How would you achieve positive passive income with £150,000 and a 1 bed property?

Zockedi

Gwendo40 wrote: »

Given you don't understand what the term ''passive income'' actually means, you've got a lot more reading up to do before you should consider becoming a landlord

letitbe90 wrote: »

Sounds like OP is having a midlife crisis. If he sincerely believed he would be happier as a street cleaner than his current role because “I’m the boss”, he clearly has no idea that being a boss isn’t some relaxing role. It’s that Instagram teen mentality of “be my own boss” aspirations. OP, you’re not weird or different as you think, you have bought into a fantasy. Everyone would love to be the mythical boss who does things as and when he wants, goes on holiday whenever and have no one to account to - but in the real world, it isn’t so simple.

You have made clear you don’t like the stress and accountability in your current role, that alone tells me you don’t have it in you to be a landlord or boss.

I feel very lucky that I don't need your permission to become a landlord!!

Your prognosis is that if a person doesn't enjoy running one business (as an IT contractor, own limited company) but it is very profitable and the company enjoys a good reputation, that they'd be absolutely rubbish at running a different type of business! Good point!

Except it isn't. And we all know it. 9 out of 10 businesses fail, the fact that mine is a successful one of many years standing means that I've already done something 9 out of 10 people who start a business haven't. I'm proud of that. It speaks well of my drive and my judgement. Even though I hate IT contracting, I'm proud of my work ethic.

I know this is a rare thing these days, but I don't suffer from low self-esteem. Even if an anonymous poster tells me I'd be rubbish at something, weirdly enough I am not crushed by it.

The things I dislike about my job, as previously shared with you in the perhaps naive spirit of openness, are office politics and office gossip and silly deadlines. I have disliked those things at all ages, so it isn't a "mid-life crisis" - although I've never really understood why a crisis at mid-life is a joke/not serious. A crisis at any age is a significant thing.

Now, plenty of people like you told me it wouldn't be possible for me to run my first business, but I did it. Along with a lot of other things naysayers told me wasn't possible. I just want to run a different type of business now. One that doesn't involve sitting in an office and gives me more accountability, not less. Making decisions is something I love. Taking them from someone else, not so much.

I've said I'm not afraid of hard work but I'll repeat it again here.

My parents are landlords so even with times having changed, we can't really pretend that I am a fantasist if I follow in their footsteps, I am sure I could learn from their experiences - most landlords don't have that.

I would suspect from your tone that you are not enjoying whatever career you have very much. Happy people don't talk the way you do. That's my view - I don't know you but I know unhappy when I read it.

It wouldn't be beyond the boundaries of possibility if there were quite a few landlords on this forum who don't want any competition. I could be wrong but certainly there is a lot more going on here than simple impartial advice giving.

Or perhaps you are unhappy employees and what I have said has made you uncomfortable about your own lives. It reminds me of the story oft told about how crabs react when caught and trapped: A bunch of crabs are in a trap and one crab makes a break for freedom. The rest of the crabs don't try and help him - they try to stop him. If he persists, they kill him.

Food for thought.

Anyway, I have listened to the advice that has been offered on this forum, some of it very good, and I have politely thanked folks for it,

Take care all.

onwards&upwards

markin wrote: »

Premium bonds, more you have more chance of winning.


You could buy in the north, nice 3 bed for 100K, but the pay back would start at 12 years not counting tax and then 8k a year not counting tax and maintenance, and hope its value doubles, property is more a long term retirement plan. Even if you got 2 homes the numbers probably wont stack up, and you won't see an income for 15 years

Not in a ‘nice’ area you couldn’t!

letitbe90

Zockedi wrote: »

I feel very lucky that I don't need your permission to become a landlord!!

Your prognosis is that if a person doesn't enjoy running one business (as an IT contractor, own limited company) but it is very profitable and the company enjoys a good reputation, that they'd be absolutely rubbish at running a different type of business! Good point!

Except it isn't. And we all know it. 9 out of 10 businesses fail, the fact that mine is a successful one of many years standing means that I've already done something 9 out of 10 people who start a business haven't. I'm proud of that. It speaks well of my drive and my judgement. Even though I hate IT contracting, I'm proud of my work ethic.

I know this is a rare thing these days, but I don't suffer from low self-esteem. Even if an anonymous poster tells me I'd be rubbish at something, weirdly enough I am not crushed by it.

