Downsizing and Buying Two Flats

WomanOnaMission

Hello, a newbie on here and just wanted your words of wisdom on an idea?
A bit of background first, I am 48 and my husband is 50. We owe £50K on our home which is worth around £265K, no other debt and between us various pensions valuing £115k. £10k in our emergency fund and £30K in various savings. We live in the North West of England and have a daughter at university.
We have been talking about selling our home which we bought 15 years ago so that our dd would be able to walk to a really good school. If we were buying a home now we wouldn't buy this one - it has 3 double bedrooms and two small bedrooms which was fine when our dd had her friends around all the time but now feels too big. So, we are thinking of selling up, buying a flat in the town where we both work so that we can walk to work, have more access to restaurants, bars, events etc. We have seen a nice place for £125K and then we were thinking about using the £90K left over with £30k savings and continue saving to put towards another flat somewhere else. Then use any money raised from rent to save for another place and use the money saved from living in a small apartment approx £750-1k per month to start reinvesting in s&s ISA's. All this with the aim of helping to fund our retirement in 10 years time. Any thoughts or words of wisdom on any part of this idea would be greatly appreciated.

Brynsam

WomanOnaMission wrote: »

Hello, a newbie on here and just wanted your words of wisdom on an idea?
A bit of background first, I am 48 and my husband is 50. We owe £50K on our home which is worth around £265K, no other debt and between us various pensions valuing £115k. £10k in our emergency fund and £30K in various savings. We live in the North West of England and have a daughter at university.
We have been talking about selling our home which we bought 15 years ago so that our dd would be able to walk to a really good school. If we were buying a home now we wouldn't buy this one - it has 3 double bedrooms and two small bedrooms which was fine when our dd had her friends around all the time but now feels too big. So, we are thinking of selling up, buying a flat in the town where we both work so that we can walk to work, have more access to restaurants, bars, events etc. We have seen a nice place for £125K and then we were thinking about using the £90K left over with £30k savings and continue saving to put towards another flat somewhere else. Then use any money raised from rent to save for another place and use the money saved from living in a small apartment approx £750-1k per month to start reinvesting in s&s ISA's. All this with the aim of helping to fund our retirement in 10 years time. Any thoughts or words of wisdom on any part of this idea would be greatly appreciated.

One crucial factor in your planning needs to be the ease with which your BTL flat(s) could be let - and how much rent they would, realistically, command. Don't forget you will be hit for 3% second home stamp duty on any BTL properties.

If you google on 'becoming a small landlord' or similar, you'll get masses of factual information plus the usual selection of war stories.

Your current pension provision is quite low and given that your state pension won't be available for at least another 17/19 years, you might think about topping up your pension savings rather than just heading for ISAs.

pip895

I think in similar circumstances I would be looking at doing something else with the 90k including adding to pensions and ISAs. When DD wants to set up home it would also be nice to be able to help out with the deposit etc.

A single BTL property can be a lot of hassle and with the questionable state of the market and disincentives thrown in by the government its not the opportunity it once was.

WomanOnaMission

Thanks for that Brynsam, I will take a look at 'becoming a small landlord'.
I think I like the idea and the flexibility of S&S Isa's, but if anyone can explain to me the benefits of pension v isa a part from the tax relief, I really do want to learn.
Thanks again

somethingcorporate

It's been discussed a lot.


Here is one of many of the threads: https://forums.moneysavingexpert.com/discussion/5883819/s-s-isa-vs-pension

WomanOnaMission

Thanks for that pip895! It's really interesting reading other people's opinions and making me think, which is what I wanted.

bostonerimus

Being a landlord is a responsibility, but it can produced current income and also capital gains and be a good compliment to stocks and bonds. It's a business and must be approached that way so you will have expenses. You must provide suitable accommodation and comply with any local regulations, repair things asap, carry insurance etc. I have a rental flat and last year I had to upgrade all the smoke detectors/CO detectors to be either hard wired to power or to have 10 year batteries. I want the flat to be a really great place to live and by doing that it also makes it easy to rent.

I would not use your emergency savings to buy the apartment. If what's left after downsizing isn't enough to buy an apartment I would either get a small mortgage or just save aggressively until you have enough to buy the flat outright.

WomanOnaMission

Thanks bostonerimus! That's why we would like to be a good landlord, to get an income but also to have the property. But we would definitely treat it as a business and do everything we could to make sure our tenants were happy and felt that for now renting suited their needs. We're not out to take advantage but sometimes renting is the right thing to do for various reasons.
I also agree that we would not use our emergency fund but give ourselves some time to save and find the right place.
Thanks again!

kidmugsy

(i) It might be convenient to have the two flats close together, or even as neighbours. You could use the same tradesmen, and you could keep an eye on things easily. Potentially you could save a little on legal and surveying costs if they were neighbours.

(ii) I'd consider getting a mortgage loan for the owner-occupied flat so that I could buy the BTL free of debt. I imagine that way round would be cheaper. I'd also try to weigh up the advantages of buying BTLs in your own names, or setting up a limited company to do it instead. Setting up a limited company is cheap and speedy, but I've no experience at first hand or second hand of using a company to operate rental property.

(iii) Or you could look out for a single property that you'd aim to convert into two flats. That would mean you'd need planning permission, and it might anyway be too much hassle for you.

(iv) Do you have any advantages for entering this business? Trade skills, legal skills, familiarity with the property biz, source of good tenants? Because if you don't, then in your shoes I'd probably not do it. I might gift the dd enough to fill up a LISA every year for a few years, top up my pensions, and think about S&S ISAs. After all, you could invest in companies that make their living renting out residential property - which would be far less hassle.

I'd also wonder about the long term future of being a landlord, either on your own or as a shareholder in a company. Vast numbers of landlords had much of their property rights confiscated by the government during WWI. The situation lasted nearly 60 years. Do you feel you can trust Mrs May or Mr Corbyn to respect your property rights? Personally I wouldn't.

Bimbly

kidmugsy wrote: »

(i) It might be convenient to have the two flats close together, or even as neighbours. You could use the same tradesmen, and you could keep an eye on things easily. Potentially you could save a little on legal and surveying costs if they were neighbours.

What an horrific thought!

You really don't want to be living next to your tenants as being a neighbour and a landlord are two separate things. I'd also be wary, as a tenant, of living next to the landlord thinking they might be spying on me.

I think the OP wants to keep their options open with property on retirement, is that right? So they live in the flat near work for now, but then have the option to move elsewhere on retirement? It's difficult to upsize once downsized, but could do it with two properties.

DairyQueen

kidmugsy wrote: »

I'd probably not do it.

I think KidM is being diplomatic. I definitely wouldn't do it. I did it when the economic advantages were much better than now and it was a total hassle. You may be a good landlord but chances are that your tenants will be c**p. That was my experience. The damage was such that it ate most of the profit and there is nothing like being called at 3a.m. because the tenant's boiler has failed.

It sounded great in theory when the tax advantages were good, In practice it was a pain and now the tax advantages that softened the pain have ben removed. I couldn't be tempted back at 10% net yield. It's simply not worth the hassle.