Ideas please - sell or let second property?

guest2016_2

Hi All,

I appreciate there are probably a lot of threads on this topic, but I would be grateful if anyone has any suggestions on how to proceed in my current situation. I want to trade off between living somewhere I want to live and investing for the future.

We are/have::

• Recently married
• Late twenties
• No kids, yet...
• Flat 1: Worth ~175k, 92k remaining on mortgage. Let @ £700/m.
• Flat 2: Worth ~400k, 264k remaining on mortgage. I own 50% of this flat with with a friend. Myself and the other owner currently live here, but there's not really room for my wife! It's apparently worth about £1800/m if let.
• About 60k in savings
• About 10k unsecured debt (credit cards) @0% for the next few years
• A combined income from work of 67k gross
• We can save about 1500-2000 at the moment

We want:

• To remortgage Flat 1 back to 75 or 80% LTV liberating say £30k before doing anything else
• To live together (we currently don't) in our own place in London for maybe the next 5 years, preferably 2 bed
• Not to put all our eggs in one basket

Other things to note:

• I can't sell flat 1 at the moment, and don't really want to either
• I've simplified income figures below to rough net monthly amounts (rather than detailing whole budgets!)
• Let's assume that my co-owner of flat 2 agrees with what's happening in each scenario
• I pretty much have to work in London. I'd like to increase my pay by another 10-20k this year, but that's just a hope at the moment.

I've thought through 3 scenarios that I would appreciate comments on - both from an investment perspective and a general life-enjoyment perspective.

Keep flat 1, keep flat 2 (50% share of rental income), buy new place:
This option would leave us with ~3850 net income a month (including both current mortgages, but before any new mortgage). We'd be limited to buying a place worth about 300k by the available deposit, which would be reduced by the coming stamp duty changes. I'm not sure this would be enough to buy a nice place within cycling distance to London, and would leave the effort and risk of having two let flats to manage. I think we could continue to save 1500 per month, if everything went well.

Keep flat 1, buyout flat 2, don't buy another place:
This would mean we wouldn't have to buy a new place, but obviously requires the agreement of the other owner. We could afford the mortgage on the whole place and I think the new stamp duty changes would only apply to the new proportion of the place we were buying (ie. ~200k), so they wouldn't be too painful. We could also continue to save ~1500 a month, and we'd be quite happy living in this flat. But we could afford a nicer place, if...

Keep flat 1, sell flat 2, buy more expensive new place:
This option would give us the greatest mortgage flexibility and the nicest place to live, at the cost of reduced income. We'd have a deposit of about 130k, a net monthly income before a new mortgage of ~4000 and could maybe buy a place worth around 500k. This depends on what limits the maximum mortgage, 4x gross income (?). We could also avoid the new stamp duty changes because this purchase would be exempt as it would be replacing my current main home. I reckon we could still continue to save 500-1000 a month in this scenario.


I'd be grateful for suggestions here, when I was single I was happy to live anywhere and share flats to save and invest as much as possible for the future. Now I'm married I have a potential family to think about and want to live with my wife in the nicest place we can afford. What would you guys do? What would an older, wiser version of myself wish I'd done in 10 years time?

Thanks.

brit1234

Don't forget the new extra 3% stamp duty rise and also house prices can go down which is magnified if you own multiple properties.

AnotherJoe

Now I'm married I have a potential family to think about and want to live with my wife in the nicest place we can afford.

---

I think you've answered your own question ?

caronoel

brit1234 wrote: »

Don't forget the new extra 3% stamp duty rise and also house prices can go down which is magnified if you own multiple properties.

brit1234 has been predicting a house price fall for many years, and is dismissed on the Debate house prices board as a bit of a nutter.

Are you still waiting for he 50% fall by Christmas that you predicted in early 2009 brit?

Daniel54

guest2016 wrote: »

Now I'm married I have a potential family to think about and want to live with my wife in the nicest place we can afford. What would you guys do? What would an older, wiser version of myself wish I'd done in 10 years time?.

Why have you missed out option 4 which is to sell flat 1,sell flat 2 and buy yourselves the nicest place you can afford,which might also be somewhere big enough to raise your first child in .

ellie27

guest2016 wrote: »

....want to live with my wife in the nicest place we can afford.

Thanks.

I would think you could afford the best possible place for you and your family by selling both flats.

economic

where are flats 1 and 2? do they offer good rental and capital growth? if not and they only track the general market then maybe worth selling and just buying a home for yourself. lot of BTL tax changes which means you really need to understand more so then ever why you would want to kee flat 1 and/or flat 2.

guest2016_2

Thank you all for the comments. Flat 1 is in the south east and flat 2 is in London. Flat one offers reasonable rental return but I'm hoping for good capital growth on it over the next few years, and isn't in a position to sell at the moment (either from a practical perspective, or an investment perspective). I know I haven't gone in to detail and I appreciate that can be annoying, but I didn't want to add unnecessary complication to the post.

Brit1234/economic - I entirely agree prices can rise and fall. I'm acutely aware of this because the vast majority of my money is in property. One of the reasons I want to keep flat one instead of putting everything in to one property is an attempt at slight diversification. Regarding the extra stamp duty - am I correct in thinking I can avoid this entirely in scenario 3 and almost avoid it in scenario 2?

frugalsmurf

With flat two...what does the other owner think? Are they willing to sell or buy you out or sell completely?

guest2016_2

I'm not entirely sure, I haven't spoken to them about it yet in any detail, but I think they would be open to either option. I know that the stamp duty changes will mean they won't want to keep hold of flat 2 if they buy a new place. Buying me out would be straight forward and so would selling to me, although if they did want to sell their share I could either buy or sell also.

economic

where exactly in SE and london? prices vary a lot even within london even within zones!