Help - really struggling to decide what to do with my property

economic

Hi there. I wasn't sure whether to post this in this section or the house buying section but since its more related to investments I posted it here.

basically I need some help deciding what to do in my current situation. I own a 2 bed leasehold flat in Kilburn (zone 2 London) with my brother 65-35. we both live in it. I am thinking of the following options but not sure what:

1) stay put and do nothing
2) sell and downsize to a one bed (brother is fine with one of us living in the living room, we would own it 50-50)
3) let out current flat, release equity and buy a one bed to live in for around 400k in a nice area in zone 3 (same arrangement with brother as above)

My current situation is as follows:
Cash - £315k (of which cash isa total £81k) - looking to put half into trackers
Property equity - £270k (only my share and not my brothers) with my share of debt being £88k.
S&S ISA - £28k
Pension - £52k

My income is around £5k a month net (post tax and pension contribution). however I am looking to leave my job within a year and do something else earning a lot less (<£50 a year gross). I am single and do not plan to have children (already made up my mind).

Below are my thoughts on each of the options:

1) easiest thing to do and no hassle however I'm not sure I want to stay in this area beyond age 36-37 (I'm 32 now).

2) able to monetise the appreciation in the property (I bought for 465k and current value is £550k) and downsize as am not sure of the London property market going forward. would give me more cash for other/better investment opportunities.

3) the flat can be converted easily into a 3 bed and agents say it can be let for £2k pcm. I don't own any btl property so maybe good to do this in terms of diversification, however yield on current value would be 4.4%. I guess rents could always go up which is likely. this option obviously the riskiest specially with the btl tax changes.

I have 2 more years left on my fixed deal. I think its either going to be option 2 or 3 as I can not see myself living in this area once I hit my late 30s (its more for young professionals and even though there is gentrification going on (although very slowly) its not exactly a well to do area).

So what should I do? should I wait a bit longer and reassess? is option 3 a good idea or is the yield way too low to make it worthwhile. option 2 would mean lot less risk and hassle however I wont be as well diversified and can not see myself putting everything into equities. option 1 is easiest thing to do however medium risk out of all three options and I do eventually want to move.

My main goal is to have least outgoings as possible (I am pretty frugal) and have income in other ways then a job.

many thanks
Economic

jimjames

I'd do option 1.

But more importantly deal with the massive pile of cash and investigate investment options and moving into s&s ISAs and/or pensions. You can certainly do better than cash ISAs for income but not on £300k

economic

thanks for your reply. I have fixed my cash isa at rates between 2.3% to 2.8%.

I will certainly look to do something with the rest of my cash very soon.

any other views/comments?

bigadaj

Agree with Jim, however property is more an emotional or lifestyle thing as an investment, so this is a personal call.

Thing that jumps out at me is pension, sounds like gross earnings are around £80k and punting more money into pemsion means it's costing you barely more than half due to tax relief. Might be a bit academic if that income reduces rapidly in the next year or two but worth consideration as people's views change and you could be in the same position in a few years.

Letting property can be a pain and is at the end of the day a business more than an investment. My father and partner both rent out properties and have recently had problems with tenants, nothing serious just late payments, but still hassle if you are working full time. This is before the tax changes as well, if you do let it out then do your research, both generally and specifically into your tenants as it can take ages to get your property back.

economic

thanks for your reply. my gross salary is around 100k of which I contribute I think around 6% to my pension and my employer matches this.

I agree wit the lettings being a bit of a hassle. but main thing is the low yield doesn't make it worth it. otherwise its just a punt on rental and property price appreciation. it just doesn't make sense - too high a risk. so its either option 1 or 2.

El_Torro

The big thing that jumps out at me is that you're considering living in a one bedroom flat with one of you sleeping in the living room. With your salary and your savings I really don't see why you would consider that.

Up to you of course but I think there comes a point where you're just saving money for the sake of it. You want to have a minimum standard of living now, even if you're saving for the future.

Maybe you could stay where you are and use some of your £315k cash to buy a one bedroom as a buy to let? However you say you have doubts about the London property market so I'm not sure why you're planning to invest more into it.

EDIT: Sorry, missed the bit where you said you don't want to live in your current area. In that case I'd sell your current property and buy a decent 2 bedroom flat in a nice area. That seems like the best long term plan to me.

economic

yeh I wont be investing anymore in London property. agree with your point on living standards - I may consider buying a 2 bed if I go with option 2.

I just want to set myself up so I can "retire" early. by retire I mean not having to do a job which I dislike and do something that aligns with my interests. which may mean taking a huge pay cut.

kingrulzuk

My brother is 32 and he has made up his mind to retire at 35 so he is working hard and investing abroad as much as he can, he don’t trust the taxman nor the government so he does not pay in for pension, he does not want any children also.



So I’m thinking should I do the same?

economic

I do not trust the government either (nor would I trust any government for that matter) and is one of the reasons I want to keep property investment limited (only own place you live) as property can not be moved whereas shares can.

I think buying trackers in global share indices mainly US is the safest bet going forward.

that is also why I don't contribute more to pension then I need (just to match employer to maximise this).

colsten

kingrulzuk wrote: »

My brother is 32 and he has made up his mind to retire at 35 so he is working hard and investing abroad as much as he can, he don’t trust the taxman nor the government so he does not pay in for pension, he does not want any children also.

Which fairyland foreign government and taxman does your brother trust then? #LogicFail

economic

hahaha that's the other thing. I wouldn't trust any government in this world - they are all corrupt.