Which option is best long-term?

HappyGo

Hi everyone. We've got a question for you. We currently live in a very affluent part of our city, and our four bed period terraced house is going up in value at a fast rate.

We bought it for £400K two years ago, and it's recently been valued at between £450-470K by three estate agents. In June, we will remortgage and be able to get a much better rate – bringing our monthly costs down.

It's a great house. Beautiful room sizes, period features and located in a quiet leafy street close to independent shops, bars and restaurants with fantastic transport links into the main city centre just four miles away.

Background on us – we both work for ourselves and from home. We're both in our late thirties with no children (love kids, it's just not for us). We do benefit from being near the city, but only go there once or twice a week. We've got a great network of friends, and life is very convenient.

It's not all perfect. There's crime here, which makes us very anxious. We've had a few issues with the house, but nothing major. And there's sometimes a lot of noise via neighbours and nearby student parties. We both love to cycle and it's not easy getting out to the countryside from our doorstep – we'd love to live somewhere we could do that, and also have a garage – oh to have a garage – for our bikes!!

What's more, we often feel like we're on a treadmill and crave the ability to downsize our lives to enjoy more time and freedom, and safer cycling while being closer to family – something that feels more real and valuable than being near the latest restaurant to open on our doorstep.

We both grew up in a small town about 40 miles south of here. It's where all our family is based, so it'll always be 'home'. There's very little going on there. And it's a 45 to 60 minute drive to the city, so not a million miles away, but it would be a pain if we had to do it every day.

We're certainly craving a quieter and slower pace of life.

Besides, we don't really take advantage of the location we're currently in, and just want a detached, cheaper house with a way smaller mortgage. But I'm petrified of missing out on our investment, and our lifestyle. And worried that it'll be bad for us long-term.

We're pondering a couple of options:

1) Keep current house and convert to buy-to-let, renting somewhere cheap in our home town and saving for another deposit so we can buy something cheap there in future.

2) Sell current house to free up £100K and whack all of that on a £230K detached house in our home town

3) Sell current house to free up £100K and buy a £230K detached house in our home town, and then save some deposit behind to buy a small apartment in the city for £150K which we could use as a crash pad, but also have as a buy-to-let in future / long-term investment.

I guess what I'm trying to figure out is – would we be better off staying in the house that's going up in value and putting up with the big mortgage? Or downsize our lives now to be happier and have a better chance of being mortgage-free by the time we're 50!!

Are we better putting all that cash into savings instead? And getting mortgage-free as soon as possible? Or going for it whilst we're still reasonably young and earning decent money?

Any advice, similar scenarios and micky-takes would be appreciated. I hope I don't sound too much like a spoilt brat and mindless idiot. I can't tell you how hard we worked to get our current house, and I know we're very lucky to have this dilemma.

KRB2725

With no children to consider, I would do what makes you happy now. Investment would come a very poor second to living the life that I believe would make me happy.

I can't tell you if I would choose option 2 or 3, but I would start with buying the house I want in the location I wanted and then revisit the desire for a crash pad once I had lived in the house for a while.

For different reasons, we ended up with a crash pad whilst we lived elsewhere (moved to a new area, kept flat incase we didn't like it). It actually became a pain having it. We settled into our new location very well and ended up visiting the flat just to check up on it rather than any particular desire to be there.

AlexMac

I endorse the advice above from emmat..., with the added comment that Option 1 - let it is only viable if
- it returns upwards of £2k per month rent to get a modest return on capital, and
- you can view it not as an emotionally invested former home, but a business asset which might get trashed and will possibly need a lot of maintenence (assuming yu're also up to being LLs)

Put another way, BTL's most viable if the place suits the local market; I have 2 small but well-located ex-council 2-bedroom BTLs which return a really good % on value; but I wouldn't start with a family house and coundn't handle the hassle of a student let or HMO, even for a better return.

Having said that, I wouldn't pay off the mortgage either. Although I've always thought of my house as my home, not an investment, capital appreciation has worked really well for me in the long term, although my 40 years of ownership included the crazy inflation of the 90's and noughties...

And savings are currently a waste of time due to low interest rates. So I'd carry on mortgaged up to the hilt as long as your income's secure; think of it as enforced savings for the future, even if in an area where prices are less likely to inflate fast.

And I would tend to avoid confusing a crash pad or a "pied a terre" with a BTL. We've owned a couple of second properties for our own use, but only the really cheap one works as holiday home; in one case we realised we couldn't afford to have £150k of asset sitting empty at the coast for most of the year, so let it out for a couple of years before realising its value and investing in one of the London suburban flats which commanded 40% more rent for the same asset cost. In other words, do get into BTL for short term return and long-term capital gain, but choose the right place.

What do others think?

getmore4less

What made the purchase right at the time?

have things really changed.

if not sure then get a good mortgage deal and review over the next 2 years.

another thing to consider is will the next place be the last place, moving costs a lot of money, do you want to do it once or more than once.

HappyGo

Thanks Emma for the reply. I agree with you on doing what makes us happy. My head is pulling me in other directions still. Your wisdom on what to do has really helped. I guess we'd do exactly the same if we got an apartment in the city. It would just sit there. If we did it, we'd be better off doing it purely as a BTL investment.

