Downsizing and Buying Two Flats

WomanOnaMission

Thanks DairyQueen really interested to read about your experience. So, would you downsize and if so what would you do with the equity and the savings made from living in a smaller place that is walking distance to work?

atush

Brynsam wrote: »

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.

Not to mention that BTL is no longer tax friendly as it was before. As you cant deduct all your expenses from the profits as previously.

I also agree your epnsion provsion is too low. both the intial input gets tax relief and the growth/profit. And you get 25% of the pot tax free later on.

So boost your pensions.

bostonerimus

Bimbly wrote: »

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.

I own a 2 family house. The bottom floor is a one bedroom apartment and I live on the two floors above in a 3 bed apartment. I like it that way so I can easily do the management of the place myself, make sure the apartment is being looked after and I'm close at hand for any problems and repairs.

bostonerimus

DairyQueen wrote: »

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.

Yes it can be a hassle and you have to keep things well maintained as that can prevent calls at unwelcome hours.

I've rented my apartment for the last 20 years and have had good experiences. One tenant was there for 5 years and another for 10 years and she moved across the country last year. The flat is now rented to a friend of hers and she just renewed the lease, so things are ticking along ok. The rent is $1600 a month (I live in the USA). I just had to spend $3000 on a new back door and some reframing around it as it had rotted out so you must factor things like that into the numbers.

I get $19.2k/year in rent, budget around $6k in expenses leaving me with $13.2k income. The flat is currently worth $250k so that's a 5.3% income return and since I bought my house 20 years ago, it's appreciated by an average of 6% per year. That looks like a nice combo to me.

atush

Yes sounds nice but not pertinent to the OP who is not living in the USA.

The UK has changed tack on BTL from a tax perspective. It isnt as attractive as it once was.

DairyQueen

bostonerimus wrote: »

Yes it can be a hassle and you have to keep things well maintained as that can prevent calls at unwelcome hours.

I've rented my apartment for the last 20 years and have had good experiences. One tenant was there for 5 years and another for 10 years and she moved across the country last year. The flat is now rented to a friend of hers and she just renewed the lease, so things are ticking along ok. The rent is $1600 a month (I live in the USA). I just had to spend $3000 on a new back door and some reframing around it as it had rotted out so you must factor things like that into the numbers.

I get $19.2k/year in rent, budget around $6k in expenses leaving me with $13.2k income. The flat is currently worth $250k so that's a 5.3% income return and since I bought my house 20 years ago, it's appreciated by an average of 6% per year. That looks like a nice combo to me.

Our BTLs were well-maintained and I didn't expect call-outs to reset the timer on the CH after a power cut (instruction manual supplied but always misplaced). Nor did I expect tenants to never open windows, never use extractors, nor run a non-condenser drier in the bedroom. Resulting mould on walls,windows and bathroom tiles and grout was 'interesting'. I also assumed people would clean the loo more than once annually, have enough sense to avoid placing hot saucepans directly on wooden counter tops, and prevent children drawing all over the walls. Moving in relatives and friends (expressly forbidden under the lease) was the final straw.

I lived in the US for a while and it's a very different tax regime. Not sure about letting but I expect that you can offset the property tax on your entire duplex against income tax. Ditto mortgage interest. The tax allowances in the US were much better than in the UK. I expect they still are? Your net yield is probably do-able in some parts of the UK, and on some types of property, but, for small landlords like us, the hassle and time required far outweighed the small profit we made after paying for excessive wear-and-tear.

DairyQueen

WomanOnaMission wrote: »

Thanks DairyQueen really interested to read about your experience. So, would you downsize and if so what would you do with the equity and the savings made from living in a smaller place that is walking distance to work?

If your plan is aimed at retirement in 10 years then I wouldn't downsize (price-wise anyway) now. House equity is often the investment of last resort to maintain us in our dotage and care home fees don't differ that much across the country. Good care homes are expensive and costs are increasing annually more than inflation. If you and OH avoid the need for care homes then projected longevity suggests that you may need to release equity to fund expenses like at-home care and non-discretionaries in later life.