The things I dislike about my job, as previously shared with you in the perhaps naive spirit of openness, are office politics and office gossip and silly deadlines. I have disliked those things at all ages, so it isn't a "mid-life crisis" - although I've never really understood why a crisis at mid-life is a joke/not serious. A crisis at any age is a significant thing.

Now, plenty of people like you told me it wouldn't be possible for me to run my first business, but I did it. Along with a lot of other things naysayers told me wasn't possible. I just want to run a different type of business now. One that doesn't involve sitting in an office and gives me more accountability, not less. Making decisions is something I love. Taking them from someone else, not so much.

I've said I'm not afraid of hard work but I'll repeat it again here.

My parents are landlords so even with times having changed, we can't really pretend that I am a fantasist if I follow in their footsteps, I am sure I could learn from their experiences - most landlords don't have that.

I would suspect from your tone that you are not enjoying whatever career you have very much. Happy people don't talk the way you do. That's my view - I don't know you but I know unhappy when I read it.

It wouldn't be beyond the boundaries of possibility if there were quite a few landlords on this forum who don't want any competition. I could be wrong but certainly there is a lot more going on here than simple impartial advice giving.

Or perhaps you are unhappy employees and what I have said has made you uncomfortable about your own lives. It reminds me of the story oft told about how crabs react when caught and trapped: A bunch of crabs are in a trap and one crab makes a break for freedom. The rest of the crabs don't try and help him - they try to stop him. If he persists, they kill him.

Food for thought.

Anyway, I have listened to the advice that has been offered on this forum, some of it very good, and I have politely thanked folks for it,

Take care all.

If you read my earlier post, I am a fellow IT contractor, with my own LTD company but please don’t act like this is a normal business venture (which are far higher risk with lots of outlay and expenses up front - with no guaranteed income). I get paid a six figure amount and pay less tax due to LTD company structure. Not only am I very happy with the role (it allowed me to get a mortgage of ~500k which I wouldn’t be able to do on a “perm” salary), any office politics or whatever you speak of, is silly to complain about giving how much we earn. It really is the easiest money, if you compare it to doctors, lawyers, bankers etc who end up working 100+ hour weeks regularly.

Can’t believe you think being a contractor has any semblance to running a successful company , there is a reason IR35 legislation came about because our jobs are too similar to perm staff. Good luck as a landlord - but if you thought it was passive income, it isn’t!


Anyway, I am not saying being your own boss/running own company/doing one's own venture is a bad thing, I might do one in the future. It was the motivation behind yours that was off, you think being own boss is some relaxing paradigm of reality. When I do decide to do my own venture, I will be expecting far more stress than my current role - but the purpose of doing it all on your own/being your own boss isn't to avoid office politics or be a street sweeper for the sake of not having a boss, it is to take risk and work hard to achieve something that I would not otherwise be able to do in my current role.

tlc678910

Hi,
The reason no one has suggested getting several buy to lets on interest only mortgages is because that model doesn't really work in the current tax system and with the housing market uncertain is way too risky.

In the past (before the financial crash) people did that, and with strong house price rises as soon as there was equity in the property released money to do it again. This worked well when times were good and landlords could build up big property portfolios but with the crash - when some tenants can't pay, some won't pay, the landlords day job goes down the pan and they can't sell because the houses have fallen into negative equity the result was they couldn't pay their mortgages. People went from owning several properties and paper millionaires to bancrupt and being repossessed.

The main problem with being a landlord now (aside from the risk of house price falls) is the taxation system. Let's say you did buy 3x 200k properties with a 50k deposit in each and a 150k mortgage on each. You will start off by needing to pay 7.5k stamp duty for each (22.5k)

Let's say each 200k house rents for £800 a month and that you pay £400 a month for your £150k interest only mortgage. In a fictional world where you have no voids/no non payers and no expenses You would receive £9600 and would pay £4800 on mortgage payments (receiving £4800 after the mortgage.)

You would pay tax (40% on the £4800 "profit") = £1920 and (pay 40% but receive 20% credit so effectively 20%) on the £4800 mortgage interest only payments = 960. So after your mortgage interest only payments are made (no other expenses considered) if you have received full rent every month you would have £4800 - £1920 - 960 = £1920.

That's £1920 left for each property to cover voids and non payers, insurance, repairs and maintenance, gas checks, any letting agent fee and to recoup stamp duty costs.

