Property; buy one or buy two?

[_rubinho_]

Due to some unfortunate personal circumstances I was biffed off the property ladder a couple of years ago and have been renting ever since. Through various means (savings, inheritance, being bought out of old flat) I have around £60K in S&S ISAs and bonds. I started a new job in January which has a £8K relocation allowance attached which I must exercise before April next year so I am looking to buy a property quickly.

I work away from home a lot and I live in a commuter centric area so my plan is to buy a nice 2 bed apartment close to the local railway station and live in this and get a Monday-Thursday lodger to bring in some cash. This will cost up to £240K in my area meaning I have a 25% deposit (and require a 75% LTV mortgage). This all sounds a sensible Plan A.

I keep hearing about it being the perfect time to obtain a BTL property so I have been thinking of ways to achieve this too. I am eligible for the NewBuy scheme where you can get a 95% LTV mortgage. My plan was to fund my first property through this using some of my capital and saving the rest and excercise my relocation allowance. Then fund a second one-bed apartment with the remainder of my capital (plus a bit more saving) on a BTL mortgage of around 75% LTV.

Provided my BTL is occupied and my Mon-Thurs lodger stays and pays I should cover the repayments and then have the beginnings of a small property portfolio.

Can anybody see a downside to my riskier Plan B?

[spikeyhead]

Where's the deposit for the second place coming from?

[_rubinho_]

spikeyhead said:

Where's the deposit for the second place coming from?

I either use my £60K capital as a single deposit as 25% on one property or split it and use it as 5% on one (through NewBuy 95% LTV mortgage) and 25% on the second (as 25% on BTL mortgage). I would not buy both simultaneously so then have time to add savings to the second chunk.

[randlemarcus]

I'd personally be quite wary of accepting valuations that impact on my financials from the person who built a house/flat.

I'd be very wary of any sort of new build apartments at the moment.

How do your figures look when not playing silly Government sponsored schemes?

[996c2]

_rubinho_ said:

Due to some unfortunate personal circumstances I was biffed off the property ladder a couple of years ago and have been renting ever since. Through various means (savings, inheritance, being bought out of old flat) I have around £60K in S&S ISAs and bonds. I started a new job in January which has a £8K relocation allowance attached which I must exercise before April next year so I am looking to buy a property quickly.

I work away from home a lot and I live in a commuter centric area so my plan is to buy a nice 2 bed apartment close to the local railway station and live in this and get a Monday-Thursday lodger to bring in some cash. This will cost up to £240K in my area meaning I have a 25% deposit (and require a 75% LTV mortgage). This all sounds a sensible Plan A.

I keep hearing about it being the perfect time to obtain a BTL property so I have been thinking of ways to achieve this too. I am eligible for the NewBuy scheme where you can get a 95% LTV mortgage. My plan was to fund my first property through this using some of my capital and saving the rest and excercise my relocation allowance. Then fund a second one-bed apartment with the remainder of my capital (plus a bit more saving) on a BTL mortgage of around 75% LTV.

Provided my BTL is occupied and my Mon-Thurs lodger stays and pays I should cover the repayments and then have the beginnings of a small property portfolio.

Can anybody see a downside to my riskier Plan B?

Buy one large property (ideally 3-4 beds house) and have 2-3 lodgers. You'll get the rent a room relief, be able to keep an eye on the lodgers and be able to kick them out much more easily (if they are bad) than tenants in a BTL property. Lodgers have less rights than tenants and are easier to manage if you're just starting out in the business.

Once you've made enough money from the lodgers, you can then get your own place and continue to rent out the first property. You'll also get a lot of capital gain relief on the first property when you sell it by doing it this way as well.

[acd80]

I got my fingers burnt on a 1 bed apartment as a BTL. Stay well clear as it will cause you no end of grief especially with incompetent property management companies with ridiculous service charges. My old company upped their charges by 50% in 24 months. I sold it after 4 years at a 20% loss.

[_rubinho_]

Interesting viewpoints all, thanks.

randlemarcus said:

How do your figures look when not playing silly Government sponsored schemes?

Without the scheme, I'd not have enough capital to fund two deposits so my plan would be dead in the water. If achieved, the properties would account for all of my net worth.

996c2 said:

Buy one large property (ideally 3-4 beds house) and have 2-3 lodgers. You'll get the rent a room relief, be able to keep an eye on the lodgers and be able to kick them out much more easily (if they are bad) than tenants in a BTL property. Lodgers have less rights than tenants and are easier to manage if you're just starting out in the business.

Once you've made enough money from the lodgers, you can then get your own place and continue to rent out the first property. You'll also get a lot of capital gain relief on the first property when you sell it by doing it this way as well.

I will look at this. I'm not sure if there is a suitable large property in my price range in the location I am looking at, it's all mostly apartments in an expensive area. I've looked up Rent-a-room relief which is interesting. In respect to capital gains, how does your approach differ to mine?

[996c2]

_rubinho_ said:

I will look at this. I'm not sure if there is a suitable large property in my price range in the location I am looking at, it's all mostly apartments in an expensive area. I've looked up Rent-a-room relief which is interesting. In respect to capital gains, how does your approach differ to mine?

You do not have to pay any capital gain on your "Principle Private Resident" if you sell it within 3 years of vacating it. Even if you sell it after the 3 years period, you only have to pay for the capital gain after the 3 years period (on a pro-rata basis). So by doing it as I suggested, you will have tax free capital gain whilst you live there and for 3 years afterward. You'll also have an additional £40,000 of capital gain "Letting relief" because you have let out your "Principle Private Resident" at some time during your ownership.

If you buy a separate flat to let out and never live there yourself, you won't get any of the above benefits because it has never been your principle private resident.


ETA

Try to get a house rather than a flat as the service charges on flats tend to eat up most of your rental profits.

Edited by 996c2 on Monday 26th November 13:57