Property or a market tracking fund - 20 year investment

Ruckmaul

Hi, this could've gone in several areas of the forum but I figured I'd get most sense from here. I'm new to all of this, be gentle.

For retirement in twenty years time. (I have a pension, this is to boost it.)

Rental property (currently owned).
Three bed semi in SL4.
Rent pa = £13200 (not using agent)
Remaining mortgage = £159,400
Valued = £265,000
Mortgage interest pa (fixed next three years) = £7476

I am assuming rent will cover all costs including repairs/renovation/interest/gaps in the long term.

or

Liquidate this (I figure approx 90K after costs and cap gains) and invest in a market tracking fund and leave for 20 years.

(40% income tax payer but only just.)

I'd really appreciate any thoughts as currently I'm doing research and switching direction almost daily.

Thanks in advance,
Dave.

srcandas

One strategy is passive. Throw it in a tracker and wait.

The other is far from passive. Hunting clients, maint., admin.

I'd have thought that would have the biggest influence on your decision. If you charged for the call on your time and the ties of a property I'd imagine that a cautious investment route would give the biggest gain but that is purely my guess. On the other hand if you like that side of the business and live next door!

An alternative would be to invest a little less passively if that appeals. Possible bigger gains but equally increased risk

:beer:

ps: Remember my mate Alan having let property. Something went wrong and he had to return from a family holiday at considerable expense to sort it

opinions4u

So at the moment you're generating a net income of £5,700ish on an asset worth £265k.

I'd sell up, release the capital and invest elsewhere.

What's going to drive the property market up longer term? Nothing will shorter term.

fairleads

Ruckmaul wrote: »

Hi, this could've gone in several areas of the forum but I figured I'd get most sense from here. I'm new to all of this, be gentle.

For retirement in twenty years time. (I have a pension, this is to boost it.)

Rental property (currently owned).
Three bed semi in SL4.
Rent pa = £13200 (not using agent)
Remaining mortgage = £159,400
Valued = £265,000
Mortgage interest pa (fixed next three years) = £7476

I am assuming rent will cover all costs including repairs/renovation/interest/gaps in the long term.

or

Liquidate this (I figure approx 90K after costs and cap gains) and invest in a market tracking fund and leave for 20 years.

(40% income tax payer but only just.)

I'd really appreciate any thoughts as currently I'm doing research and switching direction almost daily.

Thanks in advance,
Dave.

Your current return on the equity (90K) you own in the property is around 6.3% before tax which is not a bad deal. However, a better evaluation of the return would be net rental income 5.7K / (deposit + purchase costs) which could prove to be close to a double digit rental yield. If that is the case, then why sell.

jimjames

opinions4u wrote: »

So at the moment you're generating a net income of £5,700ish on an asset worth £265k.

I'd sell up, release the capital and invest elsewhere.

Although the asset is worth £265k that isn't the equity in the property. Selling it would only realise £90k which puts a different picture on the level of income.

Any profits in house are taxed at 40%, selling up you could put into an ISA over 8 years and all be tax free. Or use fund that doesn't pay income and use your capital gains allowance.

Personally I would keep the property. I've just bought one myself and I think is worth having to diversify long term. I also invest in funds so I have a mixed portfolio

bigadaj

I'm still fairly negative on property but assuming you keep the place occupied and don't get a nightmare tenant then the property looks appealing.

Might be worth you starting. Pension separately and making sure that your 40%element of earnings is paid into this, probably the most efficient way of investing.

If you do sell and are married the. Transferring to joint ownership might be worthwhile as you can get two annual exemptions out of it, so saving four grand in tax.

Ruckmaul

Thanks for the replies everyone.

Srcandas - good call on the effort investment, and you can add to that the Mrs asking me why I don't raise the rent or why don't we just sell it and invest like she wants to...

To those quoting £5.7k rental income: I wish the rental income was simply the rent minus the mortgage!

Repairs and periodic renovation are constant costs which so far have averaged £1000 pa. Which brings gross income from rent to around 5% of the £90k. This will also be subject to increases which over time, I guess, must mirror inflation.


What I really need to know is whether the market outperform property in 20 years. Anyone got a crystal ball?