What income can I expect from £1m+?

cedarmay

kidmugsy wrote: »

On second thoughts: my remark about income in my comment above is probably wrong-headed. You can sell chunks of a PP to get the annual money you'll need. That's an advantage of shares/bonds/cash/gold; unlike property, they are divisible.

I'm not sure which comment on income you meant and 'PP' - is that Personal Pension or the Permanent Portfolio you referred to?

With all tax allowances etc. my target would have to be £77K gross income p.a. from the £1.7m of property + equities investments which is 4.5% ROI. I had hoped that I could generate enough income without having to sell chunks of either.

Thanks for your detailed replies and everyone else who has offered suggestions. I have lots to think about.

I'm still a bit unsure about selling properties which are tangible and give known returns. But as those returns are not enough I see that I should be looking for some funds which can generate the income I need plus at least enough capital growth to keep up with inflation so the spending power of the pot doesn't fall rapidly, so 4.5% income + % inflation.

kidmugsy

cedarmay wrote: »

I'm not sure which comment on income you meant and 'PP' - is that Personal Pension or the Permanent Portfolio you referred to?

Sorry for the obscurity.

(i) I meant that my implication that you must attend to the income-generating ability of your portfolio was a bit short-sighted, since there's no harm in also seeking growth and cashing-in some of that growth by selling assets as you need money. That is, as I said, a great advantage of shares/bonds/cash/gold - they are not 'lumpy' in the way that property is.

(ii) By "PP" I meant the Harry Browne Permanent Portfolio, one of the many 'mechanical' portfolios around, but one that's taken my interest.

If you want to look for income from equities, I recommend the writings of "Luniversal" at The Motley Fool forums. He's keen on what he calls "baskets" of investment trusts, and makes a persuasive case for them.
http://boards.fool.co.uk/basket-of-seven-annual-review-2013-12828989.aspx?sort=whole

and

http://boards.fool.co.uk/building-a-b8b7-basket-12788634.aspx?sort=whole

jimjames

cashbackproblems wrote: »

What ridiculous advice to get rid of your BTL's, London property prices have only ever gone one way, the FTSE index will be up and down for the foreseeable

Just because something has gone up doesn't mean it will go up forever.

BeatTheSystem

Dump the property, if you want exposure to property buy

F&C UK Real Estate Investments Limited (FCRE)
Picton (PCTN)
Schroder Real Estate Investment Trust Limited (SREI)

Blended they will give you somewhere between 6-7% yield spread over many commercial properties.

No hassle with the above and IMHO less risky than residential.

BTL is such a waste of energy and deprives people of homes of their own.

grey_gym_sock

BeatTheSystem wrote: »

Dump the property,

all in 1 year? and probably pay a big CGT bill?

as others have said, consider selling the lower-yielding properties, to reinvest in something higher-yielding. but first work out the CGT position.

if they're owned by you and your wife, you have £21,800 CGT allowance this tax year. so, for instance, can you sell 1 property per tax without paying (much) CGT?

if you want exposure to property buy

F&C UK Real Estate Investments Limited (FCRE)
Picton (PCTN)
Schroder Real Estate Investment Trust Limited (SREI)

Blended they will give you somewhere between 6-7% yield spread over many commercial properties.

commercial property is certainly 1 place to look for a decent yield.

however, i think 2 of those 3 vehicles are currently paying out more income than they're actually making (which is allowed when they have reserves from previous years' profits). so there's some danger that the payout will be cut.

less importantly, i think all 3 are currently trading on a premium to their net asset value.

No hassle with the above and IMHO less risky than residential.

