have £100k -do not want to invest and interest rates very low any ideas? PROPERTY?

ggloria007

Hi wise people,

we have some savings and some inheritance £100k... saving interests rates are ever so low so we want a bit more for our money ... is it better to invest in property rather than in bonds! any other ideas how to enable our money to make more ...
thanks


we have some mortgage (1.99% interest rate around 65K left to be paid) left but thinking or buying another property using £100k as a deposit and getting a good mortgage rate ...

Thanks
Gloria from Cambridge soaring housing market...

:money:

bowlhead99

There usually isn't one right answer to this sort of "is it better to..." question.

I assume you have zero experience of running a property landlord business? How old are you and your other half? With your other jobs, commitments, health and whatever, do you have the time / ability /inclination to run around after tenants, making repairs and renovations etc? Do you have DIY skills or know reliable tradesmen? Renting out property is a competitive business.

Assuming it would be dumb to put all your life savings into one property (eggs into one basket) you would need to spend say 40k on each of two properties leaving 20k as a fund for various purchase fees, ongoing repairs and maintenance, paying the mortgage when you don't have a tenant or they don't pay and/or they trash the place and you have to fix it etc. The 40k each property could be added to with a max 75% mortgage to support the purchase of a £160k flat.

Are there many of those around in "Cambridge soaring housing market"? What rental income, after expenses and tax, would you realistically expect to get? Are you approaching the stage in your lives when you could perhaps sell your own house, downsize and live in one of the rental properties for a long time to avoid needing to pay the capital gains taxes on any potential change in value over the years?

Property's a completely different proposition to using savings accounts. You are investing in something (in a 'soaring market', you say), that may go down in value by more than the entire value of your equity (assuming you mortgage 75% of it) and at the same time can cost money to run. And yet the opening thread title was "have £100k, do not want to invest"! If you do not want to invest, perhaps you should not be putting more money than you have ever spent on anything in your life into a new business in the property sector.

What is your goal for the £100k? Do you need an income, or just some long term capital growth to set your up from retirement?

You mentioned cash interest rates are 'ever so low', which is true once you've maxed out all the high interest current accounts for maybe £50k between you, it is slim pickings. But cash has never been a suitable home for a large amount of cash that you want to put away for many years, because by the end of those years it will be worth less in real terms than it was at the start. Sure, some years banks or other financial institutions are willing to pay more interest than inflation but not in the long term if you are not taking any risk. So, getting 1.5% in ISAs or 3% in taxable accounts now when inflation is 2% is not really any worse than getting 3.5% to 4.5% when inflation was 4%.

A standard way to grow funds for a long term goal such as retirement or just general wealth generation (or maybe to take an income if you need one) is to invest in a portfolio of stock market linked investments (shares and bonds). These have been used as a common way to build retirement funds for the last hundred years, for the average man on the street who did not want to join the relatively recent phenomenon of being a buy-to-let landlord. Hundreds of millions of people around the world rely on growth of shares-related investment fund portfolios over the long term to build a nest egg or provide an income from dividends and interest. Is there a particular reason you don't want to do this?

It can't be because you are worried about the shares reducing in value when you suddenly need to get your money back for a known expenditure in X years, otherwise you wouldn't be considering making a geared investment in property which could lose a big chunk of value and be completely illiquid, rather than being able to exit at the click of a button.

The returns on bonds, like cash, are at all time lows at the moment. That's the problem with the low interest environment, it makes asset prices (bond, shares, properties) quite expensive. You can buy bonds that have higher interest rates if you're willing to take the risk that they fall in value. If general interest rates shoot up, the bonds that look relatively more attractive today could fall in value quite a way. Property prices could also cool rapidly in a high interest rate environment (not just on your BTL but also your own home) as nobody would be able to get 1.99% mortgages like you have at the moment. Shares would drop too, for a while.

Of course, interest rates may not shoot up, it is likely this would be allowed to happen only gradually to the extent the economy can handle it. But it is all a bit of an unknown. At the end of the day you need to decide whether you want to take investment risk on an investment, or inflation risk on your cash. Beyond a decent sized emergency/ rainy day fund (which I expect you have as a separate pot from this £100k?) most people would not advise to simply keep £100k in a bank vault or under the mattress, as inflation is inevitable while investment markets go up in excess of inflation in the longer term (accepting ups and downs along the way).

