Second Property Investments

Samsonite1

Hello,

One of the hot topics currently is around extra costs in purchasing a second property. People seem to think it is the tip of the iceberg and more levies will be applied in coming years.

Does anyone think that aiming to buy a second property (and rent out) will become a bad idea for future finances? It would be great if they did not persecute a 2nd home as an investment, but only further homes...

My pension is probably liveable if I keep up the current input or increase over the next 30+ years, but to me, property makes more sense and is more tangible. Surely bricks and mortar will always hold a relatively high value (in addition to rental income)?

Any thoughts appreciated!

Thanks,
S

somethingcorporate

It's very illiquid, liable to moving goal posts and if you have a single property and get a bad tenant you could be without income for a long time and faced with huge repair bills to put a wrecked property right.

Also, being a landlord is often a time consuming and frustrating position that is not worth (to me) the small yields that houses produce.

As a small part of a large retirement strategy I think it's fine if you can deal with the hassle of being a LL but as a sole source of income it is risky (eggs in one basket!).

Samsonite1

Thanks for the reply. It is definitely not a source of income - just wanting to put money into something stable while I can. Rental would simply be a relief from paying the mortgage myself. A long term idea here. I do not think too much has changed, other than giving the government a bit more cash. I have been an LL in the past and it was not a big issue to be honest. They were demanding, but the house had no issues as it was maintained meticulously!

somethingcorporate

Then you were lucky. Have a look around the forums, there are a number of examples where even experienced LLs have had problem tenants that have costs them tens of thousands to get out and put right.

Whilst not much has changed recently the current Government in just 12 months has made two very sweeping changes to make B2L a lot less attractive and if you are really looking for stability this wouldn't be an area I would consider right now. I do think over the long term the leveraging can be a good thing it also does pose a deal of risk so if you are prepared for this and do keep it balanced then it could be a sensible idea.

MEM62

Second properties or buy to lets are not financial goldmine that many may think they are.

I am just in the process of letting my property. (For me this is not purely a financial decision. I live in West London and am moving in with my girlfriend who lives in Hampshire. I do not want to sell the property at this stage because, if I did, we would never be able to afford to return to the area in future.)

The going rate for my type of property in this area is around £1,100 per month. With agency fees, maintenance, insurances and other costs - including income tax at 40% - I am going to see around £500 per month net. This isn't a very good return (Just over 2%) on what is effectively a £280,000 investment.

As I also have a modest mortgage on the place the rent clears the mortgage and overhead costs and in that respect I am at break even point. However, once taxation is taken into consideration I am loosing around £270 per month. And this will get worse as the recent changes in taxation legislation come into effect next year.

For me this is OK because, as I said, this is more than a financial consideration. However, it does show that letting properties for individuals does not yield the financial rewards some may think.

You need to look very closely at the figures before embarking on this type of 'investment'.

AnotherJoe

Surely bricks and mortar will always hold a relatively high value
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Any time you think something is a certainty, life has a habit of smacking you in the face.
There have been occasions in in the relatively recent past where house prices have taken a massive hit, so no, bricks and mortar may not always hold a relatively high value, (or not compared to that when purchased anyway). No guarantees.

At least if you live in a house, even if the price drops, you still have somewhere to live. If its something you purchased as an "investment" then its a different ball game. Not to mention the real hassle and risks of being a landlord.

Having said that, I do actually think property is a good investment, but I've gone indirect through property funds (mostly commercial) and shares in builders. In both cases, as well as capital appreciation, there is also income through dividends, so thats a proxy for rental income if you like. But I dont have any tenant hassles, or risks of a really bad tenant wiping out months or years of income or any of the admin overhead, which can be considerable.

greenglide

Surely bricks and mortar will always hold a relatively high value

For properties in general, probably. Will the current lunacy in London property prices continue - it cannot go on for ever!

But just because general house prices go up in the long term does not guarantee that your single property will. If you plan to hold it for decades all sorts of things can happen which can eat away at your capital value. What happens if the area goes downhill so that you lose value compared to other areas just a few hundred yards away. Neighbours from hell move in next door, benefits street move in next to them, students move in / out etc?

Do you want to take this risk on a single property? You may well be lucky but what if you arent?

dunstonh

Does anyone think that aiming to buy a second property (and rent out) will become a bad idea for future finances? It would be great if they did not persecute a 2nd home as an investment, but only further homes...

You are exactly the reason why they want to "persecute" property as an investment. You are not looking at it as a second home. You are looking at it as an investment.

I do not think too much has changed, other than giving the government a bit more cash. I have been an LL in the past and it was not a big issue to be honest. They were demanding, but the house had no issues as it was maintained meticulously!

Prior to the credit crunch we had a credit boom of over 30 years. That has gone. Most of that period had high inflation. That has gone. The economy in most of that period was unstable with frequent boom/bust. That has changed. There are two things that are driving the property market today and that is foreign investors (sterling fell around 20% during the credit crunch making UK assets more attractive to foreign investors) and supply and demand. The big fear for the long term is when the London bubble bursts. Govt policy (taxation), the value of sterling and the cost of borrowing will likely be amongst the causes of that.
This does not mean property is wrong. It just needs a more experienced and knowledgeable landlord nowadays and not a blind monkey watching property !!!!!! on TV buying properties without any research or knowledge as you could get away with pre credit crunch.

Samsonite1

To be fair, I cannot easily live in two homes at the same time. To be honest though, I am more likely to get a property for my son to live in when he is old enough - potentially he may have more trouble than current first time buyers and will need all the help he can get. When retirement comes around, we will have two properties to look at - one could be sold. We are still paying into our pension while all this goes on, but I do not want to through all of my money into a pension because I can just imagine some radical change will happen in the next 30+ years and pensions will go to pot.

greenglide

If you sold the property the assumption is that you would invest the capital?

It is all down to whether that sum of money can be invested to give the same or better growth than that single over the long term.

There are no guarantees either way but you have to be careful not to assume that the London price lunacy can continue forever. It is not driven by true value and there must come a point where everybody is priced out and the bubble stops growing or bursts.

You need to make certain that you go in with your eyes wide open.

[Deleted User]

somethingcorporate wrote: »

It's very illiquid, liable to moving goal posts and if you have a single property and get a bad tenant you could be without income for a long time and faced with huge repair bills to put a wrecked property right.

Yeah that happened to a relative and it broke them financially for years...