If house prices were rising 5-10% plus each year as they have at times in the past that dwarfs any rental income and makes it worthwhile. But if they fall 15% plus and take a decade to recover like they did after the financial crash then it is not a good business model.

Why not buy one 200-250 k property (with the 150k gift) knowing that if it is empty/trashed you can comfortably afford the mortgage and if house prices fall or returns are taxed more heavily, if you are in it for the long haul, it should always be worth one house or one flat.

I do think however that to give you the choice you want in life you would be best to see if your parents would let you add the 150k to your existing home equity and buy a great 350k house elsewhere in the country where any old normal job would then meet your expenses and by working a day or two in your consultancy work the rest of the time is your own to explore whatever projects you wish.

Good luck!

Zockedi

tlc678910 wrote: »

Hi,
The reason no one has suggested getting several buy to lets on interest only mortgages is because that model doesn't really work in the current tax system and with the housing market uncertain is way too risky.

In the past (before the financial crash) people did that, and with strong house price rises as soon as there was equity in the property released money to do it again. This worked well when times were good and landlords could build up big property portfolios but with the crash - when some tenants can't pay, some won't pay, the landlords day job goes down the pan and they can't sell because the houses have fallen into negative equity the result was they couldn't pay their mortgages. People went from owning several properties and paper millionaires to bancrupt and being repossessed.

The main problem with being a landlord now (aside from the risk of house price falls) is the taxation system. Let's say you did buy 3x 200k properties with a 50k deposit in each and a 150k mortgage on each. You will start off by needing to pay 7.5k stamp duty for each (22.5k)

Let's say each 200k house rents for £800 a month and that you pay £400 a month for your £150k interest only mortgage. In a fictional world where you have no voids/no non payers and no expenses You would receive £9600 and would pay £4800 on mortgage payments (receiving £4800 after the mortgage.)

You would pay tax (40% on the £4800 "profit") = £1920 and (pay 40% but receive 20% credit so effectively 20%) on the £4800 mortgage interest only payments = 960. So after your mortgage interest only payments are made (no other expenses considered) if you have received full rent every month you would have £4800 - £1920 - 960 = £1920.

That's £1920 left for each property to cover voids and non payers, insurance, repairs and maintenance, gas checks, any letting agent fee and to recoup stamp duty costs.

If house prices were rising 5-10% plus each year as they have at times in the past that dwarfs any rental income and makes it worthwhile. But if they fall 15% plus and take a decade to recover like they did after the financial crash then it is not a good business model.

Why not buy one 200-250 k property (with the 150k gift) knowing that if it is empty/trashed you can comfortably afford the mortgage and if house prices fall or returns are taxed more heavily, if you are in it for the long haul, it should always be worth one house or one flat.

I do think however that to give you the choice you want in life you would be best to see if your parents would let you add the 150k to your existing home equity and buy a great 350k house elsewhere in the country where any old normal job would then meet your expenses and by working a day or two in your consultancy work the rest of the time is your own to explore whatever projects you wish.

Good luck!

Great advice, given without agenda or personal attack. This is what I came to this forum for. Thank you. Money is not all that matters to me as you understand.

So, Interest only mortgages clearly don't add up -from my research I gathered this was likely the case but having it so clearly outlined has been incredibly helpful.

House price falls are a risk. But they are also an opportunity. I know that house prices in England have dropped for the first time since 2012 (for London it is the seventh consecutive quarter of drops). It is an interesting time. Could you not conceivably wait and wait and pick up a bargain? Is this not something people are excited about as one of the few silver linings in our economy?

Do you think that the housing market will crash following Brexit? (I suppose it depends on whether there is no deal or May's bad deal - either way I think house prices will continue their decline.) That's an opportunity for anyone who has cash and no chain.

The challenge is going to be knowing when the right time to buy is...

JayRitchie

Hi

Just wondering how fixed on London you are? My thoughts in your position would be to make a plan to spread the risk a bit. Buy a flat somewhere like Birmingham with good connections (say £120k) - would not rent out for a lot but not as high risk (up and down) as London. Use the income and save hard to pay off your current flat.

If you wanted to reduce your workload a bit or move to IT work with multiple clients/ less intense you could move to Birmingham with your living costs subsidised by the rent of the London property. I accept this may not work dependent on the type of work that you do and whether all your friends and family are in South London.

Equally the rental returns you are noting above are not amazing. You could do better somewhere like Harrow on the Hill station/ Seven Kings etc.