1 bed vs 2 bed, do my numbers make sense?

Collapse
X
 
  • Filter
  • Time
  • Show
Clear All
new posts

    1 bed vs 2 bed, do my numbers make sense?

    here are my figures (property/rental prices based on my local market):

    1 bed flat
    purchase price: £50,000
    25% deposit: £12,500
    75% mortgage: £37,500
    int. only monthly mortgage payment (4% 2yr fixed): £125
    monthly rental income: £350
    monthly insurance, gas cover etc: £40
    monthly net profit: £185

    2 bed flat
    purchase price: £75,000
    25% deposit: £18,750
    75% mortgage: £56,250
    int. only monthly mortgage payment (4% 2yr fixed): £187.50
    monthly rental income: £450
    monthly insurance, gas cover etc: £40
    monthly net profit: £222.50

    so, on the surface I make £37.50 more per month on the 2 bed, however I've put in £6,250 more to the deposit which would take a decade+ to recoup. assuming I can rent out the 1 bed as easily/frequently as the 2 bed, surely I'm better going for the 1 bed and saving myself the additional £6,250 that I'd have to put into the 2 bed deposit, no?

    also, appreciating none of us have a crystal ball, is the 1 bed likely to appreciate in value at the same rate as the 2 bed e.g. both worth £25k more a decade from now, or do they tend to trend differently? if the same, this only adds to my thoughts that 1 beds, for me, make more sense?

    am I missing something?

    #2
    Is the ground rent/lease costs that same on both properties?
    "I'm afraid I didn't do enough background checks apart from checking her identity on Facebook" - ANON

    What I say is based on my own experience and research - Please don't take as gospel without first checking the gospel yourself.

    Comment


      #3
      Originally posted by Landlord Dave View Post
      so, on the surface I make £37.50 more per month on the 2 bed, however I've put in £6,250 more to the deposit which would take a decade+ to recoup.

      [...]

      am I missing something?
      Yes, you're assuming that the £6,250 is expenditure that you need to recoup - it isn't; that money is still yours, you've just transferred it (eg) from a savings account, where it was earning you X% interest per year, to bricks and mortar, where it's effectively earning you Y% per year. To be equitable, your calculation for the 2-bedder needs to factor in the extra expenditure of whatever interest you've lost or could otherwise earn on that £6250


      is the 1 bed likely to appreciate in value at the same rate as the 2 bed e.g. both worth £25k more a decade from now, or do they tend to trend differently?
      Well in general, all things being equal I'd expect them to appreciate (or depreciate!) at a similar % rate. If you were doing the sums on a £50K 1-bedroom flat versus a £500K mansion, you wouldn't expect both to have increased in value by £25K after 10 years, would you?

      Comment


        #4
        Originally posted by Landlord Dave View Post
        am I missing something?
        Is there a Service Charge?

        If so, a 2 bed could have a higher outgoing than a 1 bed - they do in the apartment block I have a 2 bed apartment in, based on a set value per square foot.

        Comment


          #5
          If you put the additional deposit into a savings/investment scheme that returned 3%, you would earn between £17 and £22 a month (obviously starts lower and increases over time.
          Over your decade, you'd make about £2,300 in a savings account and £4,500 in the property.

          So the property investment is a good bet as it returns more unless savings interest rates change to 6% - at which point a lot of our calculations would change!
          Also provided you can decide when to sell, so that the property doesn't depreciate.

          Worst case scenario, the 1 bed flat would still be (slightly) profitable at 10% interest rate with no change of rent (this is so unlikely it looks daft, but I use it as a planning aid to keep me sane)
          The 2 bed flat would be losing a little, but there's not a lot in it.
          When I post, I am expressing an opinion - feel free to disagree, I have been wrong before.
          Please don't act on my suggestions without checking with a grown-up (ideally some kind of expert).

          Comment


            #6
            thanks all for your replies/advice.

            if i'm reading your query correctly wannadonnadodah there are no ground/lease costs, the tenure is freehold.

            ericthelobster, i take on board your comments re: the £6,250 is part of the investment rather than expenditure. if i'm being honest part of me is thinking i could use that money for personal stuff (rather than lumping it into a deposit) 'if' the 1 bed approach with lesser deposit is as good an investment as the 2 bed approach. so in that sense i'd look on it as 'saving' the £6,250 for other things e.g. gambling, woman, you know the usual stuff

            hippogriff, no service charge on these properties, they're in traditional (100+ yr old) 2 storey blocks, ground and 1st floor.

            jpkeates, as above really, if possible i'd like to lessen my deposit commitments and use some of my savings for other stuff.

            the way i'm looking at it i have the following options, this is based on purchasing 2 x properties this year which i hope to achieve:

            option 1: buy 2 x 2 beds, this would pretty much use up all of my savings.
            option 2: buy 1 x 2 beds and 1 x 1 bed, this would leave me some cash to use for myself.
            option 3: buy 2 x 1 bed, this would leave me that bit more for personal use.

            comes back to my original question i suppose, 'if' the 1 bed is as close to damn it as good an investment as the 2 bed, why bother outlaying the additional cash deposit wise? the only thing i can think of that would steer me away from the 1 bed is if the 2 bed properties are likely to be (crystal ball again) worth that much more than the 1 bed properties 15-ish years from now, which is when i intend to cash everything in. having said that i appreciate gains are never guaranteed.

            Comment


              #7
              Option 3... but not because of any insight into how good a comparable investment 2 x 1 bed might be... simply because you appear quite keen to be able to have some funds left over to spend on women.

              I know you wrote "woman", but I assumed that was a typo..

