investment advice needed

wildcat393

Please could you help me with some investment advice?
My husband died last year and I now have money in the bank from pensions and insurances, approx £100,000, but I am not financially clued up, and am not sure how best to invest the money, and don’t fully understand the advice from the financial advisor from the TSB bank.
I was thinking of a buying a property and renting it out, and then in the future when property prices have risen, I could sell it in years to come.
I currently work part-time and am mortgage free. Not sure if you need any more information.
Thanks for your help.

Newbie2saving

I am sorry to hear of your loss, I am in the same situation so I know how hard it is to take on such a responsibility. Firstly ignore the banks' IFA, they aren't really independant. I would see a true IFA and see what they think. Don't invest in anything you don't understand - I had to become financially savvy. Property is a good buy at the moment in my opinion, but you may need the money at some point in the future, do you have rainy day savings?

Firstly you want to ensure that your money is safe and covered by the FCSC so if you have over £85k in the one place shift some of it to another bank (ensure they are not owned by the same organisation). Search for the best %aer until you know what you want to do with the money and have it on easy access until you have made your mind up.

Good luck.

wildcat393

Thanks for your reply, I was going to invest a percentage into a property approx 70 grand but not sure what to do with the remainder but from your advice will look to move the money about asap.

xrjtg

Buying one rental property is a high risk approach. Do also bear in mind that being a landlord isn't a passive activity, so make sure you understand what would be involved before deciding whether it's the right route for you.

I'd second the recommendation to stay clear of "advisors" working for banks. Salespeople would be a more appropriate term, and they won't have your best interests at heart.

dunstonh

don’t fully understand the advice from the financial advisor from the TSB bank.

never use a sales rep from a bank.

. Firstly ignore the banks' IFA, they aren't really independant.

The bank doesnt offer an IFA. Its just an FA and a single tied FA at that.

I was thinking of a buying a property and renting it out, and then in the future when property prices have risen, I could sell it in years to come.

How would that fit with your tax position? Could you handle dead periods (no rental income)? Would you do the work on the property yourself or use a builder/decorator? Would you do the rental side yourself or use a management company? Are you in a position to satisfy the legal requirements or would you need to put those in place?

To really make money from property, you need multiple properties and to have bought the right property in the right area. If you can buy cheap and do the work on them cheap (as in DIY) then you can make money very good money out of it. If you have to use third parties then it starts to erode the potential for gain. Property is not really tax efficient either. Rent will be subject to income tax and property value gain on sale will be subject to capital gains tax. If you have a preference for investing in property then using property investment funds may be better (although the thought of going heavy into those only would be a bad one as its too many eggs in one basket).

jamesd

For property you shouldn't buy one property. You should use the money as dunstonh described, as deposits on several properties. Buy cheap properties that need work, do them up, remortgage to get out as much as possible of the deposit money and refurbishment costs. Repeat until you're down to the money you need as a safety margin plus the money you don't want to use for property. You'd need something like £10,000 safety margin to be cautious, enough to refurbish a wrecked property.

Having no mortgage on your current home is good. Mortgages on the place you live in are cheaper than BTL mortgages so the best initial option for mortgaging is to take out a mortgage on your own home and use that to buy the first property or three. The interest on a mortgage up to the value of the property at the time each rental property was purchased can be deducted from rental income, improving your tax position.

As you complete refurbishment of each property you can switch from using the mortgage on your own home to a fixed rate BTL mortgage if you want to increase the number of properties.

Use some care with this, allowing enough available equity to cover a 20% or more drop in property values without exceeding your agreed loan to value. It's also of use to try to arrange things so that all mortgages don't need refinancing at the same time, so you don't face a sudden large remortgaging crunch.

Don't stick to properties in one area, spread them around. Even better in different cities so major employer changes in one doesn't place a lot of your properties at risk of voids - lack of tenants - at the same time.

Cautious_Investor_3

jamesd wrote: »

Don't stick to properties in one area, spread them around. Even better in different cities so major employer changes in one doesn't place a lot of your properties at risk of voids - lack of tenants - at the same time.

