Should I buy my neighbour’s house?

Written by property expert Kate Faulkner

So, your neighbour’s home has just come up for sale. If you're in a terrace or a semi-detached property, it could be a great opportunity for you. Perhaps you want to make your home bigger, maybe you're considering becoming a landlord, or maybe you just want to ensure you have great new neighbours.

So, is it worth the cost and potential hassle of buying next door or should you look to buy elsewhere?

The first question to think about is, if you do buy the property what could you do with it?

1. You could buy to let
2. Knock through to make a bigger home
3. Secure it for your future kids and do either of the above in the meantime
4. Buy, renovate and sell on (aka. Flip the property)

The beauty of buying something so close to you, especially if it’s a similar or identical property, is that you know what and where you are buying and already know many of the pros and cons of buying in the area.

Buy to let

Buying to let has been a very successful way for many to make money over the years. However, it’s not as easy to do today as it was 10 or 20 years ago. For starters, property prices since 2005 haven’t always grown as fast as in the past, so natural capital growth isn’t so easy to secure.

Secondly, there are over 400 rules and regulations in place to let a property that are constantly changing, which can make it very difficult to stay on the right side of the law. During the covid pandemic for instance, if your tenant didn’t pay their rent, you will have struggled to evict them, in some cases, for over a year, due to the protections for the high number of people losing jobs/income.

However, buying and letting the home next door can make this easier. You will instantly know if there is a problem with the tenants, whether they are keeping the property well maintained or having relationship issues. In theory, it’s also much more difficult, (but not impossible) to withhold rent from a neighbour.

Unfortunately though, if property prices or rents fall, you will suffer financially with both properties. And, if for any reason the relationship turns sour with your tenants, things can get unbelievably tricky! 

You may also find future tenants are put off by the idea of their landlord living next door, it may make them feel like they don't have much privacy. Though perhaps some will see it as an advantage, because they'll know who to come to if there are issues with the property!

You’ll also need to check you can finance the buy to let on the property next door – not all lenders will agree to lend for this.

Finally, buy to let is a big investment and won’t work for everyone. Do make sure you discuss your investment options with an independent financial advisor before committing yourself as there may be better ways to invest your money for you and for your family’s future.

Knock through to make a bigger home

This will either be a great idea, or one that won’t work well. There is a lot of work to do beforehand to understand whether this would work:-

1. Will you need planning permission?
2. Can you secure the finance required?
3. Are the homes easy to knock together?
4. Will the cost be more than the end value?
5. Is it better just to sell up yourself and find your dream home?

And then there is all the hassle of a large renovation project, booking builders and tradespeople and securing the right building control sign off certificates.

Learn more about converting two properties into one.

Secure the property for your future kids

If you do decide to buy your neighbour's home, a big driver might be your kids. You might want one living next to you or when you are gone, you might want to leave two properties to your children.

Of course, this assumes they are keen too! But, even if not, it could generate enough extra profit for them to afford a home of their own and in the meantime, provide you with some extra income or space – whichever you are in need of.

To decide whether buying to let the neighbour's home is a good idea, do speak to an independent financial advisor so you understand your money needs in the future, then consider if BTL is the best way forward.

If you want to create a bigger home but allow the property to be split back into two in the future, there are options. Have a look at our article on converting two properties into one.

Buy, renovate and sell on (flip)

Another reason to buy next door is if there is an opportunity to renovate the property and do it up, then sell for a profit.

In the past this has been easy. Few people wanted to ‘do up’ homes, most wanted to buy a nice home they could move into. However, with the advent of TV programmes such as Homes under the Hammer and Property Ladder, buyers now tend to fall into two categories, those that want a show home and those that want a ‘doer upper’.

And as more homes have been renovated to a high standard, there aren’t that many ‘doer uppers’ that come onto the market today. When they do, as there are more buyers than sellers, they can go for prices that are more than the property would be worth fully renovated, so if you do buy it, ideally you want to agree a price before the seller/your neighbour decides to sell and help save them estate agency fees. It’s always wise though to have an independent valuation secured by a Royal Institution of Chartered Surveyors so you both know a fair price is being paid.

To make a profit when renovating and ‘flipping’ a good rule of thumb to work from is to purchase the property for around 20% less than what you think it will be worth fully renovated. For example, if it will sell for £250,000 in show home condition, you will want to buy it for less than £210,000.

Check what work will be required. It might just need a bit of TLC: paint, tidy the garden, make the place look more modern.

On the other hand, it may need re-plastering, damp proofing, re-wiring, a new roof - the works. This may involve building control checks and will certainly mean you need to get all the necessary building control certificates to confirm the work has been done to standard. These measures will be essential for a smooth sale. 

In the latter case you could be into tens of thousands of pounds and, if the market drops while you do the work, this may wipe out a chance of a profit, so be prepared to hang onto the property, let it out and sell when the market picks back up.

To have this contingency plan, you’ll need to check with a good local surveyor to see if it’s financially viable, they should be able to help you with a price to pay, broad estimates of costs to do up and a likely end value. Their help could be invaluable and make sure your head rules your heart, not the other way around!

Know your numbers!

Buying to renovate and flip is a risky business as the property market can go from driving upward to falling within a matter of months, so if you want to go down this route, remember, it’s not about any emotion, it’s all about the numbers: do they stack up?:

1. What will it cost to buy including your buying costs, stamp duty, fees (Our Moving Cost Calculator can help you work this out)?
2. If it’s a second home, don’t forget you’ll have to pay an additional 3% stamp duty 
3. How much will it cost to renovate – and how long will it take – especially if you need a mortgage to support the purchase?
4. What contingency can you afford for things you didn’t know needed doing? 10%? 20%? 30%? How would this affect your profit?
5. What will the minimum and maximum value of the property be once done up?

Also check if the market does fall, what did properties sell for during the last crash? Would this wipe out your profit? If it would, speak to an ARLA or RICS member letting agent and ask them if it would be an easy property to let and work out if you could let it for some time at a profit or at least break even. Check with agents how long it took for the property market to recover.

Finally, speak to a tax expert who can explain what you can claim for and how to make sure you keep your costs under control and what receipts you need. They should be able to help you from a renovation and letting perspective.

If the numbers do stack up, it may be a great idea, but make sure they do before you commit your money as you may be better off spending on it on your current home and adding value that way.