Your opinions please...! **SEE OUR REPLIES & DECISION ON POSTS 39 & 41 **

beingjdc

One alternative way of thinking it through is to say, if you didn't own the flat already, and you could buy it for £140k, having had it valued at £150, would you? Covering the mortgage with the rent is OK, but remember it will need repairs, and sometimes you can't find tenants (I guess more of a problem if, as you say "apartments have been springing up everywhere".

I know people say "oh it always goes back up in the end" - it always has, here. It probably will again, eventually. It might do so soon, though I don't expect it. But have a look what happened in Japan after their boom.

http://www.intmath.com/Money-Math/house-prices-japan.gif

wisbech_lad

So, basically you have 20,000 equity (10k cash, 10k in your current flat)

Your choice is to either have property worth 340k (150k plus 190k) with 20k equity (so 95% gearing) or property worth 190k with 20k equity (90%)

You have a single child, and may/ may not have more.

Personally, only having a 10% equity cushion would worry me.

For me, there are too many subjunctives in your wife's comments "should be able to rent it, should be able to cover mortgage" - what about voids/ insurance costs/ bad tenants/ taxes?

Still, your money...

By the way, the 30,000-40,000 you have lost on the current flat is a "sunk cost" and should have no bearing on your decisions. Run the cash flow numbers over the next 5-7 years with various scenarios.

Another way of looking at it is to "maxmin" (maximise your position, in the worst case that is likely to happen)

Best case: (say, prices go up 20%) you make an extra 30,000 if you buy two properties. If you don't buy two, you have to put up with your wife telling you she was right for the rest of your life together. But I am sure she tells you this anyway

Worst case: (say, prices drop 10%, problems with renting out flat) if you don't buy, you are safe. If you buy two, you are in a world of hurt.

Based on that, I would sell the flat, chalk up the loss to experience, and buy the house you really want.

PasturesNew

Cheddar wrote: »

we should be able to cover the mortgage with the rental payments. We would have to pay the management charge of £877 (yearly) but I would rather do this for the next 3/5 years or for however long it takes for the price of the apartment to rise again, rather than losing £30000 if we sell at £160000. Selling just seems to be a waste of money and house prices will not drop forever!

Let's take the figure of 5 years. In that 5 years you will:
- pay out management charges 5x£877=£1185
- pay out for voids, where the property is empty 1 month a year. Say, £140k at 6%, that is £700/month. So 5x£700=£3500
- pay for special landlord insurance. Say £100/year. 5x£100=£500
- pay out to find new tenants. Whether that is agent fees or newspaper advertising, then there's the time involved. Say, £100/year, 5x£100=£500
- pay to have things fixed. Heating, plumbing, etc Say £100/year for this. 5x£100=£500
- at the end, when you decide to sell, you will have to wait for the tenant to leave, then tidy it up and put it on the market. This could take any amount of time, but let's say 4 months from the last day with a tenant in it and completion. You will be paying the mortgage all this time. 4x£700=£2800

If you've not done it before, you should ideally use a lettings agent to manage it. There is a lot of responsibility and legislation with renting out a property and you might get in a pickle. £1000/year. 5x£1000=£5000

If you have gas in the property, there is the cost of an annual gas check. Will you be letting it empty or furnished? If it's got, say, a fridge in it and that packs up you'll have to quickly buy another.

If you try to manage the property yourself, you can expect to be on call 24/7 - how will that work if you want to go away for a weekend or longer?

Risks

---

- You don't get a tenant for a few months
- You have trouble getting tenants at all, certainly not at the figure you think you will. You might have to drop the rent by £100-150/month as you are in competition with others
- Every month the flat reduces in value by a further £500 meaning once you've committed to the decision you have to stick with it
- How will you pay the mortgage on the flat if you lose your job at the same time a tenant moves out? You'd need a Plan B.

A conservative estimate of costs over the next 5 years would therefore be:
£1185
£3500
£500
£500
£2800
£500
£5000
=====
£13985 spent over 5 years.

My personal opinion is that 5 years will be the bottom of the market. It might be 10 years to get back to where it is today. Can you do this for 10 years?

By renting you are adding risk and cost.

Also, have you checked with the mortgage company? They might not allow you to rent it out anyway. If they insist you take out a BTL mortgage, they would then turn you down because the LTV ratio is wrong and the income:mortgage ratio is not high enough

On the other hand, have you checked with your mortgage company to see if you can move your negative equity forward to the new house?

PasturesNew

Can we have a rightmove link to this flat that's only had 1 viewing in 18 months?

It'd be interesting for people here to be able give their opinions on what you might do to improve your luck at getting viewings.

seven-day-weekend

IMHO, if you are not even getting people through the door (one viewing in i8 months, wow) then it is simply too expensive compared to similar properties.

carolt

Listen to all the well-argued advice above.

Ask yourself why there is not ONE SINGLE PERSON who agrees with you.

Sell the flat. This morning's news had further price falls from Nationwide. Don't gamble with your family's future security, or you could really regret it.

Buy the house once you've sold, if you can afford it, rent if you can't.

BrandNewDay

If you're a family with children, you really shouldn't be taking this sort of risk. You could end up bankrupt. Renting is never as easy as some people like to make it sound. Yes, some people have made a lot of money with real estate and letting flats, but those people went into it with a totally business POV. They weren't trying to merely cope as a family. And, for all those success stories you may have heard over the past few years, there are a lot of sob stories, especially recently.

You mentioned how people don't get upset that their shares ISA's took a beating. I assume that that is because they don't seem "real." I can assure you that people who were counting on that money being there next month are upset. Investing in shares is a long-term game and it makes sense to not worry about it if you don't need to spend it soon. But, you don't have to pay monthly upkeep on your ISA. You don't depend on your ISA to keep the rain off your head. Thinking of your HOME in the same dispassionate way people ought to think about shares is not sensible.

If you can stand to stay where you are for 10 or more years, that may be good. If not, then sell your flat and try to get the best home you can afford. It will be easier to do, emotionally, if you don't view properties you cannot afford.

SouthCoast

It was very kind of PasturesNew to prepare a business plan for the OP.

My current experience of management charges for new build properties is that the legal costs element is rising rapidly as owners cannot afford to pay the management charges, and they get taken to court.

seven-day-weekend

Sensible advice from Brand New Day.

seven-day-weekend

We rented out a flat with a mortgage - while we were working it was OK, but once we had to rely on the rent to pay the mortgage, it was very stressful - especially when the tenant left and we had a large bill for redecoration. We couldn't let the flat out again until this was done and had no spare income to pay the mortgage.

Luckily, we were able to take a payment holiday and we put the flat up for sale and sold it straight away. But I'm just pointing out that having to rely on the rent to cover the mortgage is sailing very close to the wind.