Living off passive income
whowillbuy
Forumite 2 Posts
Hi all,
I currently work full-time in a hectic professional job. My passion is academic research, which I publish via a personal website. However I find that I currently have extremely limited time to pursue it. My dream is to quit my job and to pursue my intellectual work full-time.
I have committed to a monastic lifestyle. I’m single and plan to stay that way permanently. No partner, no kids. I’m resigned to limited leisure – no holidays, cinema trips, restaurants, or fancy cars. I’m happy to borrow DVDs from the library and eat brown rice every meal. I’m the sort of person who would actually prefer that simplicity.
The crucial thing for me is that I have time for my work – the more the better. The question I’ve got is whether my plan is sustainable.
I have around £300k of capital (inherited from family). My plan is something along the lines of the following:
Purchase a 1-or-2 bedroom flat. I’m not interested in any frills – just a roof over my head. In the area in which I plan to live, £50k should be easily enough for this. I’d purchase outright and therefore there would be no mortgage.
My major expenses would be bills (council tax, utilities), and of course food (which, as above, I’m happy to buy cheaply).
For the above-mentioned lifestyle, I think that the region of £7.5k-£10k per year should be enough to cover my expenses. Is this realistic, or am I missing something?
Would I be able to earn that kind of income from the remaining £250k or so of capital left over after my home purchase? I’m not financially ambitious (as I think probably comes across). I’m not looking to take risks and potentially make large capital gains (or losses). I’m essentially looking for something that minimises risk and guarantees that steady income stream in my require range of £7.5k-£10k. Again, is this realistic? If so, what are my best options? The two ideas I’ve got are property (again this would be purchased outright, meaning that there was no mortgage, and most of the rental income would be converted to profit), and some kind of portfolio of financial investments.
Thanks for your help.
I currently work full-time in a hectic professional job. My passion is academic research, which I publish via a personal website. However I find that I currently have extremely limited time to pursue it. My dream is to quit my job and to pursue my intellectual work full-time.
I have committed to a monastic lifestyle. I’m single and plan to stay that way permanently. No partner, no kids. I’m resigned to limited leisure – no holidays, cinema trips, restaurants, or fancy cars. I’m happy to borrow DVDs from the library and eat brown rice every meal. I’m the sort of person who would actually prefer that simplicity.
The crucial thing for me is that I have time for my work – the more the better. The question I’ve got is whether my plan is sustainable.
I have around £300k of capital (inherited from family). My plan is something along the lines of the following:
Purchase a 1-or-2 bedroom flat. I’m not interested in any frills – just a roof over my head. In the area in which I plan to live, £50k should be easily enough for this. I’d purchase outright and therefore there would be no mortgage.
My major expenses would be bills (council tax, utilities), and of course food (which, as above, I’m happy to buy cheaply).
For the above-mentioned lifestyle, I think that the region of £7.5k-£10k per year should be enough to cover my expenses. Is this realistic, or am I missing something?
Would I be able to earn that kind of income from the remaining £250k or so of capital left over after my home purchase? I’m not financially ambitious (as I think probably comes across). I’m not looking to take risks and potentially make large capital gains (or losses). I’m essentially looking for something that minimises risk and guarantees that steady income stream in my require range of £7.5k-£10k. Again, is this realistic? If so, what are my best options? The two ideas I’ve got are property (again this would be purchased outright, meaning that there was no mortgage, and most of the rental income would be converted to profit), and some kind of portfolio of financial investments.
Thanks for your help.
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If you can buy a flat for £50k then your £250k will buy 5. Not sure what rental is like in your area but you can easily work it out, remember to factor in bills for repairs etc and tax and also the fact the flats might be empty from time to time.
Risk is fairly low, I would estimate your income to be around £20k a year or thereabouts (if rents are like my area), net. Speak to a local letting agent for firmer figures.
Other options to consider would be peer to peer lending (riskier) and shares that pay dividends but they are also riskier than BTL.
Could you reduce your hours and spend the extra time doing the research?
There is also the work needed to run 4 rental flats, assuming OP doesn't spend money on a letting agent. Advertising, vetting tenants, getting or chasing rents, arranging repairs and replacements, sorting out disputes etc. Whilst this is probably no more than a few hours a week spread over a year, it is still something the OP would need to consider.
