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i want to invest £600k in property

Hi

Here are my circumstances:

1. I have £600k cash which is currently invested in various very low-interest places.

2. I have a family income of £9k/month after tax.

3. I want to buy some property with the intention to rent it out and own it completely within about 10 years.



This is my plan...

I buy a 2 bedroom flat in Westminster which will cost about £1.2m - 600k cash and 600k mortgage. I can get a 10 year fixed rate mortgage at around 3.2%.

The average rate of growth in central London property prices is expected to be around 4% (conservative estimate). And the rental yield in Westminster is around 3.2%.

I calculated that the mortgage repayments will be around £5.9k per month, offset by about £2.6k rent (after fees). So I will be paying about £3.3k from my earnings each month for the next year 10 years.

At the end of the 10 years, the mortgage would be repaid and I should have a property worth about £1.7-1.8m.



Questions

Have I made any assumptions here which are unfair?

Should I utilise more leverage?

How would you invest £600k?
(edited 8 years ago)
Thank you for waiting sir, if you could just message me your property preferences, a recent copy of your credit score, your long card number, your account number and your pin number I will be able to calculate whether any more lucrative options are available.
(edited 8 years ago)
I think the main assumption you've got wrong here is by posting it in the chat section of a student website, here there be trolls. :tongue:


I'll move the thread to the finance section of the site, but you might be better off trying elsewhere.

@Reue this is one of your areas of expertise isn't it? Any advice for the OP here?
(edited 8 years ago)
Reply 3
Original post by moonkatt

@Reue this is one of your areas of expertise isn't it? Any advice for the OP here?


Indeed

Original post by S1S2

Have I made any assumptions here which are unfair?


Assuming that you will get a £600k BTL mortgage with only 50% LTV and borrowing at over 5 1/2 x annual net income. I'd be extremely surprised to see a bank accept this level of risk.

You can write off the ~3% rent yield as this will cover estimated inflation. Its why most BTL mortgages are interest only - The rent covers the interest + inflation and they owner relies on capital appreciation.

What are you going to do about the huge capital gains tax bill?

Original post by S1S2
Should I utilise more leverage?


If it's unlikely you'll be able to leverage the current amount.. what hope do you have of getting more?


Original post by S1S2
How would you invest £600k?


Pay off any existing debt/mortgage. Invest in a cheaper BTL outright or spread across a small portfolio. Invest the rest in index trackers, bonds or funds of funds.


*note: I am not a financial advisor or mortgage broker.
(edited 8 years ago)
Original post by Reue
*note: I am not a financial advisor or mortgage broker.


You may not be a financial advisor or a mortgage broker, but you do moderate the money section on a student forum, and by God that has to count for something.
Reply 5
Original post by Birkenhead
but you do moderate the money section on a student forum, and by God that has to count for something.


It's yet to fund the mortgage :moon:
Reply 6
Thanks for your reply!

Yeah HBSC premier are willing to give me a BTL mortgage with a LTV of up to 65% actually on a repayment basis.

There is no way to not pay the capital gains tax this way.

How do you feel about my comments on the central London property market prices rising by 4% a year or do you think the bubble will burst?

Original post by Reue
Indeed



Assuming that you will get a £600k BTL mortgage with only 50% LTV and borrowing at over 5 1/2 x annual net income. I'd be extremely surprised to see a bank accept this level of risk.

You can write off the ~3% rent yield as this will cover estimated inflation. Its why most BTL mortgages are interest only - The rent covers the interest + inflation and they owner relies on capital appreciation.

What are you going to do about the huge capital gains tax bill?



If it's unlikely you'll be able to leverage the current amount.. what hope do you have of getting more?




Pay off any existing debt/mortgage. Invest in a cheaper BTL outright or spread across a small portfolio. Invest the rest in index trackers, bonds or funds of funds.


*note: I am not a financial advisor or mortgage broker.
Reply 7
Thanks :smile:


Original post by moonkatt
I think the main assumption you've got wrong here is by posting it in the chat section of a student website, here there be trolls. :tongue:


I'll move the thread to the finance section of the site, but you might be better off trying elsewhere.

@Reue this is one of your areas of expertise isn't it? Any advice for the OP here?
Reply 8
Original post by Birkenhead
Thank you for waiting sir, if you could just message me your property preferences, a recent copy of your credit score, your long card number, your account number and your pin number I will be able to calculate whether any more lucrative options are available.


Seems legit...
Reply 9
Original post by S1S2
Thanks for your reply!

Yeah HBSC premier are willing to give me a BTL mortgage with a LTV of up to 65% actually on a repayment basis.


Does this also include passing their affordability check? Its still a large multiple of income.

Original post by S1S2
There is no way to not pay the capital gains tax this way.


Indeed, which makes it a much less attractive investment

Original post by S1S2
How do you feel about my comments on the central London property market prices rising by 4% a year or do you think the bubble will burst?


I feel that a 4% return is extremely low given the level of risk and work involved.
Reply 10
Original post by S1S2
Hi

Here are my circumstances:

1. I have £600k cash which is currently invested in various very low-interest places.

2. I have a family income of £9k/month after tax.

3. I want to buy some property with the intention to rent it out and own it completely within about 10 years.



This is my plan...

I buy a 2 bedroom flat in Westminster which will cost about £1.2m - 600k cash and 600k mortgage. I can get a 10 year fixed rate mortgage at around 3.2%.

The average rate of growth in central London property prices is expected to be around 4% (conservative estimate). And the rental yield in Westminster is around 3.2%.

I calculated that the mortgage repayments will be around £5.9k per month, offset by about £2.6k rent (after fees). So I will be paying about £3.3k from my earnings each month for the next year 10 years.

At the end of the 10 years, the mortgage would be repaid and I should have a property worth about £1.7-1.8m.



Questions

Have I made any assumptions here which are unfair?

Should I utilise more leverage?

How would you invest £600k?


Obviously you'll have factored in the £64k SDLT right?

And the fact that after 10 years of renting you'll need to do the place up again.

As Reue says, it seems like a fair bit of work for little reward.

If you want to make money then surely you'd be better of putting it in higher yielding properties in the South East?

Ones that are freehold...
Reply 11
Original post by Quady
Ones that are freehold...


Oh wow, cant believe I missed that.

Quady is absolutely correct; London leasehold fees will wipe out a large chunk of that rental yield as well.
Original post by Reue
Oh wow, cant believe I missed that.

Quady is absolutely correct; London leasehold fees will wipe out a large chunk of that rental yield as well.


What fees? I thought you just bought the apartment lease for 100 years (ish) and that was that.
Reply 13
Original post by Rakas21
What fees? I thought you just bought the apartment lease for 100 years (ish) and that was that.


No, most leaseholdings also have annual fees associated. Things like gardening, communal areas, roofs etc. They can run into the £000s each year.
In most places freehold and leasehold seems to cost basically the same since the leasehold fees include buildings insurance. I don't know if that's different in London or at the 600k end of the market though.
Original post by Birkenhead
Thank you for waiting sir, if you could just message me your property preferences, a recent copy of your credit score, your long card number, your account number and your pin number I will be able to calculate whether any more lucrative options are available.

Don't forget his IBAN number and BIC code.
Reply 16
Original post by SmashConcept
In most places freehold and leasehold seems to cost basically the same since the leasehold fees include buildings insurance.


Not a chance. My building & contents insurance is <£100. All leaseholds I've looked into have charged significantly higher annual fees.
Do you currently own a house? Or are you renting?


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