              Comment


                #8
                joking aside i don't 'need' to have the cash left over however at risk of repeating myself 'if' 2 x 1 bed approach by and large is as good an investment then the money saved on deposit could be used on my own property etc, nothing that's absolutely required but if the 2 bed approach isn't a significantly better approach then 1 beds suddenly appeal to me whereas i used to ignore them previously.

                Comment


                  #9
                  So, bringing in the new variable of preferring to keep the cash for spending on Woman makes it harder to advise, that's a more subjective decision which really only you can make.

                  Just considering the 1 bed vs 2 bed decision in isolation though, I'd suugest it's worth doing a bit of research as to how well respectively these let in your locality... I have one 1 bedder, and my others have 2 bedrooms; and I certainly find that the 1 bedder is more tricky to let than the others (and they are all very similar in other respects), to the extent that I'm thinking of getting rid.

                  This is extremely location-dependent though, which is why you should look into this in person.

                  Comment


                    #10
                    thanks for further feedback. i can't say for sure but i think the 1 beds in this particular area 'do' let although not perhaps as quickly as the 2 beds, so it's a slightly difficult one to call. to that end i might take a calculated gamble and go for a 1 bed and 2 bed, then if the 1 bed isn't proving viable i'll offload it and hopefully do no worse than breaking even or maybe accept a slight hit to my pocket.

                    as i say i used to rule 1 beds out without evening thinking about it. estate agent during recent viewing of a 2 bed advised me that,in the area i'm looking at, a 1 bed couldn't be shifted by them sale wise (he said the guy was asking too much) so the guy took it off sales market but let it no probs. he also mentioned another 1 bed in another street close by that they let no problem.

                    thing is ... can you trust what an estate agent says?!?

                    Comment


                      #11
                      I prefer 2 to 1 beds because I like tenants with children.
                      When I post, I am expressing an opinion - feel free to disagree, I have been wrong before.
                      Please don't act on my suggestions without checking with a grown-up (ideally some kind of expert).

                      Comment


                        #12
                        I prefer 2 beds to 1 beds because rich foreign students like to share and split the rent and pay up front.

                        Comment


                          #13
                          thanks for further replies. from my perspective i think the reason i like 2 beds is so any prospective tenant has the flexibility of the second room whether or not they need to use it as a bedroom. there again for some (single/younger folk etc) the lesser rent for a 1 bed might attract them.

                          decisions, decisions, decisions ...

                          Comment

                          Latest Activity

                          Collapse

                          • Mortgage News
                            by loanarranger
                            The following article has appeared in one of the Mortgage Trade journals reporting on views expressed by the Association of Mortgage Intermediaries an influential trade body within the mortgage industry.

                            "Mortgage rates are likely to rise in the first quarter of 2016 as lenders look...
                            23-12-2015, 19:43 PM
                          • Reply to Mortgage News
                            by loanarranger
                            Updated correction re The Mortgage Lender
                            This lender has announced the withdrawal of the 80% LtV across its mortgage range limiting to 75%, additionally they have announced an increase of 0.3% across its entire mortgage product range. Before anyone questions the rationale of rates increasing...
                            07-04-2020, 21:24 PM
                          • Reply to Mortgage News
                            by loanarranger
                            Here are the following changes announced today , in the main they relate to residential home loans, the criteria indicated by HSBC for those persons furloughed is being replicated by some other lenders so if remortgaging or purchasing , I would advocate speaking with your broker or trying to called...
                            07-04-2020, 20:41 PM
                          • Reply to Mortgage News
                            by loanarranger
                            The market continues to change and not for the better judging from the following lender announcements.

                            Lenders who have paused accepting new mortgage applications:
                            • Clydesdale Bank are not currently accepting new Purchase applications on either Residential or Buy to Let
                            • Virgin Money
                            ...
                            06-04-2020, 20:38 PM
                          • Reply to Mortgage News
                            by loanarranger
                            HSBC have announced a system of restricting the daily acceptance of new mortgage applications and for the present have stopped the acceptance of maximum LtV applications ( 95%)
                            06-04-2020, 18:25 PM
                          • Landlord - Tenant financial hardship due to coronavirus
                            by Matthew_Wilde
                            I am really struggling to get any advice so wondered if anyone on here could point me in the correct direction, please?

                            I have one rental property which has a Barclays buy to let mortgage. The tenants have been in the house since I first let it - over 5 years. They have always paid on time...
                            25-03-2020, 14:21 PM
                          • Reply to Landlord - Tenant financial hardship due to coronavirus
                            by The Secret Landlord
                            Have your tenants lost their job? It is not clear why they will be in hardship? Have they done a budget? Gone through all outgoings?

                            It's important for people to really get a handle on their finances and understand what the real issues are right now.
                            06-04-2020, 07:07 AM
                          • Reply to Mortgage News
                            by loanarranger
                            Here is an extract from a briefing note on amended lending criteria from Nat West and Nationwide for those affected in employment terms ( Furloughed) and who are applying for a mortgage.

                            Nationwide and NatWest have outlined their affordability criteria for people impacted by the Covid-19...
                            03-04-2020, 12:18 PM
                          • Reply to Mortgage News
                            by loanarranger
                            Bluestone Mortgages , a relative new comer to the niche end of lending via the Intermediary channels have this morning withdrawn from accepting any new mortgage applications.

                            Any existing applications which are either in the course of being processed or pending completion will proceed to...
                            03-04-2020, 10:04 AM
                          • Bank of England rate drop?
                            by Diversity
                            Is the BOE going to drop interest rates from 0.25 to 0.1 ? And are all UK banks mandated / legislated to pass onto the drop / savings to mortgage customers?

                            Is there any difference in the way they are treating home owner vs rental mortgages?
                            19-03-2020, 09:46 AM
                          Working...
                          X