However, I suspect this thread is another of the 'dilemma' threads which we seem to be getting now posted by a journalist or writer looking for a story line. Hopefully the OP will be back, but I rather suspect not.
All views are my own and not the official line of MoneySavingExpert.
One of the things with property prices is that they increase in proportion. £250k in the bank and a £50k house, when the house has doubled in value to £100k you've still only got £250k in the bank - but if you'd eyed up a house today at £250k then that'd have doubled to £500k in the same time (give or take a bit so to speak).
Shoving all your money into a bigger house, with a lodger income (two of them?) would maintain your ability to change your mind in 10 years' time and not be disadvantaged by the cost of bigger houses you wanted to move to/elsewhere.
Banks and investments can fail ..... at least owning a house, a roof over your head, with lodger income potential, you're maintaining security and income that you have direct and immediate control over.
If a lodger doesn't suit (I'm not a people person by any stretch of the imagination), then "the right layout of house" could also lend itself to more occasional Monday-Friday lodgers, or short-term AirBNBs.
I wouldn't say it was obvious, certainly not boring.
£20k a year on property worth £250k is a yield of 8%. In my experience a yield of 5%-6% is more realistic. This being gross yield, not taking into account all the costs. As you say this can be researched more closely though, depending on where the OP is planning to buy.
I can't say much about peer to peer lending, though I wouldn't put a significant amount of my wealth in that. As for shares, depending on how you invest I wouldn't say that they are riskier than Buy to Let. That's not to say that shares are risk free of course.
Some reasons why Buy to Let is not risk free:
You need to manage the property, taking care of repairs, etc... You can hire a letting agent to help you with this, though this significantly eats into your profits.
Void periods mean the property is making no money during that period. How big a risk this is depends on demand for rental property in the area.
Tenants can cause significant damage, which may not all be covered by the deposit when they move out.
Owning 5 leasehold flats can get expensive when it comes time to renew the lease.
You need to carefully look at how much you're going to make net after costs. Taxes are an important factor in this. Taxes have become more punitive for landlords in recent years, and are more likely to get worse rather than better.
A practical point, if you're buying BTL properties mortgage free you are maximising your net rental yield, which is good. However you are also tying up money, money which could potentially be put to better use elsewhere.
Assuming you have £250k left after buying yourself a place to live then generating enough income to live on £10k a year is probably doable, though will be tight. Whether £10k a year is enough to live on is up to you to decide.
In your position I would consider buy to let as part of your portfolio, depending on how good the yields are in the area you want to buy. The rest of the money I would invest in shares. So your initial thought is not far off what I would do.
There is a UK Tax Discussion subforum on there where the UK posters hang out.
scaredofdebt - I think I'm OK with obvious and boring. Presumably this would mean less risky? Again, I'm not really looking for large rewards, and would prefer to minimise risk. I'm really looking for a guaranteed income-stream, and am happy to accept lesser magnitude (providing it's enough to live off. Again, I reckon £7.5k - £10k would probably suffice).
Re: reducing my hours. Yes I've got this in the back of my mind. I believe that it will be difficult to obtain a part-time position in my field, but if I could work say 3 days a week, then I’d have enough to live off, and would have a lot of free time.
soolin - My initial idea was to buy the cheaper property for myself for £50k of thereabouts, and buy a single more-expensive one to generate rental income. This would eliminate the need for me to manage multiple properties. N.b. the area in question is the North East (Tyne and Wear and Durham). I believe that £250k would buy a pretty decent property in an area where I could get reasonable rental income.
Pasturesnew – Was initially averse to idea of being a live-in landlord, because of the lack of privacy. However this option is seeming more and more attractive. The thought occurs that I could perhaps initially buy the larger property and live in it, and if gets a bit too cramped, move out and buy a smaller place later – assuming the capital is still available. I wonder if it might also be easier to manage the property whilst living inside it – e.g. repairs and maybe managing tenants as well.
El Torro – A yield of 5% would be good. Hopefully, after costs, that would still keep me in the £10k region. Re: shares – I’m getting the impression that this is a riskier option than buy-to-let. Again, I’m really looking to minimise risk, so long as my minimum living-expenses are met. Void periods are a major worry for me. I think I’ll have to research ways to maximise probability of tenants. Right now I’m that a Durham property, close to the town centre might be good for this. Is suspect that there will be interest from professionals and people involved with the university.