BTL is such a waste of energy and deprives people of homes of their own.

true about the hassle, but then OP knows all about that already.

it doesn't deprive ppl of buying their own homes. some ppl prefer to rent; others can't afford to buy (due to lack of decent jobs/skills/training so they can earn more, or not enough homes being built - neither of which is the fault of landlords).

cedarmay

BeatTheSystem wrote: »

Dump the property, if you want exposure to property buy

F&C UK Real Estate Investments Limited (FCRE)
Picton (PCTN)
Schroder Real Estate Investment Trust Limited (SREI)

Blended they will give you somewhere between 6-7% yield spread over many commercial properties.

No hassle with the above and IMHO less risky than residential.

BTL is such a waste of energy and deprives people of homes of their own.

Thanks for the suggesion. I've looked at these funds. Yields look good and growth decent. My only concern is the high fees - up to nearly 7%. In theory fees are less important if the funds perform, but if fees tend to be high then I assume they take the lions share of any income in times when returns are thin.

I'm also not sure how to judge whether paying a premium over Net Asset Value is a good idea. I assume this reflects investor confidence in future growth and returns so the price is at a premium. But grey gym sock (thanks) points out that the funds are paying out from reserves more than they are making, so future pay outs could be cut.

I wouldn't dump all my property. It is managed and no real hassle. But I probably will sell the weaker yielding ones, but first I need to decide what will provide a better overall combination of capital growth (average 4%-5% p.a.) and yield (3-4%) which I get from the property I would be selling.

atush

Do remember you are now an income seeker, and not a growth seeker when choosing your investments.

Movements up and down are less important as long as the income is steady and rising above inflation.

cedarmay

atush wrote: »

Do remember you are now an income seeker, and not a growth seeker when choosing your investments.

Movements up and down are less important as long as the income is steady and rising above inflation.

Yes I understand I need income. But I think growth is still a factor I should consider for my investments. For two reasons:

1. If my BTL property has a capital growth average of 4%-5% p.a., and produces a yield of 3-4%, and I am selling it as it is considered to be under-performing (the general consensus of replies to my post), then surely I should be putting the money into an investment that can do better, even if tilted more to income.

2. I want growth so that the investment at least keeps pace with inflation (which as a tangible asset I would think property has a better chance of doing than many other asset classes). If the investment value fails to keep pace with inflation, then even if the yield stays the same, the spending power of the income falls. If the value failed to keep pace with inflation I would need the yield to keep increasing.


Is this misguided thinking?

Linton

cedarmay wrote: »

Yes I understand I need income. But I think growth is still a factor I should consider for my investments. For two reasons:

1. If my BTL property has a capital growth average of 4%-5% p.a., and produces a yield of 3-4%, and I am selling it as it is considered to be under-performing (the general consensus of replies to my post), then surely I should be putting the money into an investment that can do better, even if tilted more to income.

2. I want growth so that the investment at least keeps pace with inflation (which as a tangible asset I would think property has a better chance of doing than many other asset classes). If the investment value fails to keep pace with inflation, then even if the yield stays the same, the spending power of the income falls. If the value failed to keep pace with inflation I would need the yield to keep increasing.


Is this misguided thinking?

Sounds sensible to me, though you wont get an investment with no capital growth but whose yield increases indefinitely - if the income increases the investment will be more desirable and so its value will increase which will of course reduce the current yield.

Suggest you look at the Income sectors on www.trustnet.com to see the sort of yields and capital growth that typical funds in those sectors have provided.

Dont forget income from dividends is tax free for standard rate tax payers, unlike rent.

Conrad

I get £800 rent per month from each £110,000 London studio I buy.
I do not understand landlords that manage to secure such low returns as the OP here does.

He has £900,000 in equity. You could put down a £38500 deposit on London studios and after the cost of a 5 yr fixed rate mortgage and service charge make £500 pm on each property. Lets suppose each property together with the deposit, refurb and buying costs takes a sum of £45000. This means he could purchase 20 studio flats and have an income after the basic costs of £120,000 per annum.

A good Accountant will make this income look more like £50,000 split between a couple and thus in effect you'd end up taking home after tax about £9000 per month which is equivalent to an employee earning £150,000 per annum.