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  • FIRST POST
    • ruthshep2
    • By ruthshep2 9th Aug 18, 9:41 PM
    • 1Posts
    • 0Thanks
    ruthshep2
    rental return advice
    • #1
    • 9th Aug 18, 9:41 PM
    rental return advice 9th Aug 18 at 9:41 PM
    Hi all,

    I currently rent out 2 properties through an agent @ 10%. about 4% yield.
    I am considering moving in with my partner, and when I do adding my current home to my "portfolio"...

    I am undecided if
    a) adding another property is a good idea. it is varying my portfolio which I heard was a good idea (current two places are in same development, new build. this place is an old characterful place in a different village)
    b) is it better to buy to rent elsewhere - my current home is a 1 person cottagy place in a town known best for retiring to...so would I be better selling and buying a flat in Manchester to rent to business couples.

    I don't have any mortgage's on any of the properties.... I was also advised it may be a good idea to mortgage them all and so free up more money to use to buy even more property. this scares me as I don't like owing, but to make more money is this the best way ahead?

    I have money in ISAs and stocks and shares with a FA. but 3/4s of my money in houses.

    I was self employed until recently so had a low pension but it is very minimal. as I understand there's not much I can do about this until I find work again. I am 41. my main income has always been between the houses or the S&Ss depending how the market is going.

    (I am a lazy landlord, leaving all to the agents - I know sorting the rental and repairs myself would be a big step to arning more - but it feels like a safety blanket having them if anything goes wrong. im more interested in the best way to invest this money for return without that risk)

    any advice would be much appreciated.
Page 1
    • G_M
    • By G_M 10th Aug 18, 4:35 AM
    • 44,927 Posts
    • 53,544 Thanks
    G_M
    • #2
    • 10th Aug 18, 4:35 AM
    • #2
    • 10th Aug 18, 4:35 AM
    It depends entirely on whether the cottage would be a good investment as a rental.

    * target market?
    * rental yield?
    * value of property?


    If you sold and put the money into a tax-efficient pension fund, or the stock market, or a different property, or gold, or ........ would it earn more, or less, than the cottage? And would the risk be greater or less?
    • saajan_12
    • By saajan_12 10th Aug 18, 11:08 AM
    • 1,360 Posts
    • 959 Thanks
    saajan_12
    • #3
    • 10th Aug 18, 11:08 AM
    • #3
    • 10th Aug 18, 11:08 AM
    Hi all,

    I currently rent out 2 properties through an agent @ 10%. about 4% yield.
    I am considering moving in with my partner, and when I do adding my current home to my "portfolio"...- does partner rent or own? If renting, could it be less hassle to instead move into your place as you wouldn't have to deal with an extra LL + tenant? If partner owns, then have you thought about how who will be covering mortgage / bills etc?

    I am undecided if
    a) adding another property is a good idea. it is varying my portfolio which I heard was a good idea (current two places are in same development, new build. this place is an old characterful place in a different village)- diversifying is a good idea to smooth out dips and risks eg voids, fall in a particular area, etc. However 3 properties in the same region (I'm guessing)of UK are likely to suffer similar macro risks. A completely different non property investment would be much better diversification.
    b) is it better to buy to rent elsewhere - my current home is a 1 person cottagy place in a town known best for retiring to...so would I be better selling and buying a flat in Manchester to rent to business couples. - Is there a market for rentals for your type of property in your town? If no then it may be a non starter if the property will be empty. On the other hand, selling + buying another BTL will mean
    - higher rate stamp duty
    - no relief on capital gains tax when you sell if you never live in the new BTL (other than annual allowance)
    - managing a rental from afar means your even more reliant on agents fullfilling all your responsibilities. If they don't, legally it comes down to you.


    I don't have any mortgage's on any of the properties.... I was also advised it may be a good idea to mortgage them all and so free up more money to use to buy even more property. this scares me as I don't like owing, but to make more money is this the best way ahead?- mortgaging means you can leverage your capital and achieve the property value gain/loss on two properties instead of one.
    You'd need to do your calcs on whether this is beneficial based on your your expected rental yield and borrowing costs. Eg if your gross yield is 4% on each 100k property then after tax you're left with 2.4k as a higher rate tax payer. Instead, if you buy an additional 100k property funded by borrowing 100k at 50% LTV on the two 100k properties at 2%, then for a higher rate tax payer:
    +8.0k rent income (2 properties 4k each)
    -3.2k tax on rent (@40%)
    -2k mortgage interest (2% x 100k borrowed)
    +0.4k tax relief on mortgage interest (@20% from 2020)
    Net +3.2k after tax compared to the 2.4k with just one property.

    Another example re the property value: own a house currently worth 100k, the market falls and after x years you can sell for 70k. -> 30k loss. IF you owned two 100k houses each with 50% LTV interest only mortgages and the market falls, then after x years you still owe 100k which you can pay by selling both houses for 140k total leaving you with 40k -> 60k loss. Plus, if your mortgage term is up, you may Have to sell.

    Both these examples could go the other way - depends on your borrowing costs and expectation of the market. However you need to take into account extra mortgage costs, risk of paying mortgage, double LL responsibilities, possibly having to find money to pay monthly mortgage or sell to satisfy mortgage terms. etc


    I have money in ISAs and stocks and shares with a FA. but 3/4s of my money in houses. - why? that's a high concentration of property in one very local market, one type of product (property).

    I was self employed until recently so had a low pension but it is very minimal. as I understand there's not much I can do about this until I find work again. I am 41. my main income has always been between the houses or the S&Ss depending how the market is going.

    (I am a lazy landlord, leaving all to the agents - I know sorting the rental and repairs myself would be a big step to arning more - but it feels like a safety blanket having them if anything goes wrong. How qualified are your agents? Hint: unlikely! even if you leave the daily work to them, you need to know your responsibilities as a LL and check they are being fulfilled. If the agents don't do something eg serve gas safety certs, protect deposit, etc, the tenants will come after you. im more interested in the best way to invest this money for return without that risk) -
    All investments have risks. But with residential property, you're involving peoples homes so those risks quickly become legal responsibilities with serious implications. Get clued up and make sure you;re fulfilling every one, or shift to investments with risks you're happy wiht.


    any advice would be much appreciated.
    Originally posted by ruthshep2
    Comments inline. Generally
    - diversifying is good, property in a different area is a little diversified, a completely different investment is more diversified
    - leveraging can be good or can be bad depending on your borrowing costs, market expectations and how much other income / funds you have available to satisfy a mortgage if the property market doesn't perform
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