Should I invest in index funds or stick to my BTL plan?

bluefukurou

AnotherJoe wrote: »

Shares / funds etc will not call you up at 3am when there's a leak in the roof, a broken sink, the heating doesn't work.
Shares will not have a void period.
Shares will not incur a 20% management fee (at elast, once you add on the more than usually expensive costs to have anything fixed if you are absent and leave it to the agent to arrage a plumber, electrician, roofer etc)
Unlike property, shares can be sold fractionally to minimise or eliminate CGT.
Shares allow you to diverisfy, With a property you are 100% in the (say) Sheffield / Student / Terraced house market. In Shares you can be in the global economy.
Shares will not trash the entire investment, do a moonlight flit nor need legal action to evict non rent paying tenants.

Hi, I’m a UK expat looking to invest my savings, currently approaching £90k; I have no credit card debts or car loans, etc, so I’m ready to do something instead of continuing to get less than 1% interest from my UK bank account.

I was planning to buy a 2/3 bed terraced house up north in cash for around £100k and then let it out for another income stream (I have colleagues that have done just that and now own two or three). However, I’m increasingly hearing that shares are less hassle than investing in property (see the quote above), and I understand the long term capital growth can be very good.

If I lived in the UK, I would probably open a Vanguard account and put some of my money in index funds. However, due to my non-resident status, I’m unable to do that.

So along with a thousand others, my current questions are:

What’s the best way for me (UK expat in Middle East) to safely invest in index funds?

Is there a good alternative to Vanguard that doesn’t charge exorbitant fees?

Would Internaxx be a good choice? I’ve had a look at their website, but I don’t fully understand their fees. They mention an account maintenance charge of €45 every quarter if you don’t have any trade activity, and €14.95 + 0.1% per trade. Is €180 per year considered typical?

Any advice much appreciated.

dividendhero

Firstly I'd agree about avoiding BTL - it used to be good, but simply not worth the hassle these days.

Regarding index funds - HSBC, Black Rock etc do a whole host of low cost ETF's..

bluefukurou

dividendhero wrote: »

Firstly I'd agree about avoiding BTL - it used to be good, but simply not worth the hassle these days.

I can see why BTL has become much less attractive for traditional BTL investors: stamp duty hikes, mortgage tax relief changes, tougher mortgage rules, etc.

But surely a house that you could let for £600 per month, still brings in £600 per month? As an asset that brings in an income stream it still does its job. When you say it ‘used to be good’, are you talking about, what I’d call traditional BTL investors, ie people that could get a cheap BTL mortgage and then let the tenants effectively pay for the house over 20 years?

AnotherJoe

If you have a bank account in the U.K. presumably you can open a share dealing account with them or with other U.K. based institutions, just not an ISA ? And there must be other reputable investment companies you can use? I know nothing of the one you mentioned they may be very good. You seem concerned with a possible £180 in fees for investments???
What would the fees be for an agent to manage your house ?
How much does a gas safety certificate cost ?
One plumbers visit ?
Annual boiler maintenance ?
Insurance on the property ?
A solicitor to draw up the contract?
Furnishing the house ?
Decorating ?
Redoing these latter two every few years ?

misja

people that could get a cheap BTL mortgage and then let the tenants effectively pay for the house over 20 years?

This was basically what I was going to try, but now I'm not so sure. Are Shares a better route?

bluefukurou

Thanks for your interest in my posts. I’ll try to address the points you raise.

AnotherJoe wrote: »

If you have a bank account in the U.K. presumably you can open a share dealing account with them or with other U.K. based institutions, just not an ISA ? And there must be other reputable investment companies you can use?

As an expat, I’m classed as non-resident and therefore unable to open new bank accounts or join the likes of Vanguard, who offer low cost share dealing platforms. I would love to hear from anybody who can point me in the direction of a reputable UK based company open to expats.

After much research. I’ve never come across any mention of banks offering share dealing accounts for expats, mine certainly doesn’t, and even if HSBC or Santander, for example did, again I couldn’t open an account. My UK bank struggles to provide basic online banking, so as for share dealing platforms, forget it. Even if they did, they would charge ridiculous fees. I’m looking for specialists who deal with expats, hence the mention of Internaxx.

AnotherJoe wrote: »

You seem concerned with a possible £180 in fees for investments???

I’m very concerned about fees, I like to know what I’m getting into, before I get into it. My question was aimed at those familiar with the likes of Internaxx, Saxo Capital, Interactive Brokers, etc. I just want to know if people with experience of using that company and others think their fees are fair and are in line with the market rate.

AnotherJoe wrote: »

What would the fees be for an agent to manage your house ?
How much does a gas safety certificate cost ?
One plumbers visit ?
Annual boiler maintenance ?
Insurance on the property ?
A solicitor to draw up the contract?
Furnishing the house ?
Decorating ?
Redoing these latter two every few years ?