Cobson – Thanks for the tip about mrmoneymustache. Had a quick look at the UK tax forum, and there seem to be a few discussion along the same lines as this one. Will make sure to read up more on this site.
Thanks again to you all.
You will maximise yield by buying a cheaper property, for example in Darlington you can get a decent 2/3 bed terraced house for ~£40k and rent is around £400 a month, so gross yield is around 12% assuming full occupancy.
The drawback with cheaper properties is
you'll run a higher risk of damage to the property, shorter tenancies etc. But if I had £250k I would rather buy 6 properties than 1 or two. It is also more work but returns are higher and you aren't putting your eggs in one basket so to speak.
I actually had a website that worked out BTL yields by postcode and the variation was very big, it's something I am looking at for my pension pot.
Look at Ferryhill, Peterlee, Hartlepool, property is very cheap in these areas and rents still geting on for £400 a month, houses tend to be better value than flats.
You could buy one house and see how it goes as a trial, main risk is if house prices crash, unlikely if you do your homework and buy something cheap and structurally sound.
I'm writing a book. Actually seriously, will finish it. In the middle of it. Had idealizations of writing one, thought about and procrastinated over writing one... for a couple of years. Doing it with proper intent now. How well will it do? No idea. Might make me a couple of grand or like 1 sale over a year. Definitely an option, something relatively easy to do if you aren't a techie and don't understand websites and traffic and all that affiliate marketing stuff, like you want basic digital assets but just want something simpler, and easier than ever to publish such as through Amazon for passive income now.
Put my money in crypto, the markets down at the moment, have increased my stack though. Not all bad. Since getting in though I've noticed there's a whole ecosystem emerging within the cryptosphere. Be very careful with crypto though. There's a lot of money to be made and lost. One thing I've noticed is there's a site which holds your BTC and gives you 4.08% interest on it per year which I could draw from each week. That's basically passive income, for example if I were to buy some BTC, BTC goes up 10% and I take my initial out: That's basically free passive income from there on. Similar with exchange platform coins/tokens like KuCoin Shares which give you more shares /profit share that you could trade into FIAT. More things will emerge I'm sure but there is a lot of scam. It's a bit wild west. Sure is opportunity though.
If I had the money I would put some in REIT's, real estate investing but sort of like a stock of a block of flats - or a group of a block of flats within a company.
I'd put some in peer to peer lending too.
Living off £10k for one person is easy......lots of people do it. And they don't have to resort to eating brown rice either.:rotfl:Take a look at the Frugal Living Thead on the debt boards. And yes I read Mr MoneyMoustache too.
I am now retired - my passive income comes to around £12k. I use that to live off (and still manage to save some of that). I also have investments and so far have not had to draw down. I just keep reinvesting for my future. Any money that I earn also gets added to my savings.
Here's my advice.
1. Don't put all your investment eggs in one basket. You need balance and you need to spread risk. So 3 or 4 BTL s for both income and future capital growth, although flats in the north east tend not to enjoy much capital growth. Small freehold terraced houses might be better. As pointed out renewing leases can be expensive. Then maybe a stocks and shares ISA for long term growth, some easy access high interest bank and savings accoints, maybe some income bonds,
2. You do need to think long term, not just to make sufficient passive income for now but also think about the effects of inflation and your future security so make sure you pay your NI contributions and also set up a private pension.
3. For your own private residence I would suggest you look at a small house rather than a flat. The council tax on a small two bed terrace house won't be much higher than a flat. Buy one with a small garden. Outdoor space to enjoy, maybe even sit and work in. And you could always grow some food. Fruit trees and bushes are easy enough. Just plant and harvest, with occasional pruning.
4. What practical skills do you have. Can you cook, do a bit of light diy, your own decorating etc. If you can't do these things then learn. You will save a fortune and you will live more comfortably.
Living simply and living well requires imagination, creativity and some practical skills, as well as being well organised, otherwise you will just be existing. As an academic then imagination and creative thinking should be your forte but can you back that up with the ability to do the practical stuff.
Living simply does not mean skimping and going without but it does require a level of skill to ensure a decent standard of living. I know the brown rice thing was only meant as a joke but do think about your health. At the very least You need to eat well and keep your house warm and comfortable
Good luck..