Inheritance

rmJab

Not sure where to post this so apologise if it's in the wrong section.

I will keep this brief as I'm on my phone.

Recently my partner came in to the sum of about £100k. She has bought a flat which we currently live in for just under 80k. She finishes uni next year and together we were looking at options for what she wanted to do.

I currently serve in the forces and live at home only at weekends.

We were thinking about going into property development but not really sure where to start. We have a trustworthy list of tradesmen who've done work for the family at good prices in the past and would look to start out with a property that just needed a bit of aesthetic renovation to get our feet wet. She currently has a part time job with the option to go full time when she finishes uni so taking out a second joint mortgage could be on the cards.

We had thought of re mortgaging the property we own and releasing her inheritance to use for the renovation property.

We will go to a financial advisor nearer the time but just looking for advice now really and to gather some ideas. Does this seem like a reasonable thing to do with the money? We would like to do something with it, to make it go further that could possibly serve as a way of making money and keeping her busy/giving her work.

Any advice would be appreciated.

Jonny.

kidmugsy

A small point, but when she gets the chance to contribute to a pension that also gets an employer's contribution, she should take it.

"We have a trustworthy list of tradesmen who've done work for the family at good prices in the past." Well, at least that's one business advantage. Any others e.g. legal knowledge, minor trade skills of your own, familiarity with the property biz? Or, perhaps best of all, a supply of good tenants? Could you use your forces connections to look into the idea of letting to forces personnel?

bowlhead99

A potential flaw seems to be that the idea of remortgaging sounds like it might be contingent on her going full time on her job. So, that may not be compatible with the property renovation / lettings / sales business "keeping her busy / giving her work"?

Also, and this might not be relevant for her but is worth mentioning, a lot of the jobs that you pick up on a part time basis at uni are considerably different from the jobs that you would aspire to get as a graduate to develop your career, and the first months / years straight after graduation are generally the key ones to get on the right path to long term career satisfaction (and salary).

For example I worked an admin job between my final year Uni exams and starting my proper graduate job after the summer. I could have just stayed on in that job, which I had through an agency, by applying direct to the business and the boss said he'd do a recommendation so I would probably have got it. Of course, it didn't have a proper graduate scheme or management training program, but it would have paid pretty much the same money (or even a little bit more money) than the grad job I was going to take as a trainee accountant. If I had just wanted a simple life and to start quickly paying towards a mortgage on a BTL, and do property development in my evenings and weekends instead of study for accounting exams, I could have taken that admin job.

If I did, maybe I would rise through the ranks but quite possibly I'd be a bit lazy and just sit around casually doing the admin job that I could have done without the degree I'd worked three years for. Because even without a promotion, with inflationary payrises I'd be earning 40-45% more than I would have started on two decades ago, and be able to knock off on the dot of 5pm every day to cook dinner for my other half, and paint over the damp bits on my development projects on the weekends, and spend all my lunchtime on the phone to letting agents and tradesmen fixing up my property empire.

As it was, I took the proper grad job which has given me the chance to work with lots of smart people, work internationally, and increase my salary 800-1000% rather than 40%. So, make sure your partner knows what it is she would really prefer to do, rather than just be railroaded into running the property empire while trying to hold down a real job, while you stay away in the forces and do a bit of DIY on the weekend.

A lot of people don't make a property development business a success, instead they find bankruptcy. You're unlikely to find a 'financial advisor' recommending such a business as a safe way to deploy £80k, although of course you can find a 'mortgage advisor'/ salesman to hook you up with a mortgage to earn his fee.

Some people make it work. Of course, the stories of people making it work over the last 10-20 years are all helped by the market's unsustainably big house price rises whether they kept to their budgets or not, and in many parts of the country, property price has now moved to be a big multiple of wages so the ship has sailed. In the areas where it isn't, there is usually an underlying reason for that, which won't be fixed by the time you've painted the house.

A lot of the 'do up your house' TV shows are repeats and were first aired a long time ago when there was easy money to be made; now everyone has already seen them and places that are just easy cosmetic fixes will be in demand by professionals and amateurs alike. The professionals will have access to cheaper finance and a large portfolio of properties so they can afford for one of them to go horrendously wrong. By taking the cash out of your flat and increasing your own day to day mortgage costs, and then spending part of the inheritance on refurb costs, you don't have enough money to afford a wide low risk portfolio. So competing with other developers as a first timer can be tough.

This is not intended to completely put you off, but I agree with kidmugsy that if you want to de-risk the project you need to have some kind of angle or specialism or niche that means you are going to be more successful than the average person who might try it. The potential high rewards are only there because of potential high risks, and the established professionals who are your competition are able to bear these more than you.

If those guys sell a property for £40k less than they spend on it, but they make £100k on another one, the effect is that they still made £60k profit. By making less profit, they pay less tax. The after tax position is only £24k worse than if they didn't lose the £40k at all. Whereas it you lose £40k of your partner's cold hard cash, it really does cost you £40k and you won't have the capital or the inclination to try for a second one.

Plenty of people on this forum have done a bit of property development or BTL and some been very successful. Some of them just started out as accidental landlords while others had a proper business plan. If it was easy, we'd all do it and then there would be tens of thousands of anecdotes posted here rather than a few hundred over the years. And be aware that most people are happier to talk about their personal successes than their personal failures. Some of those with particularly heavy failures are regrettably no longer around to tell the tales.

atush

Personally i would have her pay off debt (apart from any mtg) and save the rest- some in cash some in S&S isas. Then have her save your contribution to the household bills into the S&Sisa.

Leave property development until later once she has a proper graduate job and can qualify for a good mtg rate and you are in a position to help finance the project.

Property development is not where a uni student should be just at present. She needs to focus on exams, papers, and getting a good graduate job. Not running a business.