Investing in property is a good thing but better IMO to take advantage of the allowances provided on your primary residence. Inheritance tax, extra stamp duty and CGT can all be avoided on investment in your own home.

I agree with others that your pension savings are looking light. You don't mention your likely income needs in retirement (step 1 of retirement planning) but you will need significantly more than your current £115k to bridge you to SP age at even a basic level of income.

An emergency fund should be in the region of 6 months to a year's expenses. This is your short-term protection against, for example, the dreaded redundancy in the lead-up to retirement. Ageism is alive-and-well in the workplace.

The tax incentives on pension saving are such that this would be my first priority. Contribute as much as possible to your's and OH's pensions making full use of employer incentives and the most tax relief available (e.g. if one of you pays HRT).

Also, remember that one of you will be the survivor and, all other things being equal, the odds are on you (female and younger than male spouse). Retirement planning should include income available to the survivor on first death. This is often overlooked by couples.

Your timescale is 10 years and that suggests S&S via a pension wrapper should be your focus for retirement saving.

No reason not to move to town now if that will improve your quality of life but perhaps move to a high-spec flat (value similar to your current property). The mortgage is worth keeping whilst the costs of servicing it are cheap but you may wish to consider paying it off if interest rates rise significantly in the years before retirement (definitely a possibility).

You have given yourself plenty of time to plan and have lots of options. This forum will also give you ideas and tips.

Good luck with it.

bostonerimus

atush wrote: »

Yes sounds nice but not pertinent to the OP who is not living in the USA.

The UK has changed tack on BTL from a tax perspective. It isnt as attractive as it once was.

The financials and taxes are going to be different and you need to do the maths. I was showing why I've found being a landlord a good financial move. The OP needs to do similar assessments for her own situation.

bostonerimus

DairyQueen wrote: »

Our BTLs were well-maintained and I didn't expect call-outs to reset the timer on the CH after a power cut (instruction manual supplied but always misplaced). Nor did I expect tenants to never open windows, never use extractors, nor run a non-condenser drier in the bedroom. Resulting mould on walls,windows and bathroom tiles and grout was 'interesting'. I also assumed people would clean the loo more than once annually, have enough sense to avoid placing hot saucepans directly on wooden counter tops, and prevent children drawing all over the walls. Moving in relatives and friends (expressly forbidden under the lease) was the final straw.

I lived in the US for a while and it's a very different tax regime. Not sure about letting but I expect that you can offset the property tax on your entire duplex against income tax. Ditto mortgage interest. The tax allowances in the US were much better than in the UK. I expect they still are? Your net yield is probably do-able in some parts of the UK, and on some types of property, but, for small landlords like us, the hassle and time required far outweighed the small profit we made after paying for excessive wear-and-tear.

Being a landlord can be difficult and some people will employ a manager/agent to deal with tenants, but that is obviously an extra expense. I wanted to manage my rental, butI didn't want it to be a lot of work. I decided that I would only have a one bedroom flat rental so that I could only rent to a single or a couple. So I bought a 2 family and live upstairs from the flat which makes it easy to mange the place. I've had good luck with tenants, but also get a couple of references and check with their work before signing a lease...other than that I'm pretty laid back. The rental is a small part of my overall portfolio, I would never want it to dominate or become a chore.

The local financials have to make sense, I can deduct expenses on the rental flat like insurance, local tax that I have to pay, repairs etc and the OP needs to work out the cash flow. That's why I emphasize that this is a business; the landlord has a responsibility to the tenant to provide good accommodations and a responsibility to themselves to have it all make financial sense.

Terron

If you are near Manchester BTL could be a good idea. Manchester is booming and the effects are spreading to the surrounding areas, especially those reached by the tram system. On my NW properties I made 8% bet yield last year and about 6% capital growth. That net yield is after paying for full management by a letting agent. Rental demand is strong currently.



You could buy a 2 bed flat around here for under £90k. However flats involve ground rents and service charges, so I prefer houses.. I just did a quick search on Rightmove and there are a number of 2 bed terraced housesavailable for £90k or less in my area that I would consider buying if I had the finds available. There are also ones I would not consider. You do need to know the area or have someone you trust who does