Let to buy in London - £300K flats

7sefton

Hello - over Christmas I've been mulling over the following plan, but would really appreciate your honest thoughts:

I live in London (zone 3).
I bought my current 2 bed flat for £256K a few years ago, with a 75% LTV.
It's now worth £300K, with a lot more potenital (area is undergoing significant gentrification).

I fancy moving to a different area, and have my eye on a flat that also costs £300K.

I am thinking of getting consent to let on my current flat, rent it out for £1200 per month, and getting a new residential mortgage on the new flat.

Yes I'm aware of the extra SDLT and how tax treatment is changing for landlords, but I really like the idea of owning a second flat with a modest rental income and potential for equity growth over the medium term.

The other option is the sell my current flat and move to a bigger and more centrally located flat.

Thoughts?

dimbo61

Sell your current property and buy a new place

7sefton

dimbo61 wrote: »

Sell your current property and buy a new place

What makes you say that?

csgohan4

are you aware of the legal implications and the costs of evicting a tenant??


It's not all about the £££, it's a business and will have its risks

Gwendo40

A brief look at your post history suggests you were a rather naive and inexperienced FTBer barely 2 years ago, yet you now feel qualified and experienced enough to take on the role and responsibility of being a highly leveraged landlord with all the associated obligations to your tenants and risks to your own financial situation that that entails.

What has brought about this apparent confidence in your ability to take on such a commitment?

goodwithsaving

You won't be able to have consent to let on a residential mortgage and take out another residential mortgage.
Gwendo40, a lot can change in 2 years. People can learn a lot.

I must admit, I'd sell up and go more central but doubt you'd be able to with that budget. Zone 2 (or 1/2).

AdrianC

£1200/mo = £14,400 gross rent. On a £300k property = 4.8% raw yield.
Now subtract all the costs from that - service charge, sinking fund, ground rent, tax, mortgage interest.
Will you be self-managing, or paying an agent their 10% of gross rent?

What %age income are you left with?
What happens when mortgage interest goes up, and your tenant does a runner just ahead of the bailiffs, leaving unpaid rent, eviction proceeding costs, and a trashed flat?

Typhoon2000

If you could service both mortgages and if you think it’s an up,and coming area, then I would go for it. May be easier to get a BTL mortgage on the first flat. If you didn’t let it and kept it as a 2nd home then you will need about £400 month.
It getting harder and harder to buy property, so if you think this is an opportunity to get a second home ( and that what you want to go - some people by additional cars watches, TV etc after all) and your finances can cover it, than go for it. The opportunity may not come again. Think of any rental income as a bonus.

AnotherJoe

7sefton wrote: »

Yes I'm aware of the extra SDLT and how tax treatment is changing for landlords, but I really like the idea of owning a second flat with a modest rental income and potential for equity growth over the medium term.

The other option is the sell my current flat and move to a bigger and more centrally located flat.

Thoughts?

Is that because you've done an analysis of the total rental returns after tax compared to the rather dull and far less risky alternative of a lower mortgage rate on your new better main residence (tax free), extra into pension (tax free) and no hassle with tenants, no issues with addition legislation making being a LL more onerous, not having to maintain two properties, and you find that overall it seems like it will be more exciting to be a LL?

This leaves aside the fact that by becoming a LL you will be living in a less desirable property than if you just bought a new residence, so there's a cost to that, even if not a financial one.

( FWIW my back of a fag packet estimate says it will take you around 2 years just to break even on the extra SDLT you'll need to pay, so this had better be a long term plan)