MattW

My Dad passed away 7 years ago last week, like most Fathers he was there to offer advice and encouragement and warn against pitfalls. These days everything is down to me, so this one I'm offering up to the SN wisdom.

Upside
3 bed new build terrace with garage discounted heavily (15k), good projected rental income covers mortgage easily.
Local agent is impressive and no issues with active management of property.
Got a mate who is interested in renting it.

Downsides
25% deposit would leave only 12 months living income available if work dried up today, so living off credit cards in Sept 2010.
Deposit would have to come out of company and I'd owe tax on it.

Would you take the risk for what maybe be 20k profit in 2-3 years?
Would you as an IT contractor who has not been out of work at all during the recession?

The money is going to be sitting in the company account earning 0.1% interest if it doesn't get used on this.

The Chief

I'm no propert expert but i'd say go for it - you can if things get tight sell the house.

A few have gone on my estate recently and have been sold within weeks, if they are competatively priced they will sell.

Your only regret will be wishing you had done it if you dont.

JPL

As he said ^^^. If you can get a 2nd property just do it. I am after property number 3.

SunnySideUp

Yep, buy now ..... before it all explodes!

But buy cheap!

hodgy0_2

ssup has hit the nail on the head

everything is so much easier went buy at the right price

thesyn

I don't mean to sound negative but I would look at how badly things could go wrong if work dried up, you had no tenant and could not shift the property. Would you lose your current home or be made bankrupt?
I wouldn't be swayed by SSU's optimism as despite the signs of financial improvement I still think that things will get worse before they improve.
Also if you do it best not to rent to friends as it is bound to go t*ts up.
All IMHO.

MattW

Well, I think after a year out of work I'd be jumping into Permiedom just to keep sanity so i think the buffer is enough.

Just looking at rightmove tonight and there are lots and I mean lots of 2/3 beds in that area for sale. I need to study the market I think, the gap between these houses can be 2/3 k for example and that extra gets you a much nicer house. Got to get my head round what people look for in 2/3 beds to make sure the one I buy is a desireable property when i come to flip it.

JPL

Forget the negs... t'interweb is full of negatives. If you have the deposit and the house is rentable, do it.

chrisdicko

iTrader: (21)

I'd definitely do it mate!

fatherpierre

The 1st thing I'd do is get REAL advice, not SN 'advice'.

What happens if you your mate doesn't come good and you're left with a void? Same again when winter hits, the economy stops being artificially propped with printed money and your asset drops 20%?

The above isn't guaranteed, but neither's a profit.

BTL is dead in the water and you're risking buying a new build - they suffer most as no one wants them, and if you need to sell you'll find it hard. It's been discounted for a reason as nobody wants it.

Get proper advice, not SN "I'd do it" as they aren't the ones risking the cash. Be pragmatic and do your homework and get real advice from someone with no vested interest in you buying. An estate agent will lie to you so you buy. They lie for a living so they earn from you.

Do not take financial advice from SN, or an estate agent!

cookstar

iTrader: (6)

If you only have your house now, then you could look to getting a second residential mortgage for a second home, (easily available for 85% LTV now)then inform the mortgage company afterwards. I am in the process of buying our 3rd rental flat, and am taking a gamble but sod it, if it all comes off I'll be very nicely off come retirement time.

What I would say though is only do it if you could manage to satisfy both mortgages if the property is empty for extended periods.

If you decide to go for it then good luck.

Simon K

Im a contractor too, and I would buy the house. What ever skill / area of IT your in seems to be okay, or you have a long contract. When does the contract run out ? Any chance of an extension ? Do you forseen any heavy tax / corp bills coming ? Big personal tax bill ??

12 months of money incase your benched is good. :-)

Therefore I would take the gamble, the 15K discount, the overall package, mmm definately. Im not some who risks anything, but even I would do this.

I was in a similar position in 2007/2008, I didnt buy another house, but I paid off my own house to now be morgage free. I then took 2008 off and came back to work via the credit crunch. If your a good contractor, good experience, you will be okay, as I found a contract and have been here 6months ( extended for another 3 ).

