Collective Investment vs Property as investment

bowlhead99

irobot8 wrote: »

Re: the extra 3% premium stamp duty for buying a second property, I believe this would be around £9-10K. To be honest, given the time it's taken us to sell properties in the past, I reckon we'd lose 3-4K in rent from the BTL (as realistically, we'd need to vacate it first) - in addition to paying a similar amount in rent ourselves - if we waited for the BTL to be sold. Using the investment fund would get us out of this pickle a lot quicker, and at not much extra cost.

Not a great deal extra cost but £10k is not to be sniffed at. You can think of it as putting the purchase price of your new place up by 3% (at current rates, that saving's equivalent to covering over three years' mortgage interest cost on your new £100k mortgage!), or you can think of it as lowering the sale price of the old BTL by that £10k. Actually it's worse than getting £10k less in sales proceeds from the old place because at least if you got a lower sale price you would save CGT, or if you missed £10k of rent income you would save income tax on not earning it.

Just because you have suddenly discovered that you could improve your overall financial situation, that doesn't mean you have to implement your plan literally this week. Relax and take some time to think it over. Relatively few purchase transactions complete over December and (generalising) there is usually more to choose from in spring. No harm in looking around of course - there is also a bit more competition if there's extra buyers and sellers in the market so if your perfect property appears tomorrow maybe you could get a bargain if the seller is desperate to cash out.

[Quote,]
I'm aware the market has been described as unstable/stagnant, but moving quicker could also save us a fair bit of money if prices are rising (albeit slowly).[/quote]
Seems reasonable, hanging around to next year *could* cost more for the new place, if prices rise, which they may not - they might fall instead. You might or might not get more for the old one if you have flexibility to wait even longer than next spring. But if the plan is to exit the BTL (rather than mortgage it to free up some funds) then you will be looking at both buying and selling so if things go up a bit, one price change will go some way to offset the other.

If we did use £230K of the investment fund to buy a home, my idea would be to eventually sell the BTL - although as soon as possible. With this plan, most of our assets would be in UK property until the BTL was sold (however brief that period is). Would you see this as too much of a risk, or do you think it would be worth taking the risk to move quickly on buying a home? (and eliminating our own monthly rent)

If you are perhaps already too 'exposed' to UK property price through your BTL asset then jacking in lots of your funds to buy another £300k-worth of home before selling the first one seems perhaps a bit excessive, especially if there's a SDLT penalty. I would put the wheels in motion to sell the BTL in a few months time and then do the buying thereafter.

The current tenants are on a periodic tenancy (the initial 6-month tenancy agreement ended over a year ago). Our tenancy is similarly periodic. As such, there's nothing to stop us taking action now in theory.

As there is no urgency to actually buy a new home tomorrow, and a new home is just a goal you're generally working towards -not something that you have to implement tomorrow just because you got the idea to do it today - you could maybe give the tenant a generous notice period to end of the Feb rent period rather than the two month bare minimum, with aim of buying somewhere to complete in first half of next year. Knowing they have to move out the best future they might decide to exercise their own right to give you a month's notice within that period, but are unlikely to want to do that now and move over Christmas ; and if they move out in the new year that's fine as you can start marketing it more easily, safe in the knowledge that they won't stay put and need to be evicted scuppering an easy sale.

So personally:
Plan to exit the BTL.

Line up a new home to complete after the exit to avoid overlap of property assets, high SDLT, and needing to temporarily sell off loads of funds that you could really afford to keep in the long run.

If something absolutely awesome comes up in next couple of month that's already vacant/ no chain then perhaps be willing to cash in some investments (the non ISAd ones) to do it and take the heavy stamp duty hit while waiting to exit the BTL place. Also once your tenant is out, if you begrudge paying rent while waiting to buy, you could always save a bit of your own rent cost by moving back into the BTL temporarily while waiting for it to sell, and just put up with an annoying commute. But really being on a rolling 1mth statutory periodic tenancy for your own accommodation as you are now, gives plenty of flexibility to move out when you need to without being homeless, so probably no need if no CGT benefit in doing so.

Meanwhile 'upgrade' the risk level on the investment funds that you definitely don't need for the property shenanigans.

irobot8

All great advice. Thanks again for all your help bowlhead99!