any advice you can share?

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.

IronWolf

I would advise against 4 too much risk of it causing difficulties in your relationship with your father if he ever gets into financial difficulty. Best to keep business and family separate.

I personally prefer shares to BTL, but it's individual. What sort of rental yield can you get on properties in the area you're looking?

xylophone

Owe £4000 on a car loan @ 6.5%

Any penalty for paying this off now? I don't think I'd be inclined to get involved in father's accommodation arrangements - I'd be inclined to "thanks but no thanks" for the additional £25000.

With the £21000 remaining after (if possible) paying off the car loan, I might consider another £5760 into a cash ISA to top up emergency fund - (£5000 does not seem to me to be enough), £5760 into a stocks and shares ISA - say something on the lines of M&G Global Dividend Acc - and with the balance, possibly top up the company pension (especially if higher rate tax payer), possibly pay a lump sum off the mortgage, possibly buy another fund outside the ISA to bed and ISA next year?

typistretired

You will find £25,000 won't go far!! Always reduce your debts before investing especially at today's low rates. Some banks other offset mortgages which allow you to offset savings against your mortgage.

somethingcorporate

Definitely put at least £5k into savings, your current provision is pretty low.

I'd certainly pay off the car and maybe £10k into your mortgage and then fix at a low rate (there are 5yr 2.89% fixes out there for 75% LTV).

Steer clear of B2L unless you want to be a landlord - it is hard work and can often leave you pulling your hair out. It's also a massive risk for very little return. We made 8% on our S&S ISA with very little effort and made a marginal loss on our rental property which took up hours and hours of our time.

adrian_bond

hi all. thank you for your replies so far.
I have some caveat information that BTL mortgages prohibit family members renting the property. this could cause an issue!!

The board is definatly leaning towards me paying off my debts, buffering my emergency money, and any left investing and / or paying down the mortgage. In this respect i should have said i already over pay by £300 pm on my mortgage, and pay 11% into a company pension fund. so with time my situation gets better with luck!

if i were to invest in a s&s isa, can i invest a lump sum and leave to to grow, or is it always better to drip feed with regard to charges etc? im probably opening up an entire thread by asking that so if it goes that way then keep an eye out.

I must admit i can see the benefits of being a landlord with tangible additons to a porperties value via improvements, rent eventually paying off the mortgage etc......but the potential for damage and bad tennants has me sweating. plus with the very difficult lending criterea the figures are very tight and it would only take a few empty months or a single bad tennant to ruin me.

and i dont like those odds when betting with my future. i may look into what deals i can get @ 75% ltv and go from there. if i could get it to 60% i did enquire several months back with my existing bank (n&p) about thier fixed rate at 1.99%.......new customers only. bah.....!

grey_gym_sock

the choice of a lump sum or drip feeding is partly about what you're comfortable with. on average, 1 expects shares to go up, which suggests putting cash to work as soon as it's available. but shares zig-zag up and down in value, and drip feeding reduces the chances of putting a lot just before they fall sharply.

after looking at what you'd save by paying off the car loan early, i'd look at what mortgage rates you could get at 75% or 60% LTV. perhaps get a good rate with lower payments and then drip feed what you're saving into an S&S ISA instead of overpaying (or overpay less).

i think you have the right idea that you need a bigger cash buffer before trying BTL.

jimjames

If you think you can beat the 3% mortgage cost with a better return from a S&S ISA then it is worth doing that. I'd also agree about paying off the car loan first if possible.

Putting a lump sum into a S&S ISA means it has the ability to grow and start making an income from day 1. Drip feeding may reduce the risk of investing just before a drop but long term it is the time in the market and reinvesting to compound your returns that will determine how much you get back.

Depending on your mortgage and if you can get overpaid money back out again you may find it better to use that for savings if the savings are paying less than the 3% on your mortgage.

zzzLazyDaisy

Just to put a different slant on this....

How old is your father? Is he on means-tested state benefits, or likely to need this support in the future? Is there any prospect of him needing care in the future?

I ask, because it is unusual to have someone who is renting, with no property of their own, wanting to give away significant sums of money.

If the answer to any of the above questions is 'yes' or even 'possibly' you should google 'deprivation of assets'. In essence, in certain circumstances, your father may be assessed as still having the money, should he apply for state assistance.

atush

I'd pay off the car loan, fill this years Isas. with 10K in cash, and almost 6K in S&S isa, i'd invest the rest and bed and ISA at some point int he future. Paying off more of a 3% mtg could also be a goo idea, as if you wanted to re-mtg you would benefit by having a higher LTV.

I would not buy a second home now or a BTL but you could revisit should you inherit more in future.

bigadaj

zzzLazyDaisy wrote: »

Just to put a different slant on this....

How old is your father? Is he on means-tested state benefits, or likely to need this support in the future? Is there any prospect of him needing care in the future?

I ask, because it is unusual to have someone who is renting, with no property of their own, wanting to give away significant sums of money.

If the answer to any of the above questions is 'yes' or even 'possibly' you should google 'deprivation of assets'. In essence, in certain circumstances, your father may be assessed as still having the money, should he apply for state assistance.

Good point, if someone is renting then given the £325000 allowance before inheritance tax is payable then there is no real reason to avoid now.