I now plan to pay off my partner's house which she is renting out, then Im going to buy another one.

Do it, if it goes wrong ,sell the house. Biggest gains come from the biggest risks !

SBK

MattW

Good advice FP, only problem is I don't think anyone knows what is really likely to happen. I'm not sure nobody wants it, I heard a story about what the mortgage companies are doing which is potentially stifling the market. that is they insist a new product is taken out when moving, so someone in a 2 bed paying 0.5% suddenly asked to pay 5%+ on a new mortgage.

It's around the corner so I'd be suprised they don't ask questions. I'll explore that though.

I could for a while, the mortgage will be about 475 so will eat into my cushion but if i'm still working it will be fine.

There are two of us in the company but my half is split with the missus, so I keep my personal tax low. Artic Systems etc. All calculations take into account Corp tax.

Simon K

MAttw, arent the IR trying to stop that split divy arrangement ?? Like the IR35 ruling, there's another one to do with your wife being a directory and having equal dividends but not really working for the company ?

Do you ever go on to :-

Contractor UK - for UK IT Contractors, IT Contracting and Computer Freelancers or http://www.pcg.org.uk/

I would take the chance mate. If it goes wrong, then sell the house.

SBK

MattW

They postponed legislation due to the recession, fill your boots while you can.

Yes I post on contractorUK


Edited to say, we don't use agencies for our work and what with working practices I'm sure we are outside IR35.

cookstar

iTrader: (6)

The mortgage company couldn't give a hoot where it is mate, if you want the number of someone that has sorted mine out with no problems drop me a PM.

MattW

Thanks cookstar, the guy I've spoken to mentioned the words "mortgage fraud" which put me off a little.

Deep Singh

MattW, I think you can judge the quality of advice telling you to buy from the fact that they haven't asked you any facts ie area, local job opportunities, proximity to local transport, even what your rental yield will be.

Anybody who says 'yeah buy it mate' without at least those facts (and plenty more) is......well I won't say anymore.

What you have to decide is whether you feel house prices will really rise over the next two years and how much you are prepared to risk on that premise.
To state the obvious, your investment will be geared, so if house prices come down by another 10% you've lost half your money, if they come down by 20% you are wiped out.

Can you really say, given the unprecedented volatility, that you are sure that the market will not tank further?

Your cash may only be getting 0.1% in the bank but that's better than losing it. Remember, during a time of deflation your cash in some ways is growing, ie your £ will buy MORE property, more equities etc.

Sometimes its more about wealth preservation, than wealth creation, and to me it seems like one of those times. History doesn't always repeat itself, but it does imply that there is more downside to come.

I wish you the best of luck

Simon K

Deep Singh, you are one clever dude. :-)

You're so right, I didnt even think to ask him those facts, as I assumed he'd done his homework. I can only answer from a position regarding contracts, and where its safe to invest from a work / contract position, and the questions I would ask myself if I was in the similar situation.

A very good friend of mine, who I worked with for years, was an Indian DBA contractor. He was one of the most funnest, and clever guys Id ever worked with, and it was due to his accounting advise, tips and tricks that I managed to pay my house off.

when it comes to properties, investments, then always listen to an Indian !!!! :-)

SBK

MattW

Never assume

We are talking Swindon, fairly typical southern town with a decent track record of employment, traditionally at or near 100%. The last year has been difficult due to the reliance locally on Honda, but an upturn will help.

TBH asking advice on here was to generate questions such as you have all raised in order to try and make a balanced decision. At the moment I'm very much erring on the side of letting this one go and watching the market over the Xmas period with a view to maybe making a move in the new year.

LeeMac

iTrader: (1)

I would never buy a house as an investment that was in walk in condition esp for rental
And dont buy a property as an investment if you cannot get a 20% gain by selling on straight away
4 things I work to - location, roof, windows, electrics
the rest you can do yourself
and dont rent to a mate