help needed please!!

adrian_bond

Hi all!

Can I please pick your many brains on investing and saving for my future please? I’m hoping to create a mastermind group
Via this forum so I can draw on your many years of experience and combined knowledge.

The scenario is this;

My dad has offered me approx £25000 as my inheritance (hopefully very early so he can see me enjoy it over the next 30 years and also avoid Inheritance tax).
Thanks Dad!!!

About me; I’m 31, employed, have £5000 in an Isa as my emergency money, have a company pension, owe £80000 on my £100000 flat. Owe £4000 on a car loan @ 6.5%
I’m looking into several scenarios really. This is based on a 30 year investment plan or longer (looking to retire at 65 ish). My dad is 63 and looking to partially retire over the coming years
As he runs his own business which keeps him very busy! Options are;

1. Pay off a massive chunk of my mortgage (currently @ 3%) no penalties for doing this
2. Find another flat or small property (@£100000 – 120000) and invest the £25000 to obtain a BTL mortgage (current criteria is 25% deposit based on rates of 6% then rent must be @ 125% of mortgage cost – so quite tight conditions (actual rate is closer to 4%, but lenders use this as a further mechanism to avoid getting burnt like last time).
3. Invest in several funds or a stocks and shares ISA to get maximum returns from a long term perspective.
4. Another option is to be gifted a further £25000 from my dad (its his half of the cash from the divorce with my mum) making a total of £50000, and then buy a house on a BTL mortgage for my dad to live in (he currently lives with his long term gf in rented accommodation). He would then pay me rent which would only cover the repayment mortgage to keep costs down, but with me owning the property over time. Basically a very long term tenant for him and his gf, with us both sharing maintenance and improvements as necessary.
5. Buy a little place close to where I work (I work an hour’s drive from home) and then commute home at the weekends saving £250 pm (plus it’s a lot cheaper near where I work)

As you can see; there are lots of options so please forgive the long post. There is no rush (I keep telling myself this) but with so many options it’s difficult to know where to turn, and what dangers I should be aware of. Any advice or experience you can share of any of these scenarios would be gratefully received. Thanks everyone.

Werdnal

Basic spanner inthe works - Many BTL mortgages specifically prohibit letting to family ...

princeofpounds

Pay off your 6.5% car loan first of all, that's a better after-tax return than anything else you can do, being zero risk and a very high rate.

Your mortgage requires a bit more thought. You might be able to do better than a 3% net return through investments, which would argue against paying it off, but one thing to bear in mind is that paying a certain amount off can reduce the LTV from the current 80% (assuming the value hasn't changed), which can help you secure a much cheaper re-mortgage and therefore produce a much bigger return.

Then buy real assets (inflation-'proof') with the rest, preferably in capital-gains and income tax free structures.

What you do is up to you, if you are bullish on property prices then you might want to consider BTL, but personally I would look to ISAs first because any gains you make will be free of capital gains and income tax.

Plus I am dubious of the BTL investment case for reasons I don't want to bang on about here.

dimbo61

You need to be earning £25K as well as owning your own home? to get a BTL.
Now you already have £80K ( mortgage) and £4K car loan as debt do you want more?
You would need to speak to a "whole of market mortgage broker who deals in BTL "
All your eggs in one basket come to mind !
If you paid off your car loan and reduced the mortgage debt to 75% you could get a 5 year fix at less than 3%
Do you want to become a landlord ?

adrian_bond

thanks for your replies guys.

BTL is a serious risk i agree, and with the current lending criterea, i dont think i have enough money to be abe to buy a property that would rent to reliable quality tennants.

in that respect i may look into paying down my mortgage further (sorry i should have said i currently overpay by £300 pm), and maybe securing a fixed very low rate deal as a result. as time goes on my debt is chipped away very quickly which is always nice to hear. ive developed a habit of ringing my bank every quarter to get a debt update on my mortgage. make me smile in a weird way

i am interested to clarify what is meant by "real assets" that are in capital gains and income tax free structures. are these s&s isas and the like? i havent touched this years yet and have £5k in last years so i have both cash and S&s open to full investment perhaps.

please keep your replies coming guys. i am learning alot and considering options away from my inital thoughts which is exactly what i started this thread for!

princeofpounds

Real assets are basically assets that are inflation resistant. It uses the economic sense of the word 'real', the opposite being 'nominal'.

So things like houses, land, shares and commodities are real assets.

http://www.investopedia.com/terms/r/realasset.asp

(I will note that I think that real assets that don't generate a yield, like commodities, are generally also quite poor long-term investments, outside of genuine scarcity. A bar of nickel will always remain a bar of nickel, whereas a field will give you more turnips every year)

Cash is a nominal asset; it's value is steadily eroded by inflation. Consequently it's a pretty terrible long-term place to store and grow value. Savings accounts, low-risk fixed income investments and so on are more in this category.

Longer-term bonds are more of a middle ground, in that they are nominal assets but they normally do try to price in some kind of inflation expectations.

Capital gains and income tax are obviously the two main ways you will get taxed on most investments. Tax-free investments like ISAs or your own principle private residence (i.e. you own house) are often more efficient because those taxes will take a big chunk out of your returns over the long term.

Fire_Fox

Pay off the car loan ASAP if that is your most expensive interest rate, see advice on main MSE site.

IMO tie the money up in property or pension fund: consider what happens if you fall ill, injured, redundant and cannot work, partner with unplanned pregnancy - investments mean little means tested benefits, your capital can be gone very quickly.

Don't even think about letting to family. Lenders hate it, can be seen as a contrived tenancy/ deprivation of assets if they need to claim benefits, you likely would not evict if your father could not pay.

Given you are 31 do you want to settle down at some point and have a family if you meet the right person? If so buying another smaller property is just making that more complicated because you'd have two places to sell, all the hassle and cost implcations.