Can you help me with my 50K?

SkippyTheBushKangeroo

Have inherited £50,000 and not sure what to do with it. Here are my circumstances:

Self employed, making 18K profit.
About 98K left on mortgage. Mortgage payments currently £570 pcm.
Have personal pension with very little in it, have had it for 12 years, paying £50 pcm in.
Have one ISA from 12-13.
Have a partner and a child, mortgage and deeds are in partner's name although we contribute equally.

Property is cheap where I am, but don't have enough to buy a BTL place outright. The rental market is very good here, 450 pcm for a decent 2 bed, which would cost approx 90K.

I'd really appreciate ideas for how best to make the money work, as you can see, relative to my income it's a huge amount.

WGPA

Depending on your preferences property could be a good option - say you got a £45k mortgage interest would be somewhere around £2k per annum (back of the fag packet guestimate there) and if you're getting £450pcm your annual revenue would be £5,400.

You would therefore get £3,400 profit per year before tax on £50k investment which would be 6.8% return per annum - not a bad rate of return. Plus there would be potential capital appreciation.

The real question is would you be eligible for a mortgage on a BTL? Would you have enough of a slush fund to cover bad tennants/no tennants/broken boilers?

It's a risk no matter what but not sure I would condone all the eggs in one basket right now.

innovate

You don't say how old you are, whether you need the money sometime soon, whether you have a rainy day fund (6-8 months living costs), what the interest rate on your mortgage is, and whether you can make extra mortgage payments.

In the absence of this information, I think it would be extremely high risk to put what might be 100% of your savings into one single investment (e.g. BTL). If I were you, I would split it up into a top-up of my cash funds, a top-up of the pension contribution, and perhaps pay some of the mortgage off it that is possible.

SkippyTheBushKangeroo

Thanks for your replies.

I'm 42. I'm hoping to improve my work situation as my earnings are low, so I'm hoping not to need the money soon.

I will have a rainy day fund as I've inherited a bit more than 50K and I'll be keeping some in accessible ISAs as a cushion.

In terms of being eligible for a BTL, yes, I wondered whether the poor salary would cause a problem. In terms of raising the deposit, that would be OK as the property would be about 85K.

When you say "a top up of my cash funds", what do you mean? A savings account?

Agreed, the eggs in one basket is counter intuitive for me, but I worry that if I split the money into dribs and drabs it's hard to see the benefit, whereas BTL is a very tangible house with rent coming in.

atush

It may seem hard to see why splitting it up is better, but each tranche of savings will have different goals/time scales so needs to be saved/invested in different ways.

Does your OH work? Do they have a pension?

It is, generally speaking, very bad practice to pay for a home where your name is not on the deeds, so you should probably marry if this won't be a problem. If there is some reason you cannot marry, then you should put the house in both names.

And if you are not married, you will have less recourse to saving on tax, as I do not advocate saving in a non married partner's name.

Second, your emergency cash pot (in ISAs) should be at least 6 months spending, then put at least 18K (ie this year's salary) into a pension. You could put in more, as you can use last years and the years' before allowances. But, depending on your mtg rate, you may want to pay off some of the mtg. But again, don't do this if your name is not on the deeds.

With the final remainder (if there is any) I would look to either repair/maintain the home you own if there are jobs that need doing, any upgrades that you need etc or fill your S&S isa allowance for a med/long term investment.

Radiantsoul

What is your business? I mean if you are a builder/pumber/electrician then perhaps BTL might make sense, but otherwise I am not so sure really. The costs will exceed the fag packet stuff as you will have redecoration, fallow periods, insurance, agency fees, etc. It is quite risky and quite hard work.

SkippyTheBushKangeroo

Thanks again everyone. I'm not on the mortgage because I had a poor credit rating within 6 years of the time we got the mortgage so it was more 'gettable' using just my partner's details. I didn't know that I could be on the deeds but not the mortgage until this week, we're going to look into getting that changed, is it just a solicitor appointment?

The house we own does need some work doing to it, probably about 6 grand worth.

Sadly I'm not a builder, plumber, or anything useful in terms of property ownership!

My OH does work, he too is self employed (we both lost jobs in the recession so have been ploughing our own furrows since then) but earns slightly less than me. He doesn't have any pension or any savings.

On the subject of pensions, I have about 6K in an occupational pension from a former job, should I leave it there or try to move it into my personal pension pot?

Can you explain how a Stocks and Shares ISA differs from the bog standard one I got from Tesco?

Thanks all for your help, this is really helping me clarify things in my head.

Gadfium

Splitting into separate pots diversifies it and can be used to lower the overall risk (assuming that the pots are not all exposed to the same risk). Ye, you will get lower total rewards if one pot does really well and the others less so, compared to having it all in the high-preforming pot. The problem lies in being able to identify, in advance, which pot is going to do really well. if that was possible, then we'd all be millionaires by now.
The flip side is that if a pot tanks, then the other pots aren't affected. This is why massively diversified trackers are appealing to some people- low management and a highly diversified portfolio which can lower risk (but with the side effect of lower possible returns)

SkippyTheBushKangeroo wrote: »

Agreed, the eggs in one basket is counter intuitive for me, but I worry that if I split the money into dribs and drabs it's hard to see the benefit, whereas BTL is a very tangible house with rent coming in.

Only if the rent keeps coming in. And if the tenants don't trash the place. And if the rent chargeable is enough to cover the mortgage, repairs, tax, times of no tenants etc etc.
Putting it all in BTL is having all eggs in one basket. if you are happy with that, then rock on. But you could possibly get higher returns at lower risk through other means,

SkippyTheBushKangeroo

Is a tracker a type of ISA?

jabba42

Radiantsoul wrote: »

What is your business? I mean if you are a builder/pumber/electrician then perhaps BTL might make sense, but otherwise I am not so sure really. The costs will exceed the fag packet stuff as you will have redecoration, fallow periods, insurance, agency fees, etc. It is quite risky and quite hard work.

I do not not live in the UK anymore but I have seen quite a lot of people negatively commenting on BTL on this site. Personally I think it is not good on a small scale as you are a) getting leverage b) investing in one asset class. What are current returns on such an investment?

I have a colleague in California who is trying to persuade his family and friends stop buying houses.

He says they taking on leverage of 50k plus USD just so they can bank 300 USD per month. With maintenance he thinks it is marginal.

Mirno

Stocks and Shares ISAs are like cash ISAs in that they are income tax exempt. They are not like cash ISAs in that you will need to pick stocks/bonds/funds to buy and hold in the ISA.

The ISA scheme allows you to save £11520 per year in ISAs, but only half of that can be in a cash ISA. This means you could save all £11520 in a S&S ISA if you wished, or some amount up to £5760 in a cash ISA and the remainder in an S&S ISA.

When people suggest investing in a tracker, this is a type of fund, which is set up to "mindlessly" follow (or track) an index of some type - for example the FTSE100. If the FTSE 100 goes up by 1% the value of your fund goes up by 1%.
Rather than you buying 100 separate shares, the fund deals with this for you (for a small fee each year).

There are also managed funds where someone will actively pick stocks and/or bonds to hold in an attempt to beat the market. These typically cost more due to their active nature.

Mirno