£190,000 investment flat in London. Plausible? Sensible?

[EllenTheEgret]

I would really appreciate some advice about the above, which I am at the very very early stages of considering.

I currently live in London in a house owned outright by my DP. I have absolutely no reason to think we won't live happily in this home for the rest of our lives but of course I need to be sensible and make sure that I am financially secure whatever happens.

I have an income of around £35,000pa and savings of just over £30,000. I think my parents would help me out with maybe £5,000 and would probably be willing to act as guarantors on a mortgage if necessary. A very quick Google suggests that I could maybe get a £160,000 mortgage and therefore afford to buy a £190,000 flat. The idea would be to rent it out to cover the mortgage but that i could live in it if necessary if it all went tits up with dp (hopefully not!). Obviously it would be tiny and in a rough area but I can live with that. I have had a quick look at studio flats in Ilford and reckon I could get £700 a month which would cover most of the mortgage I think.

What are your thoughts on that idea? Would it be a terrible investment? What else do i need to consider? Does anyone know whether the government schemes to help first time buyers still apply if it essentially going to be a buy to let? Any other thoughts?

Thank you for any advice!

[Solasum]

It is never a good idea to empty your savings. What would happen if you lost your job, or got unexpectedly pregnant?

Would you want to manage the property yourself (do you have expertise in plumbing, DIY, etc) or would you get a managing agent? What would their charge be?

In a worst case scenario, could you afford to redecorate after a nightmare tenant, and/or the financial hit of having no tenant?

[Marmitelover55]

I'm considering an investment property too but am not an expert as yet!

By my calculations that would provide a gross yield of 4.4% (£700 * 12)/£190,000. That is before costs e.g. Agency fees and maintenance costs and without taking into account any voids where there are no tenants. I'm not sure that would be a big enough return for me. But of course you would hopefully, assuming we don't Brexit benefit from capital growth as well.

[TooMuchMNTime]

well on one hand I know a bit about the area and it's expected to go up and coming....and Crossrail will help.

on the other hand, on a personal level, I would want a much higher level of savings before going for an investment property tbh.

have you accounted for void periods, maintenance and repair costs, times that tenants don't pay and run off or have to be evicted? I think property can be a good investment but please don't turn into one of these idiot landlords who wails "I didn't think of that" every time something goes wrong.

[EllenTheEgret]

solasum in the event of pregnancy or job loss I guess I would be relying on my parents or dp to bail me out. No I don't have any diy expertise at all!

Marmite yeah it doesn't look great when you put it like that

Hmmm.

[sparechange]

Of course the government schemes don't cover buy to let!

In some circumstances, if you bought somewhere to live in via a scheme, you could rent it out if you had to relocate for work etc. But you would need to show proof.

You need to speak to a mortgage broker because buy to let mortgages aren't worked out just on what you earn. They also take into account the rental income.
Most want the mortgage to be no more than 70% of the rent, so if you get £700 a month, the maximum mortgage would be capped at whatever gives you a payment of £490
And they'll stipulate that first time landlords go via an agency, so they'll take 10% off as well.
And you have to pay income tax and insurance etc

How many months could you afford to pay the mortgage if it was empty or if the tenants weren't paying their rent? If the block had major works and you got a £10k bill for your contribution towards new windows or a roof, could you cover it?

[SauvignonPlonker]

With the new taxation charges, I think there will be very few people who make a profit on BTL. It's now really only for those with tiny mortgages or cash buyers.

Just as an example, I just broke even last year, on a 20K mortgage, because I had lots of capital expenditure - new boiler (£1.5k) & lots of repairs, redecoration, agency fees etc.

I'd see an IFA & see what options you have.

[DrWhy]

Yep, bear in mind with the new rules coming in you'll pay tax on almost all the income (just less agents fees, insurances and repairs) so if you are earning £35k you'll pay 20% on the first £8k of income and 40% on anything above that.

[DrWhy]

To clarify, I mean the first 8k of rental income, until you hit the £43k higher rate tax bracket when it will go up to 40%.

[bookgirl1982]

You will need a 25% deposit for a buy to let plus the fees. And the rent will need to be 145% of the mortgage. I don't think your figures stack up.

[scarlets]

Are you absolutely set on London and its outskirts? You could spend £100k on a small flat elsewhere with a £25k deposit, thus preserving £5k of your savings, whilst still having a (hopefully) growing asset and no debt to your parents (I presume it would be a loan not a gift).

[MonsterINTHECupboard]

Not useful if you needed somewhere to run to in the UK, but have you considered buying abroad? You could use it a few weeks a year and rent it out. You'd get more for your money and cheaper holidays.

[EllenTheEgret]

Hmmm, thanks all, i may have to have a re-think!

scarlets - not set on London, don't think I'm brave enough to buy abroad though monster.

[TreadSoftlyOnMyDreams]

I'd suggest that you look outside London. Rental yields are much better in large UK cities and towns
www.thisismoney.co.uk/money/buytolet/article-3083276/The-best-postcodes-buy-let-yields-capital-gains-returns-revealed.html