This advice can work well in theory but in practice I'm not sure how helpful it is.

Speaking as the owner of 6 properties I prefer mine to be in the same City, but in different suburbs and of different types (although some characteristics are shared). My thinking behind this is as follows:

1. Different cities means extra time needs to be spent travelling to the properties, to check on tenants etc, if I am managing them myself

2. If I use a letting agent it is unlikely that a single agent will cover a number of cities (even the large ones are mainly franchises). This reduces my bargaining power with the agent to reduce fees if I give them multiple properties to let

3. If I buy in a variety of cities it means I need an electrician, plumber, odd job man etc in each of those cities, again reducing convenience and bargaining power

4. I live in a large city in the Midlands, there are plenty of way of diversifying my portfolio within that city e.g. properties near the hospitals, properties near the main student areas (if that is the market you are aiming at) a property near the main transport links etc

5. It is highly unusual these days for one city to be so dominated by one employer that it's closure would cause you problems, if you are worried, then make sure the tenants tell you on their application form who they work for, this will allow you to diversify between different employers.

Whilst I am on the subject, some thoughts re selecting properties which have held me in good stead over the years:

1. Make sure you have a minimum of two double bedrooms in the property, a house or flat with a double and a single will reduce your market and put 'sharers' off

2. Obviously try and buy something which will require as little work as possible

3. Look at the surrounding properties, are the mainly let or owner occupied? The higher the percentage of owner occupied gthe better, the area will be better maintained which in turn will help resale values

4. If you buy leasehold, make sure you know what the ground rent is and the cost of all service charges, you can be in for a shock if you don't find our before you buy!

Finally, buying a property or properties is the same as starting a business, it is not a passive investment, even if you use a letting agent. Be ready to accept void periods, defaults, and that call in the middle of the night saying "I;m locked out"!

It can be an excellent way to make money and is certainly a sector I am bullish about in the long term (5 - 7) years. Expect the capital value of property to fall in the next 3 years or so, but on the other hand there are plenty of tenants about.

I hope this helps.

The Cautious Investor

jamesd

Depends on the area, of course. In a large city with a very diversified business base you're less at risk than in some others. You're more of an expert - certainly more experienced - than I am in this area.

Loughton_Monkey

wildcat393 wrote: »

.....but I am not financially clued up, and am not sure how best to invest the money, and don’t fully understand the advice from the financial advisor from the TSB bank.
I was thinking of a buying a property and renting it out, and then in the future when property prices have risen, I could sell it in years to come.
......

I endorse comment about don't either seek, let alone take, advice from a Bank. The chances of you regretting it are very high.

To be 'not financially clued up' but seriously thinking about becoming a landlord does stretch imagination a little. Imagine you were 'successful' and you made £40K profit in a few years (after Capital Gains Tax) would you be back with exactly the same question?

You have other options, which could be explained by a 'proper' IFA (certainly not a bank one) and at the very least, you should listen to proposals and compare it to the property buying option from a financial point of view. If you have no idea on how the property route might work out (i.e. have not put a good business plan together) then you really might be recommended to leave the thought alone.

Loughton_Monkey

As if 'on cue' after my previous post (above) look at this.

http://www.bbc.co.uk/news/business-12214534

You just have to consider how many others have equally been 'conned' but simply in a more individual way which does not hit the press and is generally left 'untreated'.

dunstonh

Loughton_Monkey wrote: »

As if 'on cue' after my previous post (above) look at this.

http://www.bbc.co.uk/news/business-12214534

You just have to consider how many others have equally been 'conned' but simply in a more individual way which does not hit the press and is generally left 'untreated'.

What is worrying is that the funds in question were never the risk profile they said. Yet no-one picked up the error. The sales staff only did what they were told by their employer. You tend to find with bank sales reps that they are either trainees. So, cant spot the errors. Or brainwashed by the employer and take everything they say as being right (and they are only fed the positives). Banks make a good training ground for new advisers to make their mistakes without any liability and maybe build up some clients in the process. The good ones though usually cant wait to leave and become real advisers.