Is it worth buying a second property in my situation

dazcouz

Hello,

Five years ago I used my life savings £40,000 to get a (£94,000) mortgage on a two-bed flat worth £134,000, this has appreciated in value to £179,000 as of June 2016. I have around £60,000 in savings and was wondering whether it is a good idea to use some of this to get a mortgage on a similar property to rent out for around £750 a month for the foreseeable future. I feel like I have a pretty intense job and in the future want to be in a comfortable position where I can ease up a bit and reduce my hours. I feel I have been cautious with my finances until now and as have basically no pension, use the second property to sell years from now to live on. Has anyone done this before on this forum. Any advice will be greatly received.

Bluebirdman_of_Alcathays

Property yields are 5-10% - if you're lucky. Factor in higher rate SDLT, and all the various costs you'll incur and things could get more tricky. In your shoes I would invest the 60k into a pension, you get 20% tax relief up front - 40% if you're a higher rate tax payer. Make sure you do it in a few tranches to avoid the 30k annual limit. Then you can invest the funds - even a bog standard fund should get you a decent return.


Your plan feels like a gamble on property prices going up ad infinitum. The government are making second property ownership onerous, and will literally give you money to save.

booksurr

so in 5 years you have gone from spending 40k of "lifetime" savings on buying to house to being back to having 60k of savings but you have no pension?

seems your investment strategy is badly out of shape. Pension first, landlording after if your job is so good you can save that much in 5 years.

dazcouz

I'm 29 and rent out my second room at my property to a lodger. Bought the flat when I was 24, was originally living at mum's house. Have only recently (past 4 months) started saving for pension with work (£20 per month).

mildredalien

If you've managed to save £60,000 in 5 years you should be paying a lot more into a pension, it's very tax efficient for retirement savings. You already have investment in a property, it might be worth investigating other options for investing your money to diversify a bit and avoid the costs and headache that go with being a landlord.

Also remember that a current similar property now cost £180k so make sure you do the maths in terms of how much the mortgage would be, how much of your savings you would put into the deposit, how much you would need for buying costs, maintenance, empty periods, tax implications etc.

Hoploz

Everyone has a different strategy for future planning. My husband and I have no pensions. We have our own company so no automatic schemes for us (well there are these days but it's a bit late now!) Our pension pot is in properties.

It is increasingly difficult to BTL. You need large deposits and the extra stamp duty to start with. Last time I did a BTL remortgage they went through our finances with a fine tooth comb, not just the potential rental income but our personal circumstances in detail as well.

But if you can do it, it can still work, esp if you're in for the long term capital investment. The last place we bought brings in a better short term gain, ie higher monthly return, but is in an area where price growth is slow, though it is an up and coming area. Nearer to home there is little to no monthly profit, but capital gain is significantly higher.

You need to do your research and decide what's right for you. But don't be put off by people saying you should invest in a pension. I've seen so many 50-60somethings finding their pension has all gone wrong that personally I'd rather put bank notes under my mattress than believe what some jumped-up 20 year old suit thinks he's seen in his crystal ball!

zagubov

dazcouz wrote: »

I'm 29 and rent out my second room at my property to a lodger. Bought the flat when I was 24, was originally living at mum's house. Have only recently (past 4 months) started saving for pension with work (£20 per month).

Surely you're underusing your pension potential. By all means invest in more property once you've sorted yourself out. People who want to drive up the price of housing will advise you to join in and push prices up.

The rest of us here have no axe to grind and would suggest you use what is effectively free money to build up your future retirement fund.

Pixie5740

£20 a month into your work place pension? Is that a typo? That's buttons, even allowing for compounding it will be buttons when you retire. Does your employer match your contributions? If so up them...it's free money.