Is property the best way to invest my money?

pressuredrop_2

Anthony Bolton, 1979, may be an alternative to the thread title.

jamesd

Why are you thinking of only £50,000 in property? Do you only have £12,500 plus costs available, so you're restricted by 75% loan to value to no more than £50,000 property value?

Mortgage interest is deductible from rental income before tax is paid. The interest will still reduce income but you can hope to make more money buy buying more properties with the help of the mortgages. You can still deduct the interest if you take out the mortgage on your own home at cheaper rates than BTL mortgages and lend the letting business the money.

People often rent in relatively low cost areas so that's not a barrier if you're satisfied that the rental market in the area is a good one.

Sticking to one area increases risk because you're in only one property market. Better to buy in different areas and at least in different streets.

Lower value properties make it easier to sell and exploit the capital gains tax and letting allowance to keep the profit tax free. It's harder when the profit is as a large lump from one expensive property.

Residential property can be useful for diversification but neglecting other things isn't good.

If your other half has a commercial property they could consider buying it within their pension and paying their rent to their pension scheme. It's a very popular arrangement. The pension is allowed to borrow some money for this purpose.

mummastime

Thank you all for your thoughts. You have all given me something to consider.

Let me throw one more possibility into the pot if I may.... what if the marriage ended some time in the future?

(I add that because despite being one of life's optimists, we did separate for a year or so and if it happens again it may end the marriage permanently.)

C_Mababejive

Paying only 50k for a property sounds like bad news to me.

You could well end up owning a tatty terrace in a street of equally tatty terraces which then become run down/boarded up and vandalised. Who would rent it then?

Also think about the tenant profile in such an area?

It sounds like trouble/bad news to me.

Reaper

mummastime wrote: »

what if the marriage ended some time in the future?

The money you inherited is yours so best to go for investments in your name. If you were to get a property and were thinking of a joint mortgage that would complicate things.

As others have said I would tend towards investments (Stocks and shares ISA, pension etc) as you are talking about a 20 year period. You could always include funds that invest in property if you really wanted.

If you are still thinking about buy-to-let then go and have a word with some local letting agencies to find what sort of properties in your area they are looking for and what rent the sort of property you are thinking of would go for. You may find only more expensive properties get the rental your husband is hoping for and you won't get the planned return on investment.

jamesd

If the marriage ends early you do what my own landlord is doing at the moment: sell the property and use the proceeds as part of the divorce split.

Primrose

I've gathered there's a tweak in the tail of the recent Budget Capital Gains tax issue, i.e. that any profit you make on the sale of a second home/buy-to-let property is counted as INCOME, (which I don't think many people understood when this move was first announced). This means that any such sale would have the capacity to increase your income substantially for the year in which it is sold and push you into the higher rate tax paying bracket. You would therefore pay capital gains tax on it at 28% rather than 18%.
That seems to be one more argument against investing in property, where you can only dispose of it in one go, rather than investing in several different things where you can sell a little bit off at a time, being sure to keep within your single £10K or joint £20K capital gains tax allowance. Also, buying a rental property isn't easy to protect from tax and as somebody has already pointed out, rental properties are often trashed, and are often without a tenant so income and profit isn't assured.

If you've got £50K to invest, why not consider investing some or all of it in Cash or Equity based ISA products, or even tax free index linked National Savings Certificates. You don't say what your tax paying status is, but I presume you both pay tax. If you're worried about the permanence of your marriage, you can invest in your name only and over the course of 5 years, use up your ISA allowance by drip feeding your inheritance into tax free products (which would also be Capital Gains Tax free) if you needed to liquidate them. However, if your marriage broke down, your OH would probably be entitled to part of your investment anyway under any settlement.
Investing some of it in a pension, which has tax free benefits would also be a sensible option and would have the benefit of keeping the investment in your name.

stator

Sorry I haven't read all of this thread but the real question is whether the 50k is your only savings or not? If so then there is no way I would tie that up in property. I would split your money, some into easy access cash savings (use your ISA allowance if you haven't already), some into medium term bonds locking away for 3-5 years and some more into stocks and shares funds (use your ISA allowance again if you haven't already). Maybe 1/3 of the money into each (if you are comfortable risking 1/3 of it on the stock market that is). An IFA might help if you really aren't sure.

jamesd

Primrose, yes, it's added to income to work out what rate will apply, but this is done after the CGT allowances have been applied. If you've ever lived in the property and nominated it as your principal private residence that means you can get up to £40,000 for letting relief (check the rules in detail), 3 years of PPR/flipping relief and £10,200 CGT allowance before being affected. That's still a very attractive deal when you add in the ability to deduct mortgage interest from rental income as well.