Presuming your 'do not want to invest' is something that is not 100% true (because you have talked about investing in property and bonds), there are plenty of options. If you are naive about investment options and don't want to put too much legwork into research, you could always give a few thousand pounds to an independent financial advisor to set you up with a portfolio invested across a wide variety of asset classes around the world, in the same way you would give a chunk of cash to expert solicitors and surveyors and insurers to set you up with a property.

For a fee, the IFA would give you a balanced view of investment options and tax or inheritance planning opportunities. While the solictitor/surveyor would just tell you if there was a legal issue or structural issue with the specific property you had in mind.

jimjames

I can't add anything to bowlhead's comprehensive reply but I think it worth highlighting one question in case it is missed.

Can you explain why you don't want to invest? It obviously isn't down to risk if you're looking at geared property investment where you could lose all your money and not access it without selling completely.

If you invested in a FTSE tracker for example then rather than being exposed to a single house you'd be sharing the success of the top 100 companies in the UK. Of course the value won't go up in a straight line but every company is aiming to grow profit long term which should reflect in the share prices.

atush

Yes, we need to know why you dont want to invest, when property is actually an investment (and a single, non diversified and illiquid and possibly risky one at that).

ruinen

great reply!

bowlhead99 wrote: »

There usually isn't one right answer to this sort of "is it better to..." question.

I assume you have zero experience of running a property landlord business? How old are you and your other half? With your other jobs, commitments, health and whatever, do you have the time / ability /inclination to run around after tenants, making repairs and renovations etc? Do you have DIY skills or know reliable tradesmen? Renting out property is a competitive business.

Assuming it would be dumb to put all your life savings into one property (eggs into one basket) you would need to spend say 40k on each of two properties leaving 20k as a fund for various purchase fees, ongoing repairs and maintenance, paying the mortgage when you don't have a tenant or they don't pay and/or they trash the place and you have to fix it etc. The 40k each property could be added to with a max 75% mortgage to support the purchase of a £160k flat.

Are there many of those around in "Cambridge soaring housing market"? What rental income, after expenses and tax, would you realistically expect to get? Are you approaching the stage in your lives when you could perhaps sell your own house, downsize and live in one of the rental properties for a long time to avoid needing to pay the capital gains taxes on any potential change in value over the years?

Property's a completely different proposition to using savings accounts. You are investing in something (in a 'soaring market', you say), that may go down in value by more than the entire value of your equity (assuming you mortgage 75% of it) and at the same time can cost money to run. And yet the opening thread title was "have £100k, do not want to invest"! If you do not want to invest, perhaps you should not be putting more money than you have ever spent on anything in your life into a new business in the property sector.

What is your goal for the £100k? Do you need an income, or just some long term capital growth to set your up from retirement?

You mentioned cash interest rates are 'ever so low', which is true once you've maxed out all the high interest current accounts for maybe £50k between you, it is slim pickings. But cash has never been a suitable home for a large amount of cash that you want to put away for many years, because by the end of those years it will be worth less in real terms than it was at the start. Sure, some years banks or other financial institutions are willing to pay more interest than inflation but not in the long term if you are not taking any risk. So, getting 1.5% in ISAs or 3% in taxable accounts now when inflation is 2% is not really any worse than getting 3.5% to 4.5% when inflation was 4%.

A standard way to grow funds for a long term goal such as retirement or just general wealth generation (or maybe to take an income if you need one) is to invest in a portfolio of stock market linked investments (shares and bonds). These have been used as a common way to build retirement funds for the last hundred years, for the average man on the street who did not want to join the relatively recent phenomenon of being a buy-to-let landlord. Hundreds of millions of people around the world rely on growth of shares-related investment fund portfolios over the long term to build a nest egg or provide an income from dividends and interest. Is there a particular reason you don't want to do this?

It can't be because you are worried about the shares reducing in value when you suddenly need to get your money back for a known expenditure in X years, otherwise you wouldn't be considering making a geared investment in property which could lose a big chunk of value and be completely illiquid, rather than being able to exit at the click of a button.