Now I'm wondering if we just pump all our money into getting a decent house in a location we like. Food for thought. Thank you

HappyGo

This is all such valuable advice Alex. Thanks so much. You're right on all those points. If we were to buy a flat in the city, we could get a decent return on investment, and once it's paid off years from now – it's an additional income for our retirement!

Now the big question is whether we can downsize to a smaller property and make sacrifices on the property itself. Will we be able to downscale from the beautiful home we have now to what would essentially be a box? Or should we stick to a similar budget to what we pay now and get something decent? My only concern is – the area we're in now, prices are going up fast and properties sell on the same day they're released following a bidding war. The areas we're considering moving to do hold their prices, but they're cheaper areas – although still desirable. They'd definitely not have the same price increases, and they'd take longer to sell.

Do we just stay put and put up with the downsides of where we live?

HappyGo

getmore4less wrote: »

What made the purchase right at the time?

have things really changed.

Thanks so much! Why did we buy the house? Because it's beautiful, great investment and in a superb location. We thought it was what we wanted, although the level of noise and crime were unexpected – and we did have a few issues with rats.

I guess the lure of a detached, modern property in a quiet, relatively crime-free area (where our cars aren't rummaged through at night or front doors bashed down by thugs to steal car keys and cars) and be closer to family.

I think we're stressed out by the city. We moved here after living in the city centre and thought it would be an escape from the hustle and bustle, and the noise. I'm not so sure the leafy city suburbs is enough of an escape for us.

Plus I've got into cycling big time this year, and I love the idea of being much closer to the quiet country lanes for safer cycling, and the chance to go out more often!! Husband is cycle mad so that also appeals to him greatly.

We're both just worried we're following our hearts too hastily and not our heads. Although we've managed to grow our assets immensely since being in the city since 2011 so it hasn't been a waste of time.

AnotherJoe

HappyGo wrote: »

1) Keep current house and convert to buy-to-let, renting somewhere cheap in our home town and saving for another deposit so we can buy something cheap there in future.

Don't underestimate the hassle, risks and cost of being a landlord and the hassle and uncertainty of being a tenant.

2) Sell current house to free up £100K and whack all of that on a £230K detached house in our home town
Sounds good. Or you could buy a more expensive house than that with a mortgage if you found your perfect long term house.

3) Sell current house to free up £100K and buy a £230K detached house in our home town, and then save some deposit behind to buy a small apartment in the city for £150K which we could use as a crash pad, but also have as a buy-to-let in future / long-term investment.
You could stay in some very swanky hotels instead far cheaper than all the running costs of a mostly empty apartment.

Also re (3) Why property as an investment? There are many other choices for long term investments, most of which are far less trouble.

Slinky

Agree with AJ on this one, the swanky hotel option would be the one I'd go for. We started saving for a holiday home, then decided that to be tied to holidays in one place wasn't for us. We've found some places we really like and visit them regularly so although they're not ours, we know what to expect when we get there, plus we've still got the options of finding other new places to enjoy. And we don't have to worry about maintenance or cleaning etc.

moneyistooshorttomention

I've done a lot of thinking around how to do the "best of both worlds" since moving here and then tie that in with the (low) income I have.

Eventually - I've come to the conclusion that I keep the house I have here (in not my "home territory") and have as frequent and prolonged visits as I can manage back to "home territory". That seems to be about the best way to deal with that particular thing.

That way = I get what I'm used to/took for granted for a reasonable period (ie faster pace of life/more facilities/not feeling like a stranger in my own country & some people telling me it isn't my own country trans. = what? oh just keep my mouth shut) on the one hand and "What I Have Here" (ie lower pollution/fewer people/safer/more attractive in many respects) on the other hand.

Personally I came to the conclusion that's what you do if your heart and head (or finances) are at war with each other.

Other people may draw different conclusions.

I think you sound like you have the reverse of what I was told years back. Someone (from here) said they were moving back to here - because they wanted to "Be with My Tribe". I didn't know what they meant at the time. But - that is a factor one comes to understand when moving to a different part of the country. With that - you either go back to where Your Tribe is or you work out a way to try and do "Best of Both Worlds" or you move back. Your choice as to which it is - and taking into account your finances.

AlexMac

HappyGo wrote: »

This is all such valuable advice Alex. ... If we were to buy a flat in the city, we could get a decent return on investment, and it's an additional income for our retirement!

Now the big question is whether we can downsize... the area we're in now, prices are going up fast and properties sell on the same day they're released ... The areas we're considering moving to do ...not have the same price increases, and they'd take longer to sell.

Do we just stay put and put up with the downsides of where we live?

I think you've just answered your question...
Staying put, if only for a year or so wouldn't be prevarication... but a sound money-making tactic!

And it would give you breathing space to think further about the options. After all, the property you have now (if I read you right) is appreciating like one I owned in London from 1997-2000, when it made more money p.a. than I did by working for a living!

And it would let all that other stuff happen... loving, living, holidaying, snuggling up at home, good (or ill) health.

In fact one thing you don't mention is what your other half thinks? Make sure you are really listening to them, rather than random geeks on the interwebby.

We have mates; a couple, who didn't really listen to each other and took a series of solitary or parallel decisions about property over a few years; each thinking the other was on board...

they're still our mates... but no longer a couple.

Sometimes no decision can be the best decision?