Live in London … RENT in London…. BUY elsewhere

Manchester

Anyone who lives and works in London will know that it’s becoming hard, if not impossible, to buy anywhere in London that you want to live …. even for those lucky enough to be on an above average or ‘double’ wage.

So here’s a solution that’s being considered by an increasing number of savvy people …. keep renting in London, but buy a property somewhere else in the country.

This way you still get to live and work in London, but get a foot on the property ladder for when you do want to buy, or as a pension pot for the future.

If you like, it’s a kind of hedging …. and we all know how successful that can be as a financial strategy. You’re hedging against any future rise in property prices by buying somewhere you can comfortably afford to buy, even if that’s not actually where you live and work.

Get the numbers right, and you could not only own a property outside London with a rental income …. but that rental income could even subsidise your London rent and save you money every month.

In fact, this kind of strategy could become more attractive over the next few years. Many forecasters suggest prices outside London will rise more than those in London over the medium term.

So if you’re interested in this strategy, where else in the UK might you buy?

Here are a few thoughts:

Generally, the East of England and the South West aren’t the best choices for this kind of strategy. Prices in these regions are some of the highest outside the UK, and have shown the highest rises over the last few years.

Recommended. Areas that have low-average property prices. These tend to offer better rental returns and margins.

Here are a few suggestions. In some of these places prices start from as little as £5,000. But £80,000 – £100,000 will get you a good choice of good quality investment property (not a dump!):

For example:

Yorkshire. Leeds – the commercial heart of Yorkshire. Lots of businesses, lots of jobs, yet some of the lowest priced property in the region.

The North West. Manchester – the boom city of the north at the moment. Also consider, Liverpool …. lower prices and the economy here has lots of potential.

The Midlands. Birmingham, plus the commuter towns to the north and east particularly.

Leeds, Manchester, Liverpool and Birmingham all have strong demand for student accommodation too – so buying to let student property could fit in with your plans.

The South East. Essex and Kent, still have lots of property to buy below the national average – you may even find somewhere that’s commutable to London. Also consider, Luton and Slough – unfashionable with many investors but both have strong economies.

South Wales. The valleys. Have some of the UK’s cheapest property. Chances are the only way is up in price terms.

Important. With this kind of strategy, you aren’t buying a property to live in yourself. So don’t just look at properties you’d like to live in yourself. Think about what will work as a rental. (In many ways this is a big advantage – it gives you a far wider choice of property to buy.)

Remember, this kind of strategy is essentially a numbers game. Do your research, make sure the rent will cover the mortgage, with a contingency on top. Consider the cons as well as the pros – the responsibilities and the pros of being a landlord. Work it through carefully. It might not work for you.

Then again it could be the perfect strategy to foil those crazy London property prices.

Back of an envelope calculations:

Here are a few back of an envelope calculations to show how this strategy might work. Bear in mind they are a very general guide only.

Your London rent now £1,400 pcm.

Buy a property in the Midlands at £90,000.

Deposit required £22,500.

Mortgage for £67,500 at 3% interest, fixed for five years.

Likely monthly rental income £570.

Your monthly mortgage payment £160.

Monthly surplus from investment (but be sure to budget for maintenance etc.) £410.

Your London rent with a Midlands property (£1,400 minus £410) £990 pcm.

Mark Hempshell is Editor In Chief of Property Insider which offers news, information and strategies exclusively for property investors and property professionals.