Buy

FROM ONE PROPERTY TO TWO

You own your home and want to own another property. How easy is that to do? What’s the best way to go about things?

It’s not easy to own a second property, but it’s not impossibly difficult.

How you go about things will depend on the type of property you want to get: a second home or an investment (residential buy to let) property.

Unless you are a cash buyer, it is probably going to be easier to buy an investment property.

If you are looking to make money on your second property, an investment property is likely to be your best bet.

You could try to get the best of both worlds by finding a second or holiday property which you use yourself part of the year and rent out as an investment the rest.

See also: ways to buy a property with a property

1. Second home 

A second home is property which is not your usual residence and which you use for:

  • Work purposes or
  • Holiday purposes.

You could consider buying a second home for work purposes if the distance between your usual residence and your place of work involves a commute of several hours each working day. 

It could be time-saving, convenient and cost effective to buy a second home for living in during the working week rather than commute daily by road, rail or air.   

If you are travelling to London to work, you will need deep pockets to afford a second home these days; however, if you are working out of London – somewhere like Manchester, Liverpool or Leeds – it may be an option that makes perfect financial sense.

If your second home is for holiday purposes, you are likely to use it for frequent or long vacations, perhaps making it available for friends and renting it out at other times.

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2. Investment property 

If you want a second property for investment purposes, you will rent out the property to a tenant and:

  • If you buy with a mortgage, you will use the rent to pay the mortgage
  • If you buy without a mortgage, you will have the rent as additional income.

In both cases, you will benefit from any capital uplift in the value of the property over time.


MORTGAGE MATTERS
Is getting a mortgage easy? (looks at the ins and outs of getting a mortgage)
5 must know mortgage facts (key features property owners must know)
10 ways to clean up your credit act (and improve your chances of a mortgage)


3. Buying a second home 

Unless you have the funds to buy without a mortgage, the first thing to consider is the deposit.

There are a great many ways to raise a quick house deposit.

If you already own your own home, an efficient and effective way to raise a deposit is to release any equity you can – subject to the loan to value (LTV) rules of your lender.

You can take out equity by various methods including:

  • Selling
  • Remortgaging
  • Taking out a second mortgage
  • Taking out a further advance
  • Using an equity release scheme.

For a second home you will normally need a larger deposit than you would for a buy to let purchase – often at least 35 % compared to 25% or even less for buy to let.   

Further, the availability of mortgages is not so large and rates may not be as competitive. Seek out a mortgage broker who specialises in second home mortgages.

If you are buying a property abroad you may not be able to get a mortgage at all and may need to pay cash.

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4. Buying an investment property

You can raise a deposit to purchase a buy to let property in the same way as you would for a second home, with the advantage that you can normally provide a smaller deposit – making your purchase more affordable.

The market for buy to let lending is large and a wide range of mortgage types and products will be available to you – at very competitive rates at the present time.

Use price comparison websites, speak to your current lender and consult an independent broker in order to find the best mortgage deals for you.

If you buy with a mortgage, it is very important to carefully consider whether to go for an interest only or repayment mortgage. 


PROTECTING YOUR PROPERTY
Don’t ignore maintenance & repairs (the first level protection for your property)
5 must know things about building insurance (know them or risk paying the price)
3 biggest mistakes of UK homeowners (errors which will cost you dearly if made)


4. Pros and cons – second home

If your second home is for work purposes, you are likely to benefit from less travelling time and lower travel costs.

If house prices are on the up, you will benefit from two lots of capital gains – of course, if they are going down you will be hit twice in terms of losses.

If your second home is a holiday home, you will be able to enjoy the lifestyle benefits and status symbol of having accommodation you can use as you wish – enhancing the downtime, enjoyment and sense of wellbeing of you and your family.

On the other hand, a vacation home can prove to be poor use of your money if not chosen with the highest level of due diligence – especially in the case of foreign properties. 

You need to consider whether your purchase will be a good use of your money, considering points such as:

  • Whether you will use the property enough to justify the financial outlay
  • Security, maintenance and running costs
  • Long term viability of your ownership
  • Likelihood that you will tire of the property or its location
  • Prospects for future capital growth
  • Whether it is the best use of your money overall.

Further considerations apply if you are buying a property abroad.

The investment value of a second home is less than an investment property in the sense that you will be paying for any mortgage, increasing your monthly budget, increasing your financial vulnerability. 

In contrast, with a buy to let, your tenant will pay the mortgage.

You can reduce the drawbacks if you can make your second home more of an investment by letting it out, as and when possible, gaining the benefit of a rent.      

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5. Pros and cons – investment property

The big plus if your second property is a buy to let property is the investment element.

You will be acquiring an investment asset. If you buy with a mortgage, you will be benefiting from leverage or gearing.

The rent of your tenant will pay the mortgage each month.

You will benefit from any excess rent and any growth in the capital value of the property during your period of ownership.

The downside is the increasingly hostile environment in which buy to let landlords must operate.

Renting residential property is being squeezed from many angles, including:

  • Reducing returns
  • Increasing taxation
  • Greater regulation.

The impact has been so great, many people are asking the question whether it is game over buy to let

One important point to take into consideration is the government’s punitive taxation of rent where a buy to let property is held in the name of an individual.

For some people, the tax burden is less if the buy to let property is held by way of a limited company.

You should seek the advice of an accountant as to the best way for you to own a buy to let property.

6. Conclusion 

If you already own one property, perhaps the biggest hurdle to owning a second is your ability to get another mortgage.

For that you need to take particular care to protect and improve your credit record.

If you can do that, it should not be too difficult for you to move from being a one property owner to being a two property owner.

 

Have you been able to move from one property to two? How did you manage to do so? Please leave your comments below.


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Dalton Barrett
Rebel Property Coach

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My website is: www.rebelpropertycoach.com

 

 


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