How to best use my flat to retire and help family member

denisekingston

Hi,

I am 60 years old, single with no children and own a 1 BR flat in Central London which is worth around £800+K now. I've finished the mortgage years ago and still living in there.

Currently I am working freelance so income is not stable. Means at times I'll struggle with expenses and keeping up with council tax and building service charges.

Is there any way I can use my flat to help me live a more comfortable life financially and hopefully retire fully one day? Another wish of mine is also to help a niece of mine with her student loan. I wished I can help her in some way with this flat.

Hope someone can advise me here how to best utilise my flat and turn it into a hopeful future. Thanks.

Spuggy200

Move out of London, buy 8 houses and rent 7 of them out.

Nephews are he's and nieces are she's by the way.

AnotherJoe

Sell, buy a flat for three quarters to half the amount you get from the sale, bung your relative five grand from the cash, invest the rest, as much as you can in SIPP and ISas to shelter from tax, to give you around 3- 4% return from income based investments.

Even if it's 200k you'd be getting £8k a year which would give you a buffer for your uncertain income.

Do you have a pension coming at some point or is this flat it?

denisekingston

I don't have any pension. The flat is that it. Getting another flat in London is probably not a good value with property price now. Unless I move out of London which is not what I want to do.

kidmugsy

Or sell the flat, buy a house in zone 2 near a railway station, and take in lodgers. Or investigate "reverse mortgages" i.e. equity release.

jamesd

With an asset worth £800,000 you could retire now on an income of £40,000 a year assuming your state pension will pay £8,000 a year. That is based on the Guyton-Klinger drawdown rules for a 40 year retirement with variable income and lowest permitted income level of £25,000 at 99% success rate, for a US investor. This plan has the starting value of £40,000 but if there is a sequence of poor results from investments it will reduce the income towards the minimum to allow the money to last long enough.

That will permit a considerable amount of rent to be paid. Alternatively you can relocate to a cheaper part of London. There are at least 750 one or more bedroom flats available in London with prices of up to £200,000. At least 45 with prices up to £100,000. Spending £200,000 would reduce your initial income to £31,000 while keeping the same £25,000 floor.

To help in picking an area there's a map showing average house prices near each tube station. You can use that to find places to live that will have convenient links to the places you want to go. That's all prices, not just flats, so your cost should be be lower.

You can increase confidence of a good selection and simplify selling by arranging to rent for a year in your proposed area, while you sell your current flat.

It is not generally a good move to help with student loans because their borrowing is too cheap and their repayment terms too generous. If you want to help a usually better course would be to help with a property deposit because it is hard for a young person to quickly accumulate a big deposit. Then the ownership of the home will cut their costs compared to renting the same type of property, usually, so their reduced expenditure can take care of the student loan.

kidmugsy

Or, when you buy your new place ensure that there's a spare room that your niece could inhabit rent-free, thus helping her to accumulate a deposit quickly.

kidmugsy

Here's another way to look at it. When you die, as die we all must, an £800k flat will mean your estate having to pay Inheritance Tax on nearly £500k i.e. tax of almost £200k. That makes a case for your enjoying most of the capital value of the flat over the next few decades. Put at its simplest you could spend half a million and still leave your niece a pretty sum.

The question then is whether you'd rather do an equity release mortgage on your existing property, or release cash by "trading down" to a cheaper property, or buy a bigger property and generate income by taking lodgers. I suppose that with property prices high and interest rates low, equity release ought to be reasonable value at the moment, but that's just a guess. It's certainly not an option to take without careful consideration and expert advice.

Bootsox

I am envious, you appear to have made a fortune by just sitting around in a flat.

Just a thought though re equity release, assuming your flat is leasehold, have you a reasonable amount of time left on the lease (just Googled this as an example)?

Equity release providers usually require a minimum of 75 unexpired lease years in order to qualify for an equity release scheme. Just Retirement and more2life insist on a minimum of 75 years. Likewise LV= and Aviva equity release like to see 80 years left on a lease while Hodge prefer 90 years of unexpired lease years.

http://www.equityreleasesupermarket.co.uk/news/what-leasehold-property-criteria-is-acceptable-to-equity-release-companies/

Pollycat

jamesd wrote: »

With an asset worth £800,000 you could retire now on an income of £40,000 a year assuming your state pension will pay £8,000 a year.

It might be the way I'm reading this (apologies if I've missed something) but the OP will not be eligible for her state pension until she's 66:

denisekingston wrote: »

Hi,
I am 60 years old, single with no children and own a 1 BR flat in Central London which is worth around £800+K now. I've finished the mortgage years ago and still living in there.

AnotherJoe

denisekingston wrote: »

I don't have any pension. The flat is that it. Getting another flat in London is probably not a good value with property price now.

I don't understand that? You'd be swapping one flat for another. Arguably if property prices in London do stagnate or fall it will affect one bed properties more than 2 bed (a 800k one bed must be right near the top limit) , so you'd be better off financially moving into a 2 bed in terms of financial risk. Eg if prices fall, you'll be less affected, if they rise a 2 bed will likely rise more than a 1 at least in % terms,

Regards your pension, if your flat is "it" then ultimately you will need to "sell" it, whether that's actually physically selling it or going for an equity release scheme. Because if you are in a million pound flat in say five years but have no cash at all, you can't buy groceries at your supermarket on the basis of an estate agents valuation