Invest in property or save in bonds?

snowintheair

I am a young widow, my husband's job left a lump sum (enough for a small property to let out) or to invest in bonds. I have no experience in the rental market, but have been trying to work out the net yields of each possibility.
Just wondered if anyone had any thoughts they could share with me. all money is precious, but feel the need to invest wisely as I have a young son to support.

qpop

a BTL property is a lot of work, even if you employ a letting agent (who will take 10-15% of rent per month). Consider it more as a second job and the work involved is more accurate (although it pays better than stuffing envelopes!)

A decent portfolio of relatively low-risk equity, bonds, and indirect property investments will yield around 4%PA, with the potential for capital growth (and loss). If you're a beginner, I'd recommend talking to a professional.

Tuesday_Tenor

For a good post on the responsibilities of being a landlord, which is not something to be undertaken lightly:

http://forums.moneysavingexpert.com/showpost.php?p=41160642&postcount=12

See also the separate board on 'House Buying, Selling and Renting'.

My own parents did very well out of buying a second property as a long-term investment. BUT that was due to specific timing and unusual circumstances. They bought it VERY cheaply, as my gran was a 'sitting tenant', in the early 1970s. House prices had risen astronomically by the time they came to sell after she'd died in 1990.

These sort of circumstances are rarely replicated now and being a landlord is quite a responsibility.

dunstonh

or to invest in bonds.

What do you mean by bond? it is the most misused term going and covers a range of things. For example:
Corporate bond
high yield bond
fixed term deposit
investment bond (onshore or offshore versions)
structured products (sometimes known as guaranteed equity bonds)

to name but a few.

ViksB

We were thinking about the same option BTL or Investment bonds and decided against BTL because of the hard work and risks. We were going to go for an investment bond, we had gone to an IFA and they have offered to do it, however with their comission and all the funds commission we were hoping to be able to do it ourselves and don't really want the bond they are recommending. We have ISA's via Fidelity via Cavendish (hence get the commission rebates) but Fidelity won't deal directly on an investment bond and say it has to be done via a broker? Is there any way around this? (sorry to jump on this thread)

Thanks

dunstonh

ViksB wrote: »

We were thinking about the same option BTL or Investment bonds and decided against BTL because of the hard work and risks. We were going to go for an investment bond, we had gone to an IFA and they have offered to do it, however with their comission and all the funds commission we were hoping to be able to do it ourselves and don't really want the bond they are recommending. We have ISA's via Fidelity via Cavendish (hence get the commission rebates) but Fidelity won't deal directly on an investment bond and say it has to be done via a broker? Is there any way around this? (sorry to jump on this thread)

Thanks

Why do you need the investment bond tax wrapper (onshore or offshore)? i.e. what is it about the taxation of the bond wrapper that suits you more than the taxation of unwrapped unit trusts/OEICs ?

Would you be using up your ISA allowance each year from cash or would you be planning to bed & ISA?

ViksB

The ISA allowance is used for both me and my partner in full each year from other savings. We have a large amount which we wanted to invest in funds. We know that there is not a significant saving in tax compared to the wrapper, we are not expecting to touch it for at least 15 years. We are now considering going back to the drawing board as I suspect any savings in tax will be outweighed by the extra comission.

oldtoolie

Don't rush into anything. Put the money in a high interest instant access bank savings account for now. Decide after taking advice from more than one source and making up your own mind. And forums like this do not count as advice.

You need to take much more into account besides BTL or Bond. Your income, savings, debts, age of you and your child to start.

Most people are better off diversifying their savings and investment as that reduces risk. Putting all of your assets into a single BTL house is very risky. As said, there many kinds of bonds so we can't comment.

atush

Without knowing your other finances (such as do you own your home, is there a mtg, do you have other savings and investments, do you have a pension, are you employed? What tax rate do you pay? etc) we cannot make much comment without knowing these facts.

Whatever you do, if you see and advisor don't use one from your bank. Use an independant advisor.

dunstonh

We are now considering going back to the drawing board as I suspect any savings in tax will be outweighed by the extra comission.

Actually, that is often not the case. As it stands, you can get an investment bond even on maximum commission basis that has a reduction in yield over 10 years of 0.8%. (Which equates to a 0.7% TER). Not saying you would want to do it on max commission basis but just highlighting that the impact doesnt have to be that much.

We have a large amount which we wanted to invest in funds. We know that there is not a significant saving in tax compared to the wrapper, we are not expecting to touch it for at least 15 years.

So, which option is best for you? The investment bond wrapper or unwrapped funds?
Would you utilise the ISA allowance every year from new cash or from the investments (bed&ISA)?

As a tax wrapper, the investment bond can see some groups actually pay more in tax whilst others pay less. So, you need to know if the investment bond tax wrapper is suitable for you or not.

mike88

qpop wrote: »

a BTL property is a lot of work, even if you employ a letting agent (who will take 10-15% of rent per month). Consider it more as a second job and the work involved is more accurate (although it pays better than stuffing envelopes!)

A BTL is an excellent investment. Property is cheap at the moment and because mortgages are so difficult to obtain the rental market is buoyant.

A rental property is definitely NOT a lot of work. I left it all to the agent who charged 8%. No problem with tenants and remember agent fees are tax deductable and you can claim allowances for all sorts of things including your own inspections (including mileage allowance), furniture and redecorating costs.

The key is to get a good agent. If you have one there will be nothing for you to do other than if you wish to inspect the property between rentals.