The returns on bonds, like cash, are at all time lows at the moment. That's the problem with the low interest environment, it makes asset prices (bond, shares, properties) quite expensive. You can buy bonds that have higher interest rates if you're willing to take the risk that they fall in value. If general interest rates shoot up, the bonds that look relatively more attractive today could fall in value quite a way. Property prices could also cool rapidly in a high interest rate environment (not just on your BTL but also your own home) as nobody would be able to get 1.99% mortgages like you have at the moment. Shares would drop too, for a while.

Of course, interest rates may not shoot up, it is likely this would be allowed to happen only gradually to the extent the economy can handle it. But it is all a bit of an unknown. At the end of the day you need to decide whether you want to take investment risk on an investment, or inflation risk on your cash. Beyond a decent sized emergency/ rainy day fund (which I expect you have as a separate pot from this £100k?) most people would not advise to simply keep £100k in a bank vault or under the mattress, as inflation is inevitable while investment markets go up in excess of inflation in the longer term (accepting ups and downs along the way).

Presuming your 'do not want to invest' is something that is not 100% true (because you have talked about investing in property and bonds), there are plenty of options. If you are naive about investment options and don't want to put too much legwork into research, you could always give a few thousand pounds to an independent financial advisor to set you up with a portfolio invested across a wide variety of asset classes around the world, in the same way you would give a chunk of cash to expert solicitors and surveyors and insurers to set you up with a property.

For a fee, the IFA would give you a balanced view of investment options and tax or inheritance planning opportunities. While the solictitor/surveyor would just tell you if there was a legal issue or structural issue with the specific property you had in mind.

ggloria007

thanks for such a comprehensive replies... such a great forum! thanks ever so much guys!

what i meant is that i do not feel particularly ok in investing in bonds or shares... it is too abstract for me... and even sharing the success with 100 biggest companies doesnt sound too pursvasive :-)

no i do not have any retirement funds, my partner and i are 47.
we came to this country 10 years ago... and it was more important for us to save money for a deposit (for the house) rather than buy pension plan setc ... that proved to be a good move... however, we are now settled and in position to think a bit more about the future...

now we have a house aprox £370k in Cambridge with £80k mortgage left ...

of course i am not interested in consulting 'financial' advisors - when we started our mortgage i consulted 4 of them.. and none managed to find a mortgage rate nowhere near 1.99% which i found myself...

£100k came as my inheritance six months ago...
so I do not need a mortgage for 'my property investment'

recently i have seen a one bedroom flat for £95k and wonder if buying and renting it would be a wiser idea than keeping the money in the bank... which i now understand from bowlhead99 is actually the worst option :-)

similarly paying off the mortgage is not a wise move too...

currently i am getting £80 interest monthly: x12 = £900 per year
with the income from the flat that would be £450x12=£5400 - 1200(maintenance, ground rent etc...) = £4200 (even with 2 months without tenants that would be £3300 per year which is 3x better than the current savings....

how the bonds and other investments (low risk) compare with this...
and what would you do if you have the same dillema

thanks
and night night

Linton

From your figures you would expect roughly 4% net return. For £100K in a broad global range of dividend paying shares and funds you could get a fairly steady income of at least 4% with capital growth over time but with fluctuations.

The broad range is important as it means that you are not unduly hurt by an individual company failing or difficulties in one geographic area. Your risk is a major global economic calamity, one of a size that could also render both the income and capital value of your flat problematic.

So at first sight the two types of investment are roughly comparable. Lets look at bit more deeply.....

1) Your flat income is taxed, and any profit from selling the flat is subject to Capital Gains Tax. Investing £100K, with care, is tax free. You could put all of it into his and hers ISAs over 3-4 years to ensure this.

2) The only thing you can do with the flat is to sell all of it or buy another - both are very large transactions. With investments you can add or remove small amounts of money without difficulty. So you can steadily increase your investment pot over time whilst building it up and then steadily release some of the capital in retirement.

