Buy To Let, or just chill?

katerobbins2

Hi all, I would love some advice please!

After flipping a flat, I now have £110,000 in savings and I am wondering what to do with it! I've had an offer accepted on a BTL flat, and a mortgage agreed in principle, but I'm wondering whether to proceed or just keep my money in a savings account...

Last year I completed a 5 bed house build in London, and I now live here + rent out 4 bedrooms to my friends, for a total of £3000 per month. I currently overpay this mortgage by £1500pm (£275,000 left, on tracker rate now). I have a full time job, currently paying me £100k, which I wouldn't mind taking a career break from soon, and I have a partner - but we do not live together...

I have had a cheeky offer accepted on a Buy To Let 2 bedroom flat in Walthamstow (by the station) for £345,000 – which should get between £1800-2000pm rent and there is *apparently* decent demand. However, after being told the service charge is £1100pa, solicitors have now found out it is actually £1100 twice a year, plus £250 ground rent... Stamp duty is £15,100.

The repayment BTL mortgage I have been offered for the flat is 4.6% on £258,750, but when I was first looking to get a BTL after the pandemic the rate was 1.55%... Not a big issue, but still makes me wary.

Basically, I am really wondering if it's worth continuing with this purchase? Or if I should maybe find a cheaper property - potentially outside of London - or at least one without a service charge - or just keep the £110k in my current savings account which currently gets 3.5% interest (thanks to this site).

I'm the first person in my family to really make decent money, and my friends don't own properties, so I really have nobody to turn to on this. Any help or insights would be really appreciated, and I'm happy to answer any questions you have.

Thanks so much

Kate

tacpot12

The flat seems to make financial sense. You should get a return from the rent of about 4-6% depending on whether you can get the £1800 or £2000 per month you think you can, and you don't have any problems with the tenants. You would also have the potential for a further return due to property price rises. I've allowed an amount for the normal expenses of letting a property (insurance, letting agents, safety checks, repairs for wear and tear, etc.).

Perhaps the biggest question is do you want to be a landlord for the long-term? It can be a bit stressful if things go wrong, e.g. if there are problems with the tenants and the letting agent turns out to be no good. 

lika_86

Overpay your own mortgage and reduce the rent you are charging your friends?

MFWannabe

lika_86 said:

Overpay your own mortgage and reduce the rent you are charging your friends?

Op already overpays current mortgage and how would reducing rent their friends pay help the OP? 

Tbh for London that’s probably cheap rent 

steve866

Have you factored in the tax given your salary and existing rental income? I am personally holding off purchasing an additional property until interest rates (hopefully) decrease 

lika_86

MFWannabe said:

lika_86 said:

Overpay your own mortgage and reduce the rent you are charging your friends?

Op already overpays current mortgage and how would reducing rent their friends pay help the OP? 

Tbh for London that’s probably cheap rent 

It would help the OP by paying off their mortgage sooner and also help four other people, who are the OP's friends. More than one person benefits. I'd say that overall that's a greater good than buying a buy-to-let or keeping the money in a savings account.

MFWannabe

lika_86 said:

MFWannabe said:

lika_86 said:

Overpay your own mortgage and reduce the rent you are charging your friends?

Op already overpays current mortgage and how would reducing rent their friends pay help the OP? 

Tbh for London that’s probably cheap rent 

It would help the OP by paying off their mortgage sooner and also help four other people, who are the OP's friends. More than one person benefits. I'd say that overall that's a greater good than buying a buy-to-let or keeping the money in a savings account.

It would be a greater good but that’s not what OP is asking, they are asking what would be the best option for themselves 
They have already stated they overpay their mortgage; yes they could overpay more and finish their mortgage as early as possible especially as they are wanting to take a career break 

_Penny_Dreadful

katerobbins2 said:

Hi all, I would love some advice please!

After flipping a flat, I now have £110,000 in savings and I am wondering what to do with it! I've had an offer accepted on a BTL flat, and a mortgage agreed in principle, but I'm wondering whether to proceed or just keep my money in a savings account...

Last year I completed a 5 bed house build in London, and I now live here + rent out 4 bedrooms to my friends, for a total of £3000 per month. I currently overpay this mortgage by £1500pm (£275,000 left, on tracker rate now). I have a full time job, currently paying me £100k, which I wouldn't mind taking a career break from soon, and I have a partner - but we do not live together...

I have had a cheeky offer accepted on a Buy To Let 2 bedroom flat in Walthamstow (by the station) for £345,000 – which should get between £1800-2000pm rent and there is *apparently* decent demand. However, after being told the service charge is £1100pa, solicitors have now found out it is actually £1100 twice a year, plus £250 ground rent... Stamp duty is £15,100.

The repayment BTL mortgage I have been offered for the flat is 4.6% on £258,750, but when I was first looking to get a BTL after the pandemic the rate was 1.55%... Not a big issue, but still makes me wary.

Basically, I am really wondering if it's worth continuing with this purchase? Or if I should maybe find a cheaper property - potentially outside of London - or at least one without a service charge - or just keep the £110k in my current savings account which currently gets 3.5% interest (thanks to this site).

I'm the first person in my family to really make decent money, and my friends don't own properties, so I really have nobody to turn to on this. Any help or insights would be really appreciated, and I'm happy to answer any questions you have.

Thanks so much

Kate

There are more than just two options, BTL and leaving the money in a savings account. What other investment options have you considered? 

How much research have you done into being a landlord and what it entails? It’s quite different to being a resident landlord. What are your thoughts on the Renters Reform Bill that is being touted? 

Letting property is one of the least tax efficient investments in the UK. You’re already a higher rate tax payer and I’m not sure if you’ll potentially become an additional rate tax payer meaning that BTL will make even less sense from a tax perspective. 

lika_86

MFWannabe said:

lika_86 said:

MFWannabe said:

lika_86 said:

Overpay your own mortgage and reduce the rent you are charging your friends?

Op already overpays current mortgage and how would reducing rent their friends pay help the OP? 

Tbh for London that’s probably cheap rent 

It would help the OP by paying off their mortgage sooner and also help four other people, who are the OP's friends. More than one person benefits. I'd say that overall that's a greater good than buying a buy-to-let or keeping the money in a savings account.

It would be a greater good but that’s not what OP is asking, they are asking what would be the best option for themselves 
They have already stated they overpay their mortgage; yes they could overpay more and finish their mortgage as early as possible especially as they are wanting to take a career break 

Actually, that's not what the OP asked. They said "I now have £110,000 in savings and I am wondering what to do with it! I've had an offer accepted on a BTL flat, and a mortgage agreed in principle, but I'm wondering whether to proceed or just keep my money in a savings account...". There's no mention about the best option for themselves.

mi-key

If you have a job paying £100K a year, I am guessing it is something pretty intensive where you work hard and possibly long hours? 

Do you really want to get home from work and have to spend the night sorting out some problem for the tenants that they want fixing immediately? Or having to spend your weekend trying to find a plumber who can fix a leaking shower?

Also have you considered what you would do if your 4 friends decided to move out and get a house together so you would lose £3000 a month income from them? Or if for some reason the flat sits empty for 6 months with no income from it? 

You mention you would like to take a career break, that is a big risk if you are stretching yourself financially with no savings as a backup in case things don't work out

TBH the return on the flat compared to your savings interest rate isn't very much ( and once you take into account tax and expenses probably ends up being the same ) , so it really depends if you feel happy taking the risk and taking on all the extra work. 

mi-key

Also consider why if there is such great demand at good rents, the person is selling the flat in the first place, and why they accepted a cheeky offer...