Is property the best way to invest my money?

mummastime

Hello

I inherited a sum of money when my father passed away and want to work out the best place to invest it.

My husband is convinced that buying a house for approximately £50k and renting it out is the best thing to do (he is saying we can get a rental of £400-450 a month which over 20 years is a huge income).

I have reservations. Firstly, the only houses in the area we live in around that price range are in deprived areas where the surrounding properties are in varying states of disrepair and a brief internet search confirms that to be the case in most £50K price tag houses in Lancs. Second, I am nervous about buying somewhere too far away. Third, rental income isn't guaranteed.

Any thoughts or alternative ideas anyone has on this would be so welcome.

Thank you!

opinions4u

My own view (and it has always been my view on buy-to-let):

1) Rental incomes are all well and good, but if you haven't got a tenant in the place they tend to be nil.
2) Landlord's have legal responsibilities.
3) Tenants don't always pay.
4) Properties consume funds to maintain them.
5) Property is not always guaranteed to increase in price, and the drivers of house price inflation since 1997 are unlikely to return for several years.
6) As an investment, you cannot get more "all eggs in one basket" than buying a single property - you are totally at the whim of the local area.
7) Tenants can wreck the joint!

Apart from that ...

mummastime

£50k is a lot of money and your point about eggs in baskets is very valid! In fact, you have managed to summarise my case against property far better than I did!

I wonder if there are any pro-property replies on their way...

dunstonh

My husband is convinced that buying a house for approximately £50k and renting it out is the best thing to do (he is saying we can get a rental of £400-450 a month which over 20 years is a huge income).

That is a very high yield for a rental property. Is your husband being a bit optimistic? Rental income is subject to tax. Capital appreciation is subject to capital gains tax on disposal.

There is a place for property for some people as part of a balanced portfolio but you wouldn't really want a single property and be reliant on it.

mummastime

The case against is strengthening.

May I ask, what would you invest £50k in?

Lokolo

At my age and financial position, I would buy some more funds to keep for 3-5 years. Then use it for something different once I have graduated and 'settled'.

I think it really depends on what position you are in.

- Do you and OH have pensions?
- Current mortgage on house?
- Do you have kids/plan to have kids?
etc.

I can imagine Dunston using it to buy a new spanking sports car.
Bendix (another member) using it on his love palace in China/Japan.
Digger (also another member) buying a gold statue of himself
etc.

mummastime

I have a small pension fund and am about to start contributing to a pension through work (I'm 45 years old)
OH has no pension, self employed, 39 yrs old

We have no mortgage on our house.

I have a 16 yr old from a previous marriage and we have a 7 yr old.

opinions4u

From that, I'd suggest clear focus on pension planning and possible university fees for the kids.

mummastime

opinions4u wrote: »

From that, I'd suggest clear focus on pension planning and possible university fees for the kids.

Thank you for your thoughts. Pensions are definitely an area I have been concerned about.

Lokolo

Also this is a bit of a distraction. Have you done a Pension calculation?

http://www.h-l.co.uk/pensions/interactive-calculators/pension-calculator

To see how much you could get after retirement.

Currently your OH doesn't have anything.... which could be a problem!

What about keeping some money aside for your children for university/first house?

---

I think becoming a landlord could be a good idea, but you should think of the risks involved.

House prices have been going well for years now:



Which is all well and good, but theres a saying "Historic changes aren't a guide to future changes", so you could see the graph dramatically drop.

Also CGT has now gone up for higher rate tax payers which could effect you (if you are higher) on second house profit.

If you are truely interested you might want to visit this board:

http://forums.moneysavingexpert.com/forumdisplay.php?f=16

And ask about +'s and -'s of becoming a landlord as there are quite a few LL and tennants who can help.

dunstonh

I can imagine Dunston using it to buy a new spanking sports car.

Not a bad guess and very close to reality but I dont pick it up until September. Although, no V8 this time. Gone for comfort and luxury instead (and more seats!). Thank God VAT is rising next year and not this year.

May I ask, what would you invest £50k in?

It doesn't really matter too much what I or others would do as chances are we all have different opinions, risk profiles, objectives and tax positions. However, I guess most would look for a balance.

OH has no pension, self employed, 39 yrs old

Does he realise that the self employed dont qualify for the full state pensions but only the basic? That's £5000 a year. Thats not a lot of money. Plus at 39, he wont get the state pension until age 67.

There is one of those misc terms you hear about what you should have and when that says that you should aim to have around £35k in retirement planning by age 35. He has none. Although you do now have £50k available. So, the inheritance hasnt really put you ahead of the game but allowed you to catch up to where you really ought to be.

So, using more conventional things like savings, ISAs and pension would probably be a safer bet.