How to invest £1500 monthly?

FutureThinker4

My husband and I are in our thirties, are fortunately mortgage free and intend to have children in the near future. We have £40k in savings sat in different current accounts bringing in minimal interest. We are setting aside £10k of this to make changes to our current house, and will probably move in 10 years time. We contribute to our pensions, and after all expenses we have £1500 a month to save/invest how we wish. The returns on current accounts are pretty poor so that's not my preferred route. I am unsure as to whether we opt for S&S, or should we purchase a second home to rent out? My thoughts are if we rent out a second home, ideally the rent will cover the mortgage therefore paying for itself, so that seems the better option I would think? Aside from issues with tenants, repairs and the extra stamp duty, is there any reason why we wouldn't put our £1500 towards the renting route rather than S&S? Or is there a route I've missed altogether?

MallyGirl

I know that the tax rules on BTL have changed in the last couple of years making them less attractive. I am sure someone with more knowledge on that will comment soon.
You would be 'putting all your investment eggs in 1 basket' which is usually not seen as a good thing

Eco_Miser

Running a BTL should be considered a business, so unless you want to be running a tiny housing business, with all your money tied up in a single asset, or paying someone to run it for you, give it a miss. There are many post on here asking similar questions, and better people than me have explained at length the disadvantages of BTL (and also the advantages).

Personally, I prefer broadly based collective investments that produce
a nice income, and growth, and can be sold in small parcels to avoid CGT.

What do you call minimal interest?
A Santander 123 account each would get 1.5% on the whole £40k, three Nationwide FlexDirect accounts would get 5% on £7500 for a year. There are various Regular Saver accounts paying 5%, each of you using all of those would more than cover the £1500 per month, with the capital being guaranteed by the FSCS.

kidmugsy

With children on the radar I'd look at using regular saver accounts for the £1500 per month.

Does either of you earn so much that once you've had a child you'd get reduced or nil child benefit? That can often be avoided by making extra pension contributions, so you may want to hold back some capital for that eventuality.

AndyT678

Have you done any numbers on BTL yet?

Of your £40 savings you've already earmarked £10k for you current house. If you're buying a BTL you'll need money for sols & stamp duty, maybe mortgage fees and you'll want a little left over in your savings so realistically you might only have a £20kish deposit.

The biggest LTV BTL mortgages are 85% which means you could probably stretch to £135k for the property. Don't know what that might buy in your neck of the woods but I'll guess that it might rent for maybe £700 per month. The mortgage at that LTV could cost £500 in interest alone so even with only very minimal running costs it would take years to get your purchase costs paid back out of the income. It also wouldn't take much in the way of voids / damage for it to start costing you money.

That pretty much leaves you dependant on capital gain on the property to really make anything in the short to medium term. Obviously that'll depend on where you are and it'll always be taxable once over CGT threshold.

Meanwhile pension contributions get a massive boost from the taxman that would probably take years for the BTL to match and S&S ISAs produce tax free gains and income that can be taken in any size chunk at anytime. Also pensions and ISAs don't phone you up in the middle of the night to moan that there's water coming through the ceiling.

AnotherJoe

FutureThinker4 wrote: »

My husband and I are in our thirties, are fortunately mortgage free and intend to have children in the near future. We have £40k in savings sat in different current accounts bringing in minimal interest. We are setting aside £10k of this to make changes to our current house, and will probably move in 10 years time. We contribute to our pensions, and after all expenses we have £1500 a month to save/invest how we wish. The returns on current accounts are pretty poor so that's not my preferred route. I am unsure as to whether we opt for S&S, or should we purchase a second home to rent out? My thoughts are if we rent out a second home, ideally the rent will cover the mortgage therefore paying for itself, so that seems the better option I would think? Aside from issues with tenants, repairs and the extra stamp duty, is there any reason why we wouldn't put our £1500 towards the renting route rather than S&S? Or is there a route I've missed altogether?

How much? Many people seem to think the sheer fact they put money in their pension is enough. It isnt.