Buying a 2nd Property as BTL - Should I pull out?

jumperabv3

I made several posts in the mortgage forum about buying a 2nd BTL - I decided with my wife to proceed with this because business wasn't going so well, albeit we're still doing okay thankfully ...  we were planning to rely on a 2nd BTL.

I've remortgaged the first property, thankfully owned outright, so now I got £250k in the bank from about a week and a half ago, so we wanted to buy a 2nd property as a BTL as cash buyers because we're using the remortgage funds from the 1st property for this purpose.
Now before COVID19 it was 100% sure for us we would go forward with this.

Now we are in a position where there is no exchange of contracts yet, but we paid £300 for our solicitor to proceed with the searches (if it's lost it's lost - that's the least thing to worry about) ... I'm doing this transaction on my name only for the ease of the paperwork, my wife has no problem with it ... now the question is if shall I pull out from this or just proceed? The property price is £235k, it's in Reading, I believe in the potential of Reading with the Cross Rail (the "Elizabeth Line"), even nowadays the train from Reading to Paddington takes 22-23 minutes, it's quite fast, some places in London take much longer to get from them to Paddington station .... the property is nice, near the train station .... I hardly can't see prices drop in Reading by much on the one hand - but honestly on the other hand who has a crystal ball to tell what's going to happen with the housing market and so many people and businesses are in shatters now? It's just feeling extremely bad.

So I know, asking random strangers in the forum is not necessarily a solution to alleviate the tension but I believe in learning from other views ... my personal financial adviser who has neutral views without getting a dime from all this told me we're doing this for a very long term investment (not to buy and sell in 1 day, it's not a flip) and he thinks we should just proceed with the sale, he says even if prices drop by 10% it's not worth the hassle and aggravation and since we would be using a rent guarantee scheme + estate agent to manage the property then we would just better get some rent from it instead of speculating ... that's his view.

What do you think? I'm worried and concerned not only about this but about everything in general, wife is pregnant (due in July) ... I believe the summer and the hot weather can kill the virus faster than our government can, it's all up to god and I believe in god... but honestly I've never exeprienced anything like this in the past .... would be happy to hear others what do you think, what would you do if you were in my shoes? (and yes, I'm not complaining, I'm thanking god for everything we have, just trying to plan and do the right thing now).

Cakeguts

How are you going to pay the mortgage if your 1st tenant stops paying the rent?

greatcrested

Personally I'd say now is not the time.

The stock market has dropped- put the money into a spread of investments and overnment stocks now while prices are low. Or drip-feed over the next 6 months as it's impossible to say whether the market will recover a bit or drop further in that timeframe.

But longer term, it will be far less hassle than a BTL where the money is tied up, work and stress is involved, and one bad tenant can cause havoc....

jumperabv3

Cakeguts said:

How are you going to pay the mortgage if your 1st tenant stops paying the rent?

Thankfully we are both working so if this worse case scenario occurs then we would have to pay from our own pocket to fund that mortgage, I've already set aside a certain amount for a rainy day before we have to get into that scenario, so we are "covered" for the next 6-12 months, if things go bad afterwards then we would have to start paying out of our own pocket, hopefully this won't be the case of course.

[Deleted User]

I wouldn't go forward with it at all.
Tenant job security is a major factor at this time. LLs cannot get blood from a stone.
Look again at the availability of rent guarantee schemes, their current availability, cost and criteria.
Bide your time with money in the bank with some significant chance that property prices will dip and you could get in at the right time.

jumperabv3

greatcrested said:

Personally I'd say now is not the time.

The stock market has dropped- put the money into a spread of investments now while prices are low. Or drip-feed over the next 6 months as it's impossible to say whether the market will recover a bit or drop further in that timeframe.

But longer term, it will be far less hassle than a BTL where the money is tied up, work and stress is involved, and one bad tenant can cause havoc....

Thanks for your opinion ... I don't want to risk that money buying stocks, in fact I've never in my life invested in stocks, even my pension is something I invest only in government bonds (with the recent interest rate cut my pension fund did really well whilst so many of my friends lost 10%-20% in their portfolios) .... I don't mind putting the money in instant savings account getting 0.50% per annum on it - but the mortgage rate is 1.73% fixed for 5 years so I don't want to do it long term but only temporary.

Regarding rent and 1 bad tenant - as I mentioned we would take a rent guarantee scheme (the estate agent charges 10% of the rent plus optional 2.5% for rent guarantee) - that means we would pay 12.5% of what the tenant pays and if he fails to pay we would still be paid the rent incl. legal fees and I won't be in a rush to take the tenant out but rather it's up to the insurance company to take care of it.
So I don't expect any havoc but again ... I totally hear what you say - the market is very shaky right now ... I don't know many "solid" products that yield 4-5% per year and they would just cover the mortgage rate... my financial advisor showed me a few examples but he still thinks it's best to do a BTL but that is assuming things would be fine in the long term, and no one really knows how things will develop.

jumperabv3

brett19852010 said:

I wouldn't go forward with it at all.
Tenant job security is a major factor at this time. LLs cannot get blood from a stone.
Look again at the availability of rent guarantee schemes, their current availability, cost and criteria.
Bide your time with money in the bank with some significant chance that property prices will dip and you could get in at the right time.

Thanks for your opinion, we consider doing that. That's the million dollar question we have. It's such a hard choice.

Durban

Definitely wouldn't go forward with it. Speaking as a LL with 2 BTL's.

If you had spare money I would say put it into your pension fund into a tracker like Vanguard LifeStrategy , you choose your risk.  You'd get tax relief from the government.

However , this isn't really " spare " money , it is borrowed money from your own residential property.  
In these times , I would rather have a mortgage free residential property and any spare money , drip feed into pension fund.

buglawton

House moves are more or less banned. Most letting agents have suspended business. I'd bet that all new rent guarantee schemes will have vaporised or have massive loopholes built in. I'd only consider a BTL if there were a price reduction of a years rent compared to its value in January/February.

jumperabv3

buglawton said:

House moves are more or less banned. Most letting agents have suspended business. I'd bet that all new rent guarantee schemes will have vaporised or have massive loopholes built in. I'd only consider a BTL if there were a price reduction of a years rent compared to its value in January/February.

In another words do you suggest we'd bet on property prices to drop (or crash, if the picture is depicted as if we're in times of apocalypse) and then wait a few months and then look for the best BTL opportunity?

tom9980

Dont be so sure that rent guarantee insurance would pay out Direct Line for one are wriggling out of obligation to pay during this crisis.

Re: Investing in the stock market Government bonds may well be fine but remember your friends have gained dividends, capital growth and likely reinvested the lot compounding over decades will see them significantly better off than someone only investing in bonds. Naturally anyone 10 years away from retirement should be looking to de-risk their portfolio of investments accordingly.

One thing to consider is the political risks just got higher you wont be evicting tenants in a hurry anytime soon and its likely Government wont be reversing course they may even see it to be a good time to introduce rent controls.