Investment query???

Lydia.42

Hi :j
I'm afraid am out of my depth on this side of the boards.........i live on the debt free ones.........
My brother on the other hand is much more sensible, and has asked me to post a query. Please feel free to move this if i have posted on the wrong board.

He has filled his ISA's (the current year, and will fill next years as soon as he is able to open in April). He has enough money to buy a garage in our area - Sussex. He reckons he can rent this out at £50 per month roughly. What he is wondering is, is this a wise investment??
Or should he look at other ways of investing?

All advice welcome.
Thanks
L

dunstonh

He has enough money to buy a garage in our area - Sussex. He reckons he can rent this out at £50 per month roughly. What he is wondering is, is this a wise investment??

(£600 divided by cost of garage) muliplied by 100 = rate of return against expenditure. As it's income, it would be need to be declared for tax purposes so you can take his tax rate off that. If that rate of return is high, then fair enough.

EdInvestor

Lydia.42 wrote:

He has enough money to buy a garage in our area - Sussex. He reckons he can rent this out at £50 per month roughly. What he is wondering is, is this a wise investment??

He needs to work out the net percentage "yield", which is the same as interest on cash or dividends on shares, and then compare it with other investments.

So take the annual income (50 x 12) deduct any expenses, and then divide by the cost of the garage, x100 for a percentage figure.

Compare with the return from cash after also deducting tax.

Yields on residential property are low these days, so often investors are looking for long term capital growth to supply the return. Not sure whether gagares are the same. Does he expect the price of garages to go up in the future?

The calculation and judgments here are much the same as for Buy to let - though if you are buying on a mortgage the gearing increases your return quite a lot as you are effectively only investing the deposit.

cheerfulcat

In doing the calculations I would also factor in void periods ( when there is no tenant ) and maintenance costs, including any extra taxes.