3) The major advantage of flats is that you can cheaply borrow the money to buy them whereas with share investments you cant. However in your case you have the cash. Of course you could use your £100K as a deposit to buy several flats on mortgages. But I am not sure you would want to take on massive debt at the age of 47. That would be adding greatly to the risk.

4) Property can be a hassle - legal agreements, awkward tenants, the legal requirements of being a landlord. Share/fund investment involves minimal intervention - possibly no more than a few hours a year.

5) The picture I have given of share/fund investment is based on dividend payments. You have the choice ranging from guaranteed steady income with a much smaller return to zero income but chances of much higher growth. You can mix and match the options to meet your needs.

ruinen

If I was you I wouldn't make any quick decisions, buying a house is locking you and commiting you to one type of investment. It would be costly if in the very near future you change your mind and want that money for something else. You also already own a house so it is weighting your investments very heavily towards property.

I would suggest you dip your toe in the water of investments, just to get a feel for it and make it more tangible. A property is tangible, but so is owning a small share of a company. That company owns assets (often including property) and has revenue. You own a share of their assets and their revenue.

With low cost index trackers, you have a very easy way to make investments and it is very highly versified, so the chance of it completely collapsing are slim. If the FTSE100 were to drop to zero than that would probably be due to some economic apocalypse and we'd probably have bigger problems, like how to get food.

Anyways, maybe a first step is to open an S&S ISA (I have iWeb, but there are plenty of other low cost platforms) and then put a few thousand into an index tracker (I have Vanguard Life Strategy, but there are plenty of other low cost trackers).

atush

of course i am not interested in consulting 'financial' advisors - when we started our mortgage i consulted 4 of them.. and none managed to find a mortgage rate nowhere near 1.99% which i found myself...

£100k came as my inheritance six months ago...
so I do not need a mortgage for 'my property investment'

You didn't actually see Independent financial advisers, who you saw were more likely tied agents in banks, and mortgage brokers. An IFA is a professional who could help you decide on risk, and help you choose investments.

Investments can be single shares in companies (high risk) and funds that hold lots of shares in many different companies (lower risk) and companies in different countries (lower risk again) and some funds include cash, property and bonds as well as shares (lower risk again).

Bonds are in essence, loans to companies or even countries (called gilts).


As far as having no mtg, given the interest is tax deductible against your income from the property perhaps not the best plan.

Using say 40K for a deposit, and a mtg keeping 60K in cash equivalents or 30K cash and 30K for 2x S&S isas would be even better.

atush

One thing people haven't really mentioned is pensions. You really ought to have one. Ideally with an employer. Does either of your employers have one? How much do they pay in for you? This is free money and you really should join today.

As for a personal pension, every 80 you put in is 100 as the govt tops it up by 20. And if your employer also pay in 100, then you are getting 200 in a pension each money for just 80. What else can you do with your money that would do as well?

Within the pension you can then choose what the money is invested in.

JoeBlack78

Hi ggloria007,

I'm also from Cambridge and have been looking at the same thing, with nearly the same budget.

The problem is it's very hard to find something at 100K in Cambridge due to house prices being sky high.

Of course, you could put a smaller amount down, get a buy to let and earn roughly get 5% on your money. I built a quick financial model to include all costs and it does feel like 5% is doable in Cambs. Just remember though, it's not entirely passive and there are costs associated to buying and maintaining and rental property (money and time). Plus property price increase which feels like it will continue to rise, but bear in mind there is risk with that, just as there is the stock market (it can go up, stay the same or down).

I have always had the same view as you about the stock market. Although recently I have become more open minded. I have read a lot about it and asked many questions from friends who invest.

These guides from the Motley Fool site are excellent - investing basics and ten-steps-to-financial-freedom. Se them under the home tab.

I have since invested a bit in a tracker fund - HSBC FTSE All Share Index Fund Acc C. There is no tinkering or decisions required from you. It simply tracks the overall FTSE and if you look at the previous 5 years performance, you can see it gives a good rate of return. Do a google search on it and you can see the history of the returns.

Anyway, all I would say is be open minded about the stock market. Read the motley guides and ask a few people. Perhaps you may change your mind?

If you feel like meeting up to discuss buy to let stuff, feel free to get in touch!