But to let rather than save?

Sashabella

Hi

First post here goes!

I have been saving for my two children since they were born (£300 per month). This hasn't been difficult and they now have £10K. I have savings of £10K also.

I'm getting hardly any interest on this and was thinking of buying a new build flat in my home town. It would cost about £70K, and renting it out. I've had a quick look at the figures and mortgage might be around £300 a month and rental value £500 a month.

I live in London with my husband and have a mortgage on our house here which is easily covered.

I could put the £20K down as a deposit on the flat, but this would leave us with no savings. My husband earns a good wage. Me not so as child care fees take up most of it. Both jobs as secure as can be in today's market.

I haven't got a clue about taxes on buy to let properties, but buy to let seems like a good option given the current financial climate.

What are your thoughts?

Thanks

Guest101

1: it would be several (hundred) miles away? So agency fees (10-15%)
2: tax changes are coming on BTL, and it's added ontop of your wage so you could end up in the 40% bracket.
3: you'll have service charges, voids, etc to cover.


The tenant doesn't pay, WWYD?


Not to mention tenant finding fees are £400 upfront.


And if you (or your agent) get it wrong, you could be sued for much more than your yearly profit.

marksoton

You need to do a lot more research about being a landlord and all it entails.

Sashabella

Hi

Yes I know I need to do a lot more research. I just thought I'd ask on here initially.

My thoughts are even if it didn't have tenants in the amount that I'm saving for the kids would cover the mortgage. Obviously not ideal to have a vacant property though.

If anyone could recommend any good websites that would be great.

Thanks.

pawlala

Sashabella wrote: »

Obviously not ideal to have a vacant property though.

Especially as you would need empty property insurance. Standard cover will not cover you after a period of unoccupancy.

Cornucopia

Your figures are a bit off...

£70k purchase with £22k deposit (raise the deposit to get below 70% LTV). You should be able to get something around 2.8% 3 Year fix with that. You'll also probably want interest only to simplify tax calculations. (You can still make capital payments within the scope of any redemption penalty rules - maybe 10% repayment per year?).

All of which comes out to £112 per month, so your £500 potential rent is looking good. You should also pass affordability without an issue, too.

You need to look into the tax changes. Any profit looks a lot less attractive with 40% taken off, and the tax relief on BTL mortgage interest is being capped for 40% tax payers, too.

Also, you need to check the rules on money held for children. I having a feeling that if you break the rules, the HMRC will treat the money as if it was yours all along.

I would not recommend £0 savings, especially with BTL as a main investment. You need at least 3 months bills in savings, preferably 6 months, before you start looking at riskier, less easy to access investments.

steampowered

This doesn't sound like a good idea to me. You would need to do a lot more research before becoming a landlord.

Your investment would also be highly leveraged (60k of the 70k asset would be debt), so there is no guarantee you'd make money from this. Also presumably you'd need to sell when the children need the money.

Assuming it will be some time before your children get their hands on the money, I think you are much better off putting the money into a Junior Stocks and Shares ISA. Stocks and shares are generally the way to go for longer term investments. Have a read of http://www.which.co.uk/money/savings-and-isas/savings-accounts/guides/childrens-savings-accounts/best-ways-to-save-for-children

chucknorris

Sashabella wrote: »

Hi

First post here goes!

I have been saving for my two children since they were born (£300 per month). This hasn't been difficult and they now have £10K. I have savings of £10K also.

I'm getting hardly any interest on this and was thinking of buying a new build flat in my home town. It would cost about £70K, and renting it out. I've had a quick look at the figures and mortgage might be around £300 a month and rental value £500 a month.

I live in London with my husband and have a mortgage on our house here which is easily covered.

I think shares might be a better match for you, they can be tax wrapper in both pension and ISA and the first £5k of dividend income is tax free. I'm not against property, we have over £5m invested in property.

I could put the £20K down as a deposit on the flat, but this would leave us with no savings. My husband earns a good wage. Me not so as child care fees take up most of it. Both jobs as secure as can be in today's market.

I haven't got a clue about taxes on buy to let properties, but buy to let seems like a good option given the current financial climate.

What are your thoughts?

Thanks

How much money have you got in stocks and shares? How much of that is tax wrapped in a pension and/or ISA?

Sashabella

None in stocks and shares. My £10k is in a really rubbish isa. The kids' £10k is just in my current account (I know really bad). I have an nhs pension.

chucknorris

Sashabella wrote: »

None in stocks and shares. My £10k is in a really rubbish isa. The kids' £10k is just in my current account (I know really bad). I have an nhs pension.

I'm not anti property investment (we have £5m invested in property), but I think shares might be a better match for you than property.

Cakeguts

You can't just buy a property and expect to be able to let it. You have to buy what tenants want to rent in the area that you are buying in. For example if good tenants want a 3 bed semi with a drive and off street parking for 2 cars they aren't going to look at a flat. So that means that your market of prospective tenants has reduced straight away because your property isn't what they are looking for. The market for rental properties varies according to area. If your property isn't attractive to good tenants then you are going to be left with the tenants that cause the most problems. You have to consider tenants who wreck the property, don't pay the rent for months and months, annoy the neighbours etc

You may find that you can't afford to buy the property that is most sought after as a rental. What a landlord wants is a tenant who looks after the property and stays in it for a long time. Not all properties attract this kind of tenant. You have to find out what these properties are in the area you want to buy in.

You won't get £500 per month if it isn't the type of property that people are looking for.