WWYD - Investment property

[adreamoftoyland]

DH and I are jointly due to inherit some money from a relative's will which we have decided to invest in a rental property. We have some other savings to add to the inheritance but would probably need a mortgage on top of about 30-50k

One option is to buy somewhere near home, which would have to be a one bedroom flat for the money. The other option would be to buy the relative's house by buying out the others in the will. This is a 3/4 bedroom chalet bungalow around 2 hours drive in another county. The rental income would be about the same. There might be a bigger market for the flat but I'd research the rental potential of both.

DH wants to go for the flat as it's the easy option but I can't help thinking we are missing out on the opportunity to keep the house. It's freehold, established, in a really nice area and is a 'known quantity'. It would require a bit of modernisation but its really only cosmetic. What would any more seasoned investors amongst you think was the better option? DH says the distance puts him off if something were to go wrong, but it's only a couple of hours.

[adreamoftoyland]

FWIW, I have looked on rightmove at the area the house is in, and there is only one house available to rent. I'm not sure if that is good or bad!

[YelloDraw]

I would 100% buy something close to where you live - it will make managing it SO much easier.

[adreamoftoyland]

Yes, that's what DH thinks. I think my hesitation would be because it would be small and leasehold.

[pullingmyhairout1]

Closer to where you are but not a flat if you can help it. A 2/3 bed will rent well if picked in the right area. I wouldn't be afraid of having a mortgage but have a hard think about whether you want this for a retirement income when the time comes or whether you would sell at that point and use the capital to invest and make money. That decides whether you should have a repayment or an interest only mortgage.

Also bear in mind you will now also pay the higher stamp duty land tax and as of April next year will not be able to claim tax relief on the interest only aspect of the mortgage.

[adreamoftoyland]

A one bed flat would be the only option due to price, as we are in north London. We would probably have to look a bit further out anyway so there would be some travel involved if there was an issue.

We are in our mid and late 50's so I think that would limit the amount we can borrow, we want it to be as small as possible. It's the leasehold thing that is the kicker for me.

[Pradaqueen]

If you will effectively have cash, look at the auctions. It'll make a big difference to what you can afford 'retail' from an agent. You might find a great freehold bargain in say Essex/Herts which is commutable with no need to borrow. A good letting agent can manage the property for you and although you might want to save the 10% or whatever I can honestly say mine is worth every penny given my properties are an hour away. A mortgage when a property is empty between tenancies could be stressful.

[birdladyfromhomealone]

I would recommend the house. There are more ad more flats being built as we are running out of land so its cost effective to go up for developers.
There are more flats in most towns than houses which makes houses more desirable to families who are much better tenants.
If someone with two kids wants a family space and garden they will want a house not a flat, there will be 10 flats available to 1 house on rightmove at any time, take a look.
We have 9 houses and were advised not to invest in flats or ex HA and we have never had void periods as family houses with outside space are what families want.
Flats appeal to couples and singles and they move whereas a family will want to be long term tenants.

[PoorPatrol]

You need to crunch some numbers as well. Check out the third section of this article which helpfully identifies some costs of renting out properties, tax implications and price to rent ratios. This will help your decision making.

[PoorPatrol]

Oops. Forgot the URL!
moneyweek.com/house-prices-how-to-value-uk-property-23100/

[homebythesea]

Given the rental income will be about the same the only consideration for me would be capital growth. Which might increase in value the most? Also a secondary factor would be which is more likely to rent consistently without gaps. Is a bungalow in that location a desirable rental option for people? Are one bedroom flats in London popular with young renters? As for distance I'm not sure it matters if you opt for full management. I do this with my rental properties as I don't want to be bothered with broken boilers etc- but I pay 10% for the privilege