All the costs you mention are part and parcel of being a landlord, I understand that. I would be receiving £6k a year in rental income, so even with agency fees added (10-15%), the costs are accounted for. The idea is to not to be a slum landlord that cuts corners.

The main reason I started this thread was to flesh out some more answers regarding shares v BTL. The BTL option is increasingly being written off as ‘not worth it anymore, too many costs, good old days have ended’, etc, yet these arguments are only really true, it seems to me anyway, for people who are wanting to start out with a new BTL mortgage and then being at the mercy of interest rate hikes, lack of mortgage relief, increased stamp duty, etc. None of that applies to me. I’m a cash buyer, mortgage free, stamp duty free and happy to pay (10-15%) of rental income in fees to be rid of the hassle.

dividendhero

bluefukurou wrote: »

I can see why BTL has become much less attractive for traditional BTL investors: stamp duty hikes, mortgage tax relief changes, tougher mortgage rules, etc.

But surely a house that you could let for £600 per month, still brings in £600 per month? As an asset that brings in an income stream it still does its job. When you say it ‘used to be good’, are you talking about, what I’d call traditional BTL investors, ie people that could get a cheap BTL mortgage and then let the tenants effectively pay for the house over 20 years?

The taxes changes etc is the least the least of the problems with BTL, it's the constant change in Govt regulations that are the big headache - it's very easy for even an honest landlord to commit a criminal offence and as a soft target local councils are straight onto it.

Just as bad is that the whole system is massively in favour of the tenant. For example in most walks of life, if you ignore a court order you go straight to jail. If a tenant ignores an eviction notice from a court, pretty much nothing happens to them.

bluefukurou

dividendhero wrote: »

The taxes changes etc is the least the least of the problems with BTL, it's the constant change in Govt regulations that are the big headache - it's very easy for even an honest landlord to commit a criminal offence and as a soft target local councils are straight onto it.

Just as bad is that the whole system is massively in favour of the tenant. For example in most walks of life, if you ignore a court order you go straight to jail. If a tenant ignores an eviction notice from a court, pretty much nothing happens to them.

So you’re talking about the kind of thing mentioned in this article:

https://www.independent.co.uk/property/house-and-home/property/when-tenancy-agreements-go-bad-how-to-get-them-out-7901659.html

The NLA mentions in the report that evicting a bad tenant may cost in the region of £4k. Not nice at all, but not a dealbreaker in the big scheme of things. I imagine to somebody with a BTL mortgage getting messed around by bad tenants and not having the rental income to pay the mortgage, they could get into a sticky situation fairly quickly. But I’m fortunate enough to have a very high disposable income, and could afford to keep an emergency fund of around £20k to deal with a bad tenant. I would also look at getting landlord insurance like the article describes, not to mention doing my utmost get good tenants in the first place, and once they are in, keeping them happy.

Alexland

My parents inherited a property and let it out for a few years in the 1990s. All fine until a tenant created many thousands of pounds of unrecoverable damage. I remember the beds were soaked in urine, the carpets were massively stained and the doors had massive holes through the middle. The garage was left full of rotting car parts and the washing machine had been stolen. Even the attic was full of junk. It took months to get the property to an acceptable condition for sale. The stupid letting agency had even returned the deposit without checking the property.

Still my time as a landlord was uneventful as I only ever let my flat out to already known friends.

Alex

AnotherJoe

bluefukurou wrote: »

Thanks for your interest in my posts. I’ll try to address the points you raise.
As anagency fees added (10-15%), the costs are accounted for. The idea is to not to be a slum landlord that cuts corners.
.

My point was, you were concerned about £180 fees for a share service and yet are unphased by numerous fees many of which are much more than that fee, and are annual, for a BTL.

I agree, with cash and not a mortgage some of the current new downsides don't apply, but with £80k surely you'll need a mortgage?
I'll also point out that with the dividends from investments those can be reinvested and increase the amount you have and thus future dividends creating growth that feeds on itself. That's much more difficult to do with a rental because you can't buy another 4% of a house (unless you get a mortgage) you'll have to wait until the amount has accumulated enough.
I suppose you could do both, one BTL and trickle feed the income into investments. .

bluefukurou

Alexland wrote: »

My parents inherited a property and let it out for a few years in the 1990s. All fine until a tenant created many thousands of pounds of unrecoverable damage. I remember the beds were soaked in urine, the carpets were massively stained and the doors had massive holes through the middle. The garage was left full of rotting car parts and the washing machine had been stolen. Even the attic was full of junk. It took months to get the property to an acceptable condition for sale. The stupid letting agency had even returned the deposit without checking the property.

Sad to hear it. I’m loathe to give money to a letting agency if they are incompetent, so on my to-do list is trying to find a good one.

Why was it unrecoverable? Assuming you had insurance for such events, are you saying the insurance company refused to cough up when the time came? Shouldn’t they pay out on damage and lost rental income?