Best kind of property to buy, to rent out?

fiftyp

I'm considering buying property to rent out, to generate an income.

I've got about £330k from a life assurance pay-out - my wife died a few years ago. I'm 40-something, and have a couple of young childen.

The money is presently in various savings accounts, earning very little interest.

It appears that buying a few appartments for 70-90k might generate more rental income than buying one or two houses for 150-170k. But I don't fully understand apartments - the idea of buying something in a shared building.

My own house is in need of a new kitchen & bathroom, and I'm short of a bedroom. So not sure if to move, then fix my current place up and rent it out, or sell it as-is, or stay and get it fixed up. (Lots of memories here too...)

I've been fairly cautious all my life, and I'm not sure what to do. But I do need to generate an income from the money.

Sorry for confused post - there are so many options that I've ended up doing nothing for nearly three years... Any thoughts about pros/cons/costs/other ideas would be much appreciated.

marksoton

With £330K of investment and young children you should be consulting a professional IMO.

Old_Git

do you want to be a landlord .
From a tax point ,it is better to rent out your current home .

[Deleted User]

But then the higher stamp duty payments come into force, which means he loses any benefit from the first year or two's rent payments (in a manner of speaking).

Then there's LA fees, possibility of getting voids etc. Apartments carry the problem of service charges etc.

Against that, poor bank interest rates begin to look more favourable lol!

I am sure there are other investment choices.., as said, try to get some more financial advice. But do your own research too, just to check on the advice given.

fiftyp

Thanks for the replies.
The idea of being a landlord isn't particularly appealing. I imagine getting someone to manage things, but that would be another cost...

I'm not sure where to look for professional advice. I've not had much luck in the past with financial advisers (but that was just about pensions) - they seemed to be a bit wishy-washy, and didn't want to give an opinion.

AnnieO1234

I would start by speaking to your bank, assuming you bank with someone like HSBC on the figures you quote you should have a relationship manager from their Premier service.

I would seriously speak with a financial advisor and look at other investment vehicles. Properties we own are sat making money on a long term basis (ie the market increases that will be realised over many many years) rather than the small profits made on the rents.

Would you be looking to buy locally (you could then be more involved and save some fees) or in an enitrely different area that perhaps has better opportunities for landlords?

Obviously if you're looking locally then you will need to take a look at the local market, what is in plentiful supply and maybe what isn't. Larger rentals tend to attract higher rents, and longer stays in my experience, but greater voids. Xxx

westernpromise

The historical advantage of property was that you could leverage. You borrowed £300k and put down £100k to buy a property, you used the rent to pay the interest and fund the maintenance, and then when you sold it for say £600k, the gain of £200k was a 50% gain on the price of the house but a 200% gain on what you yourself actually put in.

The most obvious drawback of a rental property is that, whether you buy another to do so or let your own place out and buy somewhere bigger, the tax treatment for new entrants is now very, very unfavourable. You can no longer offset the mortgage interest against the tax - only at the basic rate - so the entire income is now subject to tax at your marginal rate minus a credit for basic rate tax. That might be enough to remove your ability to claim child benefit.

Except for low LTV borrowings, the rent won’t fund the mortgage any more. There seems a good chance even the basic rate offset will be removed as well. What is worse is that these measures are retrospective, i.e. they don’t affect just new buys, but all existing ones as well.

In addition, you’ll have to pay an extra 3% stamp duty when you buy, and you’ll pay either 18% or 28% capital gains when you sell. You can’t get any of the money back or out for an emergency, because either remortgaging or a sale are required, and if you do remortgage you can’t set that money against tax either. You will face periodic loss of income from voids, defaults, and damage, and periodic al large bills, as repairs, renewals and service charges fall due.

If you put the money into shares that pay a high dividend, in contrast, the first £5,000 a year of income is tax-free. You get an £11k a year CGT exemption, and you can gradually shift the money at a rate of £15,240 a year into ISAs which makes all of the incomes and gains tax free, and any time you need cash you can withdraw it and then put it back later. You’ll be charged a commission for advice as to where to put your money, but you’ll be charged much more than that in tax if you buy property, and in the former case the money is buying you some actual expertise, whereas in the latter, your money is destroyed.

fiftyp

Lots of useful advice and information - thanks.
The property investment is looking less attractive; I think I need to find a good financial adviser.

booksurr

fiftyp wrote: »

Lots of useful advice and information - thanks.
The property investment is looking less attractive; I think I need to find a good financial adviser.

if you get a financial adviser then pay an upfront consultation fee, Don't agree to a commission fee as the adviser won't make any commission from you buying property to let so is unlikely to be objective about his advice on them - that's if he even mentions that possibility

MerrilyA

It may be worth talking to a good financial adviser that has specialist knowledge in property.

Renting is not your only option, you could do buy to sells or even lend your money to property investors who can offer you good returns (8%+) in a couple of months (based on the time it takes to buy, renovate and sell or buy, refinance and let out). The key would be to have a good solicitor in place and contract written up, a seasoned investor would have absolutely no problem putting legal structures in place to but your mind at ease. You can have a charge put on the property to secure your money.

If you choose to rent out a property you buy then it's worth using that money to buy a few properties and getting a credible letting agent. The cost of paying the agent shouldn't really be a problem if you have bought sensibly and you are getting good cashflow every month. It's a matter of making sure the numbers add up and doing what fits your lifestyle.

Definitely get some advice. Property is a good form of investment, you just have to invest smartly and you can do that once you've got good knowledge about how you can do it and do it successfully. However, you'd need to put a lot of time into really understanding the market so you're in a good, knowledgeable position.

There are much better returns in property which you won't get from savings accounts certainly look further into it.

dancingfairy

Sorry to hear you lost your wife.
Firstly I would consider the practicalities, if sadly the worst did happen what would happen to your children? Who would look after them? Where would they like? Will they need money?
Secondly I would consider the house, money aside do you want to move? Personally I'd be wanting to spend a bit of money to make the place comfortable ( not masses, max 10k probably a lot less) ( I appreciate some people will want to stay where the kids have grown up whilst others will want to move on,it's a personal thing).
Next do you have an emergency pot? 6 months worth ( maybe12?). Put this in a cash ISA or high interest savings account.
Next what do you want in life? Do you want to work full time, part time? Not at all? Retire early?
Depending on what you want will determine what the best plan is, you may want to work longer but then have more later or you may prefer to split it out over a longer period of time.
Cash vs investing vs property all have different risks. Obviously cash you run the risk of loosing out due to inflation and aren't going to get massive interest rates, investing in stocks/ shares is less liquid but greater returns are possible, property is least liquid but may provide a good income from rental.
Decide what you will need money for, how much and when then you can start thinking about the best way of achieving that.
With the sum of money you are talking about ID definitely get professional advice. Ask them for a few different options and look into the pros and cons of each one.
Regards
Df