£90k to invest for 5 yrs, sav. a/c or buy to let?

prince

i will have 90k and am contemplating to put it to good use by generating some income within 5 years.
the dilemma is ;
one can get a 5yr fixed savings rate earning you say around £20000
or
buy a apartment and let it out which in my city may earn you almost the same as the fixed rate would after tax and expense calculations, however should there be a slump in the housing market of say 20% in 5 years then my investment would not yield any income apart from the equity.

taking the current situation on board what would be a wise option.

Paul_Varjak

The trouble is, you are asking us to peer into our crystal balls!

deemy2004

prince wrote:

i will have 90k and am contemplating to put it to good use by generating some income within 5 years.
the dilemma is ;
one can get a 5yr fixed savings rate earning you say around £20000
or
taking the current situation on board what would be a wise option.

You have to cost the time of looking after your aparement, work that needs doing, maintenance, what do you do when its empty etc ?

With a say 5 year fixed rate bond its fire and forget....

dunstonh

Don't forget tax at your highest rate on rental income (22%/40%) compared with 20% on savings or potentially lower with investments. Then there is capital gains tax to pay on disposal of the property (that assumes you make a profit). You cannot utilise annual CGT allowances as you can with an investment.

A rental property is as risky as a stockmarket investment. A lot of people have moved out of the stockmarket into property as they think it is safe. When they find that they have lost money in the short term with property, many of people will exit property and no doubt go back into the stockmarket as short term gains have been good and will have forgotten again that it to can go down.

These things are long term and 5 years is not long enough. Over a 10-15 year period, you would expect a a few drops in value, a bad tenent, refurbishment etc. The income over a 15 year period should cover most of these events. However, what if they all occur in the first 5 years? It could take you another 10 to break even.

koru

Have a look at Martin's recommendation about Charity Bank: http://www.moneysavingexpert.com/cgi-bin/viewnews.cgi?newsid1110799596,65191,

Currently not available, but may be soon.

10% effective interest rate, and risk free. A pretty unbeatable combination, unless you prefer taking risks.

EdInvestor

Very bad time to go into buy to let - prices are very toppy, especially for new build apts and may fall and rental yields in many places are low ( below 5%).

Conventional wisdom says 5 years is a bit short for equities, but if you want to give it a try,a portfolio of high yield stocks paying an overall (tax free) divi of 5% is easy to construct and that will hopefully also provide some capital growth with virtually no charges.

Commercial property funds/unit trusts have a fairly long history of generating 6-7 per cent income yield for a medium risk investment.

Spread eggs around a few baskets perhaps?