Investment questions

[apm101]

Looking for some wisdom from this font of all knowledge...

Background: Mother-in-law is selling her pad and moving in with us. Part of proceeds will build an extension she will inhabit. That bit is settled.

Question 1: We helped her buy the house from an inheritance), and will realise, net, about £83k. We have a mortgage on our house of about £130k. Interest rate is low (4% I think), and it runs to about retirement time (18 years or so). Are we better off buying a flat some where like Nottingham, where a £60k will net about £650pcm, or early paying the mortgage?

Question 2: My mother-in-law will end up with about £250 or so to invest for herself. My thinking is that we look for properties up country (we live in Kent) that will yield better, and have them managed. My wife and her mother would like to invest closer to here, so we can keep an eye on things, but the yield would be rubbish.

All thoughts very welcome!

[draftsmann]

Hi Alex,

I think you’re in north Kent, not too far from where Greater London starts? My view is that a lot of SE London is very undervalued, ditto the conurbations on the railway line from Abbey Wood to Dartford. The delays to the Crossrail have in my view left that area as good value, which will pick up significantly when Crossrail opens. If you look at Victorian maps of the South East, a lot of what is now SE London was Kent. I don’t see London’s expansion stopping and transport links giving a 30 minute or less commute into central London can only be good for prices.

Just a personal view albeit one where I’ve put my money where my mouth is!

[apm101]

My mistake- current mortgage rate is 1.79%.

[apm101]

Thanks, Adrian. That had occurred to me also- will investigate.

[Yeti]

Does it not play out that a higher rental yield up north would represent a smaller capital appreciation whereby a meagre yield closer to home would yield a higher capital growth over the long term? I always think that when buying to let you have to be in it for the long run. Unfortunately the days of property being a get rich quick scheme are well and truly behind us. I do this professionally to a degree and find that sometimes you just need pot luck to be on your side. I’m a serial flipper by nature looking for the big bucks but I know friends and family who have doubled their house/flat in 5 years just from inflation. Always comes down to location, price paid and...a bit of luck. They say in the trade, “you make your money when you buy, not when you sell”. For what it’s worth I’d be buying closer to home in the south east and revisit your investment in 5 years and see where your at-i think you’ll be very surprised!


Sent from my iPhone using Tapatalk

[Devonian]

650 (7.8k pa) is an incredible gross return (13%) on a 60k purchase. Wow! I’d be asking myself what hassle comes with this first and foremost, likely tenants etc. Then associated costs like rental management and then how to address issues from such a distance. Not knowing your MIL’s age, but would she want all the hassle associated with I guess up to 4 properties? Will it fall on you?

I’ve had 25 years of owning and renting properties out and if I could give one single piece of advice it would be to buy quality. It returns less of course, but the hassle factor far outweighs the return long term. I have one property split into two flats which isn’t the greatest and I’ve had more problems with that than all my other places put together. The return is 10% but just not worth the hassle factor. I’m hoping it’s sale goes through shortly.

Good luck whatever you do.

[wileeeeeey]

Does it not play out that a higher rental yield up north would represent a smaller capital appreciation whereby a meagre yield closer to home would yield a higher capital growth over the long term? I always think that when buying to let you have to be in it for the long run. Unfortunately the days of property being a get rich quick scheme are well and truly behind us. I do this professionally to a degree and find that sometimes you just need pot luck to be on your side. I’m a serial flipper by nature looking for the big bucks but I know friends and family who have doubled their house/flat in 5 years just from inflation. Always comes down to location, price paid and...a bit of luck. They say in the trade, “you make your money when you buy, not when you sell”. For what it’s worth I’d be buying closer to home in the south east and revisit your investment in 5 years and see where your at-i think you’ll be very surprised!


Sent from my iPhone using Tapatalk

Very true. I was reading an article last week where it said lots of BTL landlords from London where buying in Leeds, Manchester, Nottingham etc for the higher yields but you have to think what type of investor you are. Do you want a good yield monthly or do you want to make a packet in 15+ years?

[recaptured]

Is it not easier to just put money into a REIT ? Less hassle and a decent yield.


Sent from my iPhone using TZ-UK mobile app

[David_D]

650 (7.8k pa) is an incredible gross return (13%) on a 60k purchase.

Yup, almost too good to be true!

There's £1,800 SDLT (3%) to pay upfront plus legal fees plus furnishings, etc., so maybe £65k all in? Initial letting fee and 10%, say, recurring management fee. Average void 4 weeks pa? Annual insurance, gas service and safety certificate, maybe £400. Service charges for leasehold property. Accountant's fees if you don't want to do the tax stuff yourself. Consultation on the abolition of Section 21 ‘no fault’, repossessions in the private rented sector will make it more difficult to get your property back. Reletting fees, repairs and renewals. Local authority council licence (Nottingham c£800 for up to 5 years).

Legal and estate agent's fees when you sell up and a (much) higher CGT rate if you are lucky enough to make a taxable gain.

Circumstances always vary but "remote" landlords piled into new "apartment" developments around where I am in 2005-2007 because they looked cheap compared to the South East and the buyers didn't know the area. (And that's area as in town/city but even more important, "good" and "bad" parts.) Many of those properties are not worth what they cost even now.

I personally would not look to buy a single buy to let. It's getting harder and the risks outweigh the potential return, for my money. Low interest rates and full tax relief made it different a few years ago for "portfolio" investors. The tax changes are definitely having some impact and there is anecdotal evidence of people selling up.

If you haven't already, I'd be considering whether further pension contributions were appropriate. The benefits of that partly depend on your tax position now and anticipated post-retirement.

Anyway, good luck whatever you decide to do.

[/QUOTE]