Advise on buying 2nd property - still a good investment ?

[mikeyw]

I’m really tempted to free up some equity from my current home (value £330K – £80K mortgage) and buy a 2nd home but the cautious side of me is holding me back. Can people please advise which way they think I should go ?

I live in a very desirable housing area (Harrogate) where demand is high and prices are high. Because of this most young couples are renting and there is a good buy to let market.

I’m thinking of a 2/3 bed town house / terrace or a 2 bed flat with a budget of around £170K. Really I’m better buying something at £150K that needs £10K spending on it but not sure much will be available at that level.

In people’s experience what tends to let better in a town with no real student population ?

For my £170K I’m probably only going to be looking at £700 per month rent so barely covering my interest only mortgage. Obviously I’m banking on the market increasing over the next 3-5years which is the minimum I’d probably hold it for.

Another consideration is to buy off plan but it seems hard to find any new developments in the area.

Also an option is buying into a Town Centre Apartment in the rapidly expanding Leeds – Again for £170K I’d probably get a 2 bed apartment bringing in about £750 per month.

As it’s my first foray I’d probably use an agency to let the property to take some of the stress out of it. Would you agree with this ? It looks like around 10% is the standard rate – is this correct?

A lesser risk is to go for an area with cheaper property like Hull where I’d imagine £120K may get me something of similar spec but naturally the rental rates will be lower.

It all seems pretty straightforward but there has to be a catch somewhere ? – I suppose that is an unoccupied property but is that really going to happen assuming the house is well maintained and in a desirable location.

I read the other day in the express that property prices could double again the next five years….probably a bit optimistic but does show there is still a lot of positivity around….if I didn’t take the plunge and this happened I’d be very annoyed with myself.

Finally the mortgage situation is a little unclear to me. Am I right in thinking I’d need to raise the deposit on my existing mortgage say £17K then take a second (interest only) mortgage (£153K) for the 2nd property – is this the best approach ?....would it make sense to change my current mortgage to interest only as well obviously giving us a bit more cash each month to help out with repairs & under occupancy etc.

Sorry for so many questions but is it true I can buy the house in wifes name to avoid so much tax (as she works part time)...would she have to e the name on the mortgage as well ?

It's a big learning curve but we've all got to start somewhere I suppose !

For those who feel it might not be a good investment at the moment please could you let me know why.

Thanks in anticipation for any help / guidance / advice you can offer me before taking the plunge !! :)

Mike

[mikeyw]

Well they say silence is golden!!!

C'mon don't be shy with your views !

Posted the same questions on moneysavingexpert and got some very negative replies :confused:

http://forums.moneysavingexpert.com/showthread.html?t=230969

[Stevie]

Good valid points from previous.

Location is very important. Therefore doing your homework is the most important starting point.
Do you have any contacts i.e. a good mortgage broker, independent of course, know anyone in the local estate agents or letting agents?
The former should offer you impartial advice on raising and financing your deals.
Estate and letting agents will know the most popular areas.

What I would suggest is have ready money available now, so you can move quickly if you have a good deal.

If you need any more help then I am happy to be contacted.

[mikeyw]

Thanks guys - i've not totally dismissed the idea after the -ve feedback on moneysavingexpert.com

When you say have money ready I guess you mean deposit money and not the full amount !

I'm keeping my eyes open for anything that looks like value but I may have to buy further afield than Harrogate which is very pricy at the moment.

Are auctions worth a look or are they full of bigger developers ?

I think if I could break even over a year including voids and maintenance costs i'd still go ahead as the idea is to make the money on the house appreciating and not through any rental profit.


Thanks again,
Mike.

[Tweedle Dum]

One other point you should consider is remortgaging your home for as much as you can for a deposit. This will be at a much healthier interest rate than a BTL mortgage.

[Worldlife]

Unfortunately too many people enter the property market on the basis of the current position.

For a "buy to let" many fail to regard their activity as a business. Surely you would not buy a retail shop without long research or product background! You need to do thorough in depth risk assessments and not expect easy answers from a couple of forum posts. Reading the forums here gives some indication of the potential problems. You shouldn't buy a grocers shop without knowing about stock rotation and likely losses from unsaleable perishable items. Similarly you should be aware of the likely effect on your budget of vacant periods, tenants failing to pay rent or unexpected costs.

Might be worthwhile looking up the term "financial gearing"

You could be in trouble if you a highly geared and there is a trough in the market - look at the repossession that resulted from the most recent trough where people were forced to sell property at a loss.

OTH the instinct of a market trader might suggest moving ahead and taking a chance................

[Matt Churchill]

Guess it all depends on how risk averse you are. I agree with everyone's comments made. Look at it as a long term business, as opposed to a get rich quick scheme.

Naturally the further afield you go, the more you must rely on your agents (should you wish to use one), and you are not as able to check on things yourself.

As far as the market is concerned, the opinions (and that is all they are) of some of the agents local to me is that the rental market still continues to be very strong and demand now as is good as ever. That having been said I have been told of two blocks of flats (when I say block I mean collective units as opposed to actual blocks) in a very desireable town centre location not a million miles from me, where the owner is possible selling for some£60k less than the the individual units could sell for, as he wants ot get his cash out.

For me personally I would steer clear of student accomodation and aim for something for a small family, as generally speaking these are less frought (appreciate that this is a generalisation before everyone jumps on me;)).

Finally, on the question of the mortgage, you would need to speak to a decent broker/mortgage advisor on this. My initial thoughts would be to take more on your own house and less on the BTL, as you will attract a better rate. That having been said, it would depend on whether you envisaged getting any more, as you could then just get the deposit out of your house and leave yourself the rest of the equity to repeat the excercise in the future.

Sorry for the length. HTH

Matt