Do we stick or twist?

Do we stick or twist?

9:56 AM, 13th October 2014, About 9 years ago 1

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We own our home in South East London with no debt and are fortunate to own a property in Portugal that we rent out over the summer to supplement our pension. Do we stick or twist?

In 2013 we bought a buy to let flat with a 60% mortgage and following lots of great advice from Property 118 and the NLA we have enjoyed a decent income and some capital gain. We purchased the flat to set up a pension up for my wife to A) utilise her tax allowances and B) If I get hit by a bus she only gets 50% of my occupational pension .

We did a light refurbishment on the flat and enjoyed doing the work and I have enjoyed the continued learning about being a landlord.

We have been lucky and not had any serious problems.

Following Mark’s advice we are banking all the rent at the moment to build up a 20% contingency fund, albeit we could provide this from savings if it was required now.

The question I would like to post is whether it is sensible or a step too far to raise equity from our home to fund the deposit another buy to let flat?

What are the additional risks we would be taking on?

Buying a flat in the same area only seems to work on income if we get a 2 year fixed rate,  once we get to 5% or 6% interest rates the rent doesn’t cover the costs.


Christopher Marsden

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Mark Alexander - Founder of Property118

10:05 AM, 13th October 2014, About 9 years ago

Hi Chris

Without knowing more about your financial position it is very difficult to suggest anything specific to you with confidence.

If you are looking to produce an immediate income based entirely on financing it is very difficult and carries high risks.

If, however, you are looking to invest you cash (you don't say how much you have) to buy a better income than you would get from a deposit account that's far less risky, particularly if you leave yourself some money liquid for "a rainy day".

Another factor to consider if you are borrowing is disposable income. However, if you have this then you could argue there is no need to take any risk at all.

I look upon property investment as a way to build wealth for retirement. If you are already retired then property investment can be looked upon as buying a better return then one can obtain elsewhere, but I would urge greater caution in respect of borrowing money in this scenario.

All that said, I'm a cautious long term investor. You, on the other hand, may be a short term speculator with a strong view that property values will increase significantly over the next few years.

There are no right or wrong answers today - only time will tell us whether our decisions made today are the right ones.

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