first step on the housing ladder for the future.

hsp70

It has been a tumultuous couple of years for my family with the passing of my mother from cancer and myself and 3 siblings have been left a sizable inheritance in the region of 400k (i'm grateful she worked so hard to give us such an easy start to life but wish she lived long enough to enjoy the fruits of her labour)

The main reason though for my post is for some opinion and advice.
BTL has never appealed to me as i prefer the liquidity of shares but feel perhaps we (speaking for me and my siblings) should use at least some of this money to buy property.

None of us own a house at the moment as a couple of my siblings work overseas teaching english (and working overseas for a few years seems like increasingly likely for me too) and when we are all in the UK, the family home is more than large enough to accommadate us all. In the short to mid term this arrangement is fine however eventually we'd all look to own our own homes.

So the idea is to use some of our inheritance to buy some homes now and rent them out as a source of investment and when the time comes and one of us fly the coop the house can be a home or can be sold (hopfully at a profit) to buy a home in a more suitable area.

With that in mind, i've identified an area which is good from both a BTL prespective and possible future home. Good transport links, close to a shopping centre and looking on rightmove.co.uk for a while, properties for rent don't seem to last long suggesting a buoyant BTL market.

Looking at 2 bedroom houses in the area, they seem to go for 130k- 160k with a yield around the 5% mark assuming 12 months of rent and no costs incurred.

This is a little lower than i'd like but hopefully if i take my time and look for the right properties i can bump the yield up.

My main dilema though is should we go ahead, how should i finance a purchase?

Does it make sense to buy 100% of the property in cash? Ideally i'd eventually like to be able to purchase 4 houses which 400k would not stretch to ( nor do i think we should invest all of the sum in property). Family friends suggest it may be a better idea to use our inheritence to obtain a favourable BTL mortgage. This way 4 properties eventually seems more achieveable.

would welcome everyones opinon and adivce.

dopester

From the outline you've given, I personally think you'd be on your way to losing ALL of your inheritance monies. Possibly be liable for more in extra mortgage debt in any repossession situation if you leverage your position too much.

The slightly smarter landlords on this forum require 11% yield.

Fire_Fox

Both shares and property are a risky investment short term or if you do not fully understand the market. If you want to split the money, better to put some in savings or bonds and the rest in property or shares. Realistically how long are you going to want to hold onto the properties for? Is the £400K including your family home or in addition to?

Do you have any understanding of landlording, and how do you propose to organise the workload with your siblings abroad? Do you have power of attorney over your siblings affairs or are some minors, you keep saying we? What sort of income do you have to service a BTL mortgage? 5% yield is far too low to contemplate a BTL mortgage. Have you considered the implications of BTL income on you and your siblings ability to get means-tested benefits?

hsp70

@dopester thank you for the warning, yes i'm reluctant to be in a position to be leveraged too much and certainly wouldn't put my family in a position where mortgage repayments is 100% dependant on rental income.

@fire fox the 400k is in addition to the family home. If the family home was sold, we would probably be able to raise another 400k. No one is a minor ( in our twenties) and the reason i seem to write on behalf of all of us is because non of my siblings take an interest in saving or investing but i by hook or by crook ensure that we all do ! We all save into S&S ISA's but i'm the one that actually manage our accounts. I have no power of attorney over them and it's a VERY foolish statement to make but we are all close enough that i know we won't take advantage of each other or fall out over money. As for the workload in managing of the properties i'm considering an agent should it come to pass i do go overseas for a few years. If not i can see the donkey work falling to me.


With regards to income, I used to run the family restaurant but with the onset of my mothers illness we decided to sell it so right now i'm not working. We (the 4 children) actually do own some property (2 shop units) which right now generate an income of 35k per a year. This money covers the the cost of the family home which means my brother saves a reasonable amount of money from his salary as does my sisters who work overseas. I'm reasonably confident we can cover mortgage repayments with the additonal of rental income. Definitely for a couple of properties at least.

regarding the length of time we would hold the properties. That is a trickier question to answer, if one of us doesn't want to live in the family home for location reasons, marriage or whatever reasons. Then if one of the properties is suitable they may move in or we may sell to release the captial. If not and there is no outstanding reason to sell (such as a big rise in the value of the house) then i could see any properties we buy kept indefinitely until we can see the value. I'm not looking to enter into the BTL market to make a quick buck. Rather to buy a future home before i/we need it with the intention of offsetting some if not all of the cost via rental income and appreciation.

I must admit i've never considered the implications of BTL income on means tested benefits as i've never really qualified for any but i'll defintely look into that. Thank for the heads up.

Fire_Fox

I think you need to pay for quality financial advice.

If you are informally managing your siblings financial affairs I presume you have access to all their passwords and PINs? If your computer gets hacked into/ home gets burgled/ siblings passport and identity stolen/ accounts emptied you could all be in all sorts of hot water. Of course your siblings trust you but the police and banks may prefer to investigate YOU for fraud - do you need that kind of stress?

As regards BTLs, landlords can delegate much of the work to a letting agent but they cannot delegate many of the legal responsibilities - an agent works on your behalf, if they break the law you break the law. Being an overseas landlord carries its own set of complications tax wise. Frankly I think the entire BTL idea is a foolhardy one - as a family you are very comfortably off and you don't need to take this sort of risk to all have a secure future. Risking your siblings capital also risks your close relationship if your investments do not pay off: the family already own three properties in an uncertain market, secure the rest in bonds and savings accounts.