UK Landlord Forum / Life

My wife and I have inherited a sum of money and are currently trying to decide what the best way to use it is. One of the options we've discussed is BTL, and having done some reading around the subject I found this site and I'd really like to get your feedback on our ideas.

Both my wife and I work in central London at the moment, and we currently live in Watford. Commuting from there costs us ~£6,500 a year between us, and is also away from our friends who mostly live in south and west London - so we've already identified that we want to move to be closer to our friends and to reduce our travel costs. One option we considered was using the inheritance monies to put down as a deposit on a house in South West London, but the market being like it is I can't see us getting great value, and also we aren't planning on being in London for longer than 3 more years, so the circa £12-15k stamp duty is a big cost to absorb for that length of time.

Instead we are contemplating buying a flat outright in somewhere like Reading, which I know well as I grew up there and is where my mum still lives, and using the rental income from that property to subsidise our rental of a flat/house in South West London. Firstly, does this sound like a viable plan? And secondly, would you recommend investing all of our money into one property, or should we be thinking about potentially buying two properties using mortgages instead to maximise our returns? Given that we are currently renting and don't have a property of our own, how easy would it be to get a BTL mortgage? Finally, in the opinion of the board, which do you think will provide better returns, 1 bed or 2 bed flats?

Looking forward to hearing your advice
Matt

What do you actually want?

Increase to your income from your inheritance money?
Investment in a property for capital growth?
To become a landlord?

Not having a property yourself would certainly preclude you from a couple of main BTL lenders that I know.

Thanks for the reply, much appreciated!

I think from your 3 questions/scenarios, we're looking to achieve #'s 1&2 via #3. We're looking to buy a property as an investment for growth, and because there isn't a better place right now to put that amount of money. We've realised that buying where we want to live right now (but might not want to in 3 years time when we have a family) isn't achievable or sensible given the market and the amount of stamp duty that would be payable on a purchase, so are considering BTL as an option to achieve that goal without exposing ourselves to a) so much risk (I personally can't see the market in London continuing to grow the way it is and don't believe we'd get good value at the moment), b) as much up front cost in terms of stamp duty (£12k on £400k SW London property vs. £2k on £200k Reading property), and c) not having the flexibility if and when we choose to leave London.

Your comment on mortgage availability is in line with what I've read and expected. If I've had a mortgage before, would that make a difference? Also, if we bought the first property outright and let it for a year, would that proof of ability as a landlord etc enable us to take a mortgage using the 1st property as equity at a later date?

Personally I would say no don't do it.

Capital growth is the thing you get from BTL, otherwise the returns and the hassles on a straight "proper" house arn't all that great.

You can get capital growth from investing in property stocks, or Unit Trusts based on the Property sector, these can be combined with ISA's etc and be tax free.

It is however a personal choice. It does have some upsides, but generally it's allot of money to risk on what is a fairly dodgy short term investment ( given the problems with Agents etc)

Certainly you shouldn't invest all of it. Get your ISA's sorted, have a holiday, stash away 6 months cash in a deposit account in case something goes wrong, then if you have enough left for a 3 bed Terrace with Parking and central heating which can give you a straight rental yield of 6% with 1 months void a year built in, then possibly do it. Don't buy something you would live in later, it will always be there to use as equity to borrow some money for your house of your dreams later. Think of it as a long term "pensionable" investment. 30 years on it will be a nice little part of your Estate, and something to thank the person who left you the money for!

Thats my view at the minute, but it does change with what mood Jeremy Vine is in!

Thanks for the reply. In response to your points, any possible purchase would definitely be as a long term 'asset' that we would be looking to keep, and wouldn't be somewhere for us to live ourselves at any point. With your point about yields of 6%, is that yield before costs are taken into account (ie. rental income/purchase price)? Or net yield?

We also wouldn't be looking to invest all of the money, as I'm conscious of the need to have some money that is easily available for emergencies, holidays, etc.

Given that in this scenario you are saying don't take the BTL plunge, in what scenarios does it make sense?

I suspect that if you are thinking of investing your money in the SE of England then you will find that it is very much a sellers market at the moment and you may struggle to get a 6% return without seriously compromising on the quality of the area in which you buy. I operate in a quite a nice part of SW London and most properties I deal with would give you around a 3 to 5% gross yield. If you are brave enough to dip your toe into the student letting market then much better returns are possible but perhaps save that for property number two......

If you are new to the BTL scene then almost certainly you should be looking to do your first let through an agent who can guide you through the process and explain what needs to be done. This will obviously cost but the results of getting something like securing the deposit wrong are financially quite expensive.

I suspect your attitude to risk will govern whether you gear up and use the inheritance as a deposit for a number of BTL properties but that is probably a discussion you should really have with your financial adviser. All I know is that if I had invested wisely twenty years ago I would be typing this from my yacht in the Cayman Islands not a desk in suburbia!