramatically as no one wants to live there as there is no work. A diversified town/city won't have that problem as there is not just one single employer in most towns and cities.

Gulash

Regardless my tax, what would you suggest:
1) 1bed flat, studio, 2bed, 3bed? rent as rooms or whole property?
2) what would be the maximum price and what the minimum rent?
Can you give me some good theoretical combinations, based on the market of Greater London and maybe Essex.

I am also in the dilemma:
Should I buy a property with the cash I have (maybe a small mortgage too) and use the rent from that property to buy via mortgage another property to live in? Or should I just buy something to live in with my cash (and a small mortgage)?

Is there any graph of property prices along the decades? How much did the prices fell during the 2008-2010 crisis?

HappyMJ

Gulash wrote: »

Regardless my tax, what would you suggest:
1) 1bed flat, studio, 2bed, 3bed? rent as rooms or whole property?
2) what would be the maximum price and what the minimum rent?
Can you give me some good theoretical combinations, based on the market of Greater London and maybe Essex.

I am also in the dilemma:
Should I buy a property with the cash I have (maybe a small mortgage too) and use the rent from that property to buy via mortgage another property to live in? Or should I just buy something to live in with my cash (and a small mortgage)?

Is there any graph of property prices along the decades? How much did the prices fell during the 2008-2010 crisis?

I personally wouldn't bother with 1 bed or studio apartments. You have shorter lets and more voids.

2 bedroom properties will always be in demand and tenants stay for a couple of years.

3 bedroom properties get a lower return but are let for much longer on average maybe around 4 years or so. There'll be less voids.

I would always rent the whole property out. You could let rooms to get a higher return but is the effort worth it. In my opinion it's not and people who rent just a room really are doing it only for a very short period of time.

I would always buy using a mortgage even if you have the cash.

I would be looking for a minimum of 5% gross rent. i.e property price £240,000 then rent needs to be at least £1,000 per month. If the rent is lower you may as well just put your money in to regular savings accounts in the bank and earn 6%.

You're in this for the long term. 15 years minimum so forget about the drop between 2008-2010. It was around 20% in some markets. You can ride out price falls like this over the long term and over 15 years you should always make a capital gain.

Gulash

I was thinking 1bed flat, as most people are single and work in the city for 1-2 years, so I was thinking that 1bed flats are in most high demand. I think most families needing 2bed properties, will always get a mortgage and buy, instead of living on rent. Are you sure the best movement is to go for a 2bed?

Also, I didn't understand how I can earn 6% from regular savings. I know the savings calculator but I think you can't really achieve 6% by putting your money in several savings accounts, and the maximum amount you can put is 144k I think.

So, do you think I would buy to rent with my cash and then get a mortgage to buy to live? Or I should just buy a property to live with my cash?

HappyMJ

Gulash wrote: »

I was thinking 1bed flat, as most people are single and work in the city for 1-2 years, so I was thinking that 1bed flats are in most high demand. I think most families needing 2bed properties, will always get a mortgage and buy, instead of living on rent. Are you sure the best movement is to go for a 2bed?

Also, I didn't understand how I can earn 6% from regular savings. I know the savings calculator but I think you can't really achieve 6% by putting your money in several savings accounts, and the maximum amount you can put is 144k I think.

So, do you think I would buy to rent with my cash and then get a mortgage to buy to live? Or I should just buy a property to live with my cash?

I would want tenants to stay for much more than 1 year.

A 2 bed flat allows a single tenant to possibly form a relationship and have a baby without having to move. Whilst waiting for the perfect partner to come along they can have a lodger in the second bedroom or at the very least have guests stay over. They will stay longer. Contracts for discounted telephone, broadband, gas and electricity tend to be for 18 months. They won't want to leave and break the contract.

Not sure where you get "most people are single" from. Most people are living in a household in which 2 adults work so they can afford the rent. Single people on lower than average incomes may find it difficult to pay the rent on a 1 bedroom apartment by themselves so they'll rent something slightly larger and share the rent with someone else which makes it much cheaper than paying all of the rent on a studio flat.

Generali

Personally I wouldn't touch it. The Government has made it clear that it wants to wreck it as an investment.

chucknorris

Gulash wrote: »

Is this a good time to invest in property? Or there will be a huge crisis in 5-10 years and we will end up having a house worth half of what we paid 5 years ago?

When you say invest do you mean 'invest' or do you mean buy your own home, if you mean buy your own home, I'd say buy it.

But if you really do mean 'invest' then nobody knows when the market will crash, but it's usually nailed on that it will at some point, that's one of the reasons why property is a long term investment. Because if you invest with say a 15 to 25 year horizon, it really doesn't matter if there is a major correction (as long as there isn't one when you actually sell. Therefore an exit strategy is necessary, which means flexibility when you eventually sell is important. There is a poster on here that keeps telling me that I'll be doomed if I don't sell soon, but the truth is that if the market isn't good when I want to sell, I'll just wait until the market is good.

Last year I would have said if you are investing for the long term, property is a very good investment. Now I'd be more wary, there have been some important changes, which in isolation aren't critical but together they are a major drag (to new investors) on the profitability:
- Reduction of mortgage interest relief
- Loss of the wear and tear allowance
- Additional stamp duty

Changes to come (and also possibly introduced)
- Mortgage % restrictions (I'm not up yo date on this because I have no intention of further investment).
- One change that I can see eventually coming but it hasn't been implemented yet is annual electrical inspections (on a par with the gas safety).
- I think in my lifetime we'll see some sort of minor rent controls (that won't be bad, but could be the thin end of the wedge).

Some of the above can be mitigated by buying via a limited company (not much help if you already own). If you plan to eventually have a large portfolio it might also mean that you wouldn't have to pay the additional stamp duty too (they are still defining the detail on that, 15 properties has been mentioned).

EDIT: This bit is very important:
I can see from your subsequent posts that you did mean invest. One thing that I didn't mention (it doesn't apply to me) is that if you invest in just one property and it isn't part of a diversified portfolio, you are putting all your eggs in one basket. If you get a problem tenant you could end up in serious financial trouble. Investment property (excl my home) is now only 48% of my overall portfolio, as I have been really making an effort to diversify for the last decade.

chucknorris

Gulash wrote: »

Also, I didn't understand how I can earn 6% from regular savings. I know the savings calculator but I think you can't really achieve 6% by putting your money in several savings accounts, and the maximum amount you can put is 144k I think.

Savings accounts are not the natural alternative to investment property (if you are not old, and also looking to invest for the long term). Your alternative investment would be equities, and making full use of ISA and pension tax wrappers (although god only knows what is soon going to be announced about pension tax relief).

BananaRepublic

Property will always be a sound investment unless something serious happens such as mass deaths or a massive reversal of immigration. The UK is densely populated especially the SE. As said you need to make sure you cover all eventualities and have spare capital if a tenant is bad. I know of one case where a tenant caused £20,000 of damage, due to a bad letting agent not checking, the owner being in Norway working. He lacked the money to take legal action against the agent.

All investments worth having require long term thinking, property is geared unlike an ISA or pension, and a This Is Money analysis concluded that property still wins out big time. They were conservative regarding ISA and pension returns.

cells

Property investment over the last decade has been between terrible and fantastic depending on the location

Buying with a mortgage would have lost you nearly 70% of your investment if the property was in the north east. While buying in London with a mortgage would have seen a 400% increase.