Property/house buying investment options advice needed

genuineperson

Hi All,

We have three bedroom detached house (425k) in Woking area which was bought in 2007 for 320k (100k mortgage left and paying £550 in repayments fixed for next 5 years)
We are planning of moving to another place within Greater london possibly near Surrey in a couple of years.

We also find our current house cramped for three adults and two children with no room for expansion.

We have some money at the moment to invest 70k. Considering we will be moving soon, what is the best option of the below ones that I can consider,

• move to a bigger house for 700k after selling the current one now and sell it again in couple of years to buy another big one
• buy a flat to let (Buy to Let) and buy a bigger house after two years (Flat costs roughly around 250k)
• keep the current one and rent it out (1400pm average rent) and buy slightly bigger house of 550k now and sell one of these two to buy a bigger house after two years (Stamp duty for second home costs around 15k -20k extra)

Looking into stamp duty, selling costs and other expenses and considering the inflation and other aspects of the investment, what would the right option to choose?

Any expert advice much appreciated? Please advice.

Kind regards

Hoploz

The fewer transactions the better in my view - the 70k you have now could be eaten into by multiple stamp duty payments alone at these high price levels.

I assume there is a reason you are not moving for another couple of years. The sooner you make the move the less prices will have risen.

Buying a flat to let sounds a sensible idea. Then when you're ready to move you can either keep it on or sell to release the equity.

However you have to be prepared for the problems that go along with being a landlord. And buying a flat will mean leasehold and therefore you'll have extra costs such as service charges to come out of your pot. If you could stretch to a small house you'd have lower outgoings, and in my view they tend to increase in value more quickly than flats. Esp in Woking which is absolutely overwhelmed by new build flats these days.

AdrianC

genuineperson wrote: »

We have some money at the moment to invest 70k. Considering we will be moving soon, what is the best option of the below ones that I can consider,

• move to a bigger house for 700k after selling the current one now and sell it again in couple of years to buy another big one
• buy a flat to let (Buy to Let) and buy a bigger house after two years (Flat costs roughly around 250k)
• keep the current one and rent it out (1400pm average rent) and buy slightly bigger house of 550k now and sell one of these two to buy a bigger house after two years (Stamp duty for second home costs around 15k -20k extra)

I'd split it a bit differently.

Do you spend all your potential assets+borrowings on buying your home? Now? Later?
Do you spend some of it on your home, and some on a letting property?

If you're going for a letting property, is your existing property the right one?

Straight off, I'd say it's unlikely to be - you're looking at £1,400pcm rent on a £425k property = less than 4% yield before expenses and voids. Not great. You've got a year's rent going straight out in extra SDLT on the other property, so with everything taken into account, you'll probably not see a single penny of income in the first two years. That immediately halves your first four-years-worth of income, before you add in hassle-factor.

Thrugelmir

How much interest are you earning on your savings compared to what you owe on your mortgage.

Continue to save hard. You obviously have spare disposable income , maximise it while you can. The one sure thing about the future is that there is no certainty. Make your own luck.

genuineperson

Thank you soo much for your advice Hoploz AdrianC and Thruglemir

We both work full time at the moment could afford a mortgage upto 450k.

We are bit confused with our situation but would like to invest the money and as said earlier we have 3 options.
Ideally the house we live is very small and cramped with 3 adults + 2 children and would love to move to 4/5 bedroom house as the kids are growing. A decent bigger house with 4/5 bedrooms in the same area cost around 550k-700k.

But, we are planning to move out to Greater london area in 2 years time around August 2018

Plan A :
Invest in buying a 2 bedroom flat/house with buy to let mortgage costs minimum £250k in this area.
And buy to let mortgages are costly and need 25% deposit and stamp duty 10k with a higher rate interest payments. (Investing for long term purposes).


Plan B:
Keep your 3 bedroom home and rent it out . The rental income is around 1400pm in this area.
We are paying £550 as a repayment each month which is fixed for the next 5 years.
Buy a second 4 bedroom home for 550k. But these houses are also
small when compared to our current house.
But need to pay additional 15k- 20k for extra high rate stamp duty. Expensive mortgage and losing out it stampduy a huge amount. (We are thinking of investing for long term purposes)

Plan C :
Sell your 3 bedroom home and buy a 5 bedroom house for 600-700k.
Then after 2 years, rent this house, we also plan to rent for 1 year in greater london to understand the area and then buy the house there. (so by the time we buy it would be 3 years).

AnotherJoe

I would do none of these, i would stick it out for two years and then move. which means you can start looking in just 18 months time, or just after next Christmas. Not that far off.

Anything that involves moving or buying now and then again in 2 years time and most especially buying a second house/flat will involve huge costs which will wipe out a fair portion of your £70k.

If you absolutely must get a bigger house right now I would rent a bigger one for 2 years , let out your current house for 2 years (which will mostly pay the rent on the bigger house), then sell it and buy in your planned destination. Saves on all that stamp duty and selling & buying costs so that helps with the extra rent as well indeed it will probably be cheaper

As an aside, since a move was obviously on the cards, why did you take out a mortgage with a five year fix which obviously means a big ERC when you move?

Thrugelmir

What's your objective in terms of target price for the dream home. As not clear what gap you are attempting to bridge.

genuineperson

Thanks. We went for 5 years fixed last year as we had a idea of renting out this property at woking and buying a new home after moving into the greater london area.

genuineperson

Ideally dream home is nothing but looking for extra bedroom for kids, some bigger kitchen with utility and space for office room.
Planning to invest the money as the house prices are raising

Hoploz

Buy the investment property and rent it to the people who are causing your current home to be overcrowded? You could offer them a discounted rent

Thrugelmir

genuineperson wrote: »

Ideally dream home is nothing but looking for extra bedroom for kids, some bigger kitchen with utility and space for office room.
Planning to invest the money as the house prices are raising

What's plan B. As all your ideas seem to assume that property prices can only head in one direction.