Updating post from Reddit.
Just a question for the more experienced landlords on here.
I am currently lucky enough to own a three bedroom house in London and a two bedroom bungalow in the south east outright. The bungalow is currently rented out, but it’s where I plan to retire to (in the early 2030s, so six/seven years from now).
My house in London is currently worth about £800k and would rent for about £3200pcm.
I’m wondering, would it be better to rent this house out, or sell it and buy three two bedroom flats in a smaller city like Southampton or Plymouth for £250k each which would rent for about £1100pcm?
Pros of having three flats would be less likelihood of no income as presumably it’d be rare to have all three empty at once, but a single house could have void periods. Also easier to get tenants as with a house you’d be limited to families (have done HMO before and NEVER doing it again). I’m also emotionally attached to the house in London and think I would find it hard to see other people living there.
Cons: more to go wrong with three flats, both upkeep and with tenants; London always has strong demand, but this may not be the case in a smaller city; risks around service charges and unexpected maintenance bills.
Am I evaluating the risks properly? Anything else I should be aware of?
Many thanks.
The 3 flats would be more of an overhead in time and money for a small uplift in profit. Personally I’d stay in London. The rent will go up no doubt. Easier to manage it home and great returns.
You would be better off buying 3 flats in somewhere like tunbridge wells over Portsmouth. You'll command a higher rent as it's 45 minutes from London bridge and prices will only increase over time. You can pick up a 2 bed from 200k, and if you're buying outright the related costs for property will be the annual service charges and leases. Yes you are correct that the single property would have less maintenance but you'll be knackered if the tenant doesn't pay, turns it into a shithole or you cannot get tenants. Mitigate your risk. Additionally, you could always sell 1 of the flats if you need equity release.
Why is it one or the other? From a retirement perspective keeping the property is the better move plus transaction costs on 3 purchases will be a lot. 3x solicitors costs and SDLT etc. Rent the house out. Get a BTL mortgage on it to raise capital and buy a flat and see how it goes.
An interesting idea - was focussing on being debt free in retirement rather than having a big BTL mortgage. But something to consider!
The reason why property investment is so good in the long term is leveraging. You borrow a fixed amount of money over an interest only loan.
Use the money made from the flat to help pay down the mortgage on the house. By retirement time you will have 2 properties with a greatly reduced debt.
What I would do is take out 300k in mortgage from the house. Buy two flats each with smallish mortgages and they will all pay themselves down over the 7 years till retirement. Sell one to pay the remaining mortgage off or just keep them doing there thing. More properties equal more income.
Also have you ever been to Plymouth the cities rental market was students and so there is a lot of competition the prices of flats are like £725pcm it really is not worth it as an investment with those sorts of numbers. Houses in the area rent for like £1100pcm.
A house converted into three flats might work better.
A good idea but unfortunately not possible given the size of the house.
No I meant buy something in three flats, probably in a provincial city.
I decided long ago that the way to go was to spread the risk among more smaller properties. Now you have to consider the additional costs of selling one property and then paying stamp duties on the ones you want to buy. Your choice.
Flats have the higher costs (service charges) and a little more upkeep.
But more stability overall, as it's very unlikely all 3 will be vacant together. Also gives you a bit more scope to play around with price if you're struggling to fill some.
Depends on what you want to do though more than anything.
Little more work, more upkeep risk, less cash flow risk
For the sake of an extra 100 quid a month I'd keep it as is, and spend a little of that income on insuring the rent. Less overheads. Just manage it carefully and keep an emergency fund.
Fwiw my area (Herts) you'd get a far better yield on 3 2-bed flats than one big house. Just far more demand.
Yes that’s what I’m thinking: a bigger pool of tenants to choose from.
How about renting rooms of the house separately?
“have done HMO before and NEVER doing it again”
Why not?
Because it’s an absolute pain in the arse. Someone is always moving in or out. A group of unrelated people take less care of a place than a couple. And the tenants will invariably have fallings-out which you’ll be expected to adjudicate.
Sounds about right. Thanks for the reply.
Don't family houses in London have some of the worst Rental yields in the entire UK?