Buying a 2nd home for nothing

A Coastal Folly

One thing has, after all, led to another. Against many years of better judgement, Mrs FvL and I have taken the plunge and bought a second home on the UK’s south coast. Our Coastal Folly.

This blog post tells the story of how I’ve paid for the Coastal Folly. I’ve surprised even myself with how it’s happened.

The Coastal Folly is expensive. Well over £2m of property. It is not a little 2 bed cottage 20 minutes drive from the sea. It is a premium piece of real estate, with uninterruptible sea views.

As a second home, it attracts additional stamp duty (the property transaction tax payable in cash to the government at completion) – for this value of property my stamp duty is well over 10%. A lot of people I know froth at the mouth at this level of stamp duty. Not me. My portfolio has benefited from low investment taxes. And most of what I spend my money on incurs 20% VAT. So having to shell out 12-13% purchase tax on a discretionary purchase, using money that has been taxed at 0% or 20%, doesn’t feel unreasonable at all to me.

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2nd homes: folly or fantasy?

I spent a fair bit of the summer thinking about second homes. At times it seemed as if every second person I knew had a second home – with plenty bought since lockdown started, as a getaway from urban London. They are (see map below) for the most part 2-3 hours drive form London; the Cotswolds just beyond Oxford and the Poole/Bournemouth coast in the southwest are particularly popular among my London circle.

I have had longstanding views on 2nd homes, so I found James Max’s summer FT article to be very thought-provoking on the topic.

Locations of 2nd homes of friends of mine

2nd homes as hassle and/or social problem

James Max starts with my position – that 2nd homes are fundamentally a hassle. Complexity. Things that can go wrong. Costs. An asset that is more of a liability. Like James, I don’t see myself letting a home out, via AirBNB, VRBO or the rest – so I wouldn’t see any income to offset the additional council taxes, utility bills, and occasional maintenance to deal with. Builders to find, gardeners and cleaners required.

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I’ve sold my house, and I’m down over £500k

My Dream Home saga nears its conclusions. Longsuffering followers will recall that, in the last instalment in Q4 2016, I had abandoned my effort to sell my Former Dream Home into the Brexit referendum aftermath, in favour of renting the property out to some (North) Americans. I reasoned, three years ago, that I could well expect to sell the property for 1.20X (where X was the supposed fair market value) in 2020, by which point Brexit would be well and truly behind us…..

What happened next?

Well, the (North) Americans proved to be fine tenants. They looked after the place and kept on renewing. My rent increased by 2% each year. I used a managing agent, so the deductions were swingeing, and I had the occasional cost to bear too. But overall the landlord experience proved to be relatively painless.

Until Q2 this year, when the fine tenants gave notice. He had received a job offer back in the mother country and was off to take it.

Losing these tenants left me in something of a quandary. Brexit was due to be done in June 2019 (remember that?), except that pretty clearly it wasn’t. Property prices (and rents) hadn’t budged materially since late 2016. Yet somehow I felt a different mood – a “well I can’t put my life on hold forever” sentiment that tempted me to attempt a sale for the second time.

Moreover, with the void period starting in June, the timing felt good to ‘test the waters’ for selling the house, but reverting to let it in time for the busy ‘back to school’ season in September. So I decided to give it a go, and put my Former Dream Home on the market to sell. I listed it at a somewhat lower price than last time – essentially the price that I had accepted an offer on in 2016.

When is a sale a sale?

Cutting a long story somewhat short, the market felt completely different this summer than in the summer of 2016. I had far more interest in the house. I even had an offer, that I was prepared to accept! Not once, but in fact three times….

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