Best passive income? Buy to let?

JoeyCos

Hello All,

I'm am new to this.. What I am trying to achieve is to have one or many different passive incomes coming in every month without having to work alongside. I am currently 22 and working two jobs to try and save as much up as possible.

I understand that property investing has taken a bit of a hit in the past couple of years with section 24 tax, increased stamp duty etc..

But would buying property and renting out still be considered the best form of passive income?

I have around £19k in savings and 'trying' to save £900 a month. If I was to buy a property around £80/90k and rented it out I could potentially pay off the mortgage in just a few years! :T

Could anyone please share some thoughts in what I should do in this situation? Cheers :beer:

MaxiRobriguez

Property isn't really passive, you still have to worry about tenants, fixes, tax etc.

And no one can tell you what the "best" is - you only get that with hindsight. Property won't be the best if the UK housing market tanks after Brexit and global equity markets hold up OK.

jsinc

It's not that passive, even via an agent. And not as lucrative as many suggest after all costs longer-term (unless very leveraged and lucky). Was planning to buy another a few years ago but u-turned and got out. More hassle than its worth, more rules and regs since (for the better), and frankly I just didn't like being a landlord.

AnotherJoe

Buy to let is absolutely not passive by any definition.

steampowered

Buy-to-let is not a good way of going about getting a passive income.

You've missed out on the property price boom I'm afraid. It is unlikely that property prices will increase in the next 20 years the same way they did over the last 20 years.

There are a number of tax changes that hit BTL. These include higher rate stamp duty, and not being able to off-set mortgage interest against rental income (so you pay more tax).

Buying a buy-to-let will also mean that you lose out on the benefits associated with being a first time buyer.

In your situation, it is likely that you will want to buy a house of your own. So I would be saving into a Help To Buy or Lifetime ISA, as the bonus is likely to outweigh other savings and investment options.

I would also start contributing to a pension, at least enough to get the maximum employer contribution you can get.

Peter_Williams

steampowered wrote: »

Buy-to-let is not a good way of going about getting a passive income.

You've missed out on the property price boom I'm afraid. It is unlikely that property prices will increase in the next 20 years the same way they did over the last 20 years.

There are a number of tax changes that hit BTL. These include higher rate stamp duty, and not being able to off-set mortgage interest against rental income (so you pay more tax).

Buying a buy-to-let will also mean that you lose out on the benefits associated with being a first time buyer.

In your situation, it is likely that you will want to buy a house of your own. So I would be saving into a Help To Buy or Lifetime ISA, as the bonus is likely to outweigh other savings and investment options.

I would also start contributing to a pension, at least enough to get the maximum employer contribution you can get.

This is the best advice you'll get OP.

BTL has worked for some people in the past. But now is not a good time and I don't think you are the right type of person.
Have a look at my post about my relative who has just had his house trashed, with doors and carpets burned.

My relative is 'old school', in his late 50s, never used a computer, doesn't use email. Does everything in cash, drives a van, does all the maintenance himself (with helpers paid cash). No mortgages. No bank loans. He has quite a few houses he lets out, for cash.
In general he does ok - mostly because his tenants are 'employed' by him in some way. So the tenants have an incentive not to fall out with him.

This is the old school type of BTL investor.

I think the new generation coming up will be buying using ltd companies and spending a lot of time ticking boxes and following the rules. They may succeed, due to low interest rates and QE perhaps. But they'll be competing with a resurgent 'corporate' type landlords, so I'm not sure.

Also OP - why are you looking for ''passive income''?
This seems to be the new buzzword around the property forums these days. If you're young, you want growth not income in your investments. What makes you think you can grow this money more efficiently than the companies you are investing in?
Chances are you're more likely to waste this 'income' on something, rather than re-invest it tax-efficiently (like a large company or fund would).

Know what you are and know what you're not.

bearshare

jsinc wrote: »

It's not that passive, even via an agent..

In my experience, using àn gent just adds work and delay,s, as well as costs. You just end up chasing the agent to chase the builder/tenant/supplier, instead of chasing them directly.. And don't expect them to check on the property once a tenant is in, ever.

Even the end of tenancy inventory check was a joke: they missed that the tenants had built a HUGE shed in the garden, as well as drilling holes all over the house to install Sky into 3 rooms.

fiisch

Read Financial Independence blogs (FIRE) - Mr Money Mustache is a great place to start.

BTL vs. Investing is an unknown, but based on recent tax legislation I would lean towards investing. That said, if you'd invested heavily in property in the 80s, you'd be laughing about now, but there are a lot of indicators which would suggest house price will not continue to increase at quite the same rate.

I don't want to **** on your bonfire - the idea of passive income and retiring is great - but investing is not an overnight success story. A lot of FIRE bloggers talk optimistically of the 4% rule (there's some debate where this should be more like 3%), which suggests that you can withdraw 4% of you investments per year indefinitely (i.e.: live off the interest), and have a very strong probability of being able to last out economic recessions.

An income of £2k per month is fairly modest (especially if you want a wife/family), yet to withdraw this safely, you would need £600,000 in investments. At an optimistic 5% rate of return (after inflation effects considered), it'll take you 25 years at the current rate of saving to reach this amount.

That said, you're not going to get rich on a house worth £80-90k. Houses in that price range will not experience much capital growth barring significant environmental change, therefore limiting future leverage opportunities....

Peter_Williams

This has the whiff of ''internet property guru'' follower about it...

Living off dividends / rent / coupons / interest indefinitely sounds like nonsense to me.
If it was that easy no-one would buy an annuity with their pension pot.
Also, what's the point? Then you die and someone else gets all your capital.

We are living in an unusual time regarding interest rates and asset prices / wealth disparity etc.
Sooner or later it will revert to the mean.

Peter_Williams

fiisch wrote: »

Read Financial Independence blogs (FIRE) - Mr Money Mustache is a great place to start.

BTL vs. Investing is an unknown, but based on recent tax legislation I would lean towards investing. That said, if you'd invested heavily in property in the 80s, you'd be laughing about now, but there are a lot of indicators which would suggest house price will not continue to increase at quite the same rate.

I don't want to **** on your bonfire - the idea of passive income and retiring is great - but investing is not an overnight success story. A lot of FIRE bloggers talk optimistically of the 4% rule (there's some debate where this should be more like 3%), which suggests that you can withdraw 4% of you investments per year indefinitely (i.e.: live off the interest), and have a very strong probability of being able to last out economic recessions.

An income of £2k per month is fairly modest (especially if you want a wife/family), yet to withdraw this safely, you would need £600,000 in investments. At an optimistic 5% rate of return (after inflation effects considered), it'll take you 25 years at the current rate of saving to reach this amount.

That said, you're not going to get rich on a house worth £80-90k. Houses in that price range will not experience much capital growth barring significant environmental change, therefore limiting future leverage opportunities....

Prior to the change in tenancy laws / deregulation etc, BTL wasn't really an option for most people.
When I speak to people in their 20s (or even 30s) about BTL, it's alarming how few actually know this.
The pendulum is swinging back towards the 1970s.

MaxiRobriguez

Op:

1) If you've got any significant debts with high interest (like credit cards) you might want to consider using your savings to pay these off.
2) If not, use savings to put down as a deposit on your own house if you don't already have one. Avoid paying rent which is flushed money, pay off a mortgage instead.
3) If you're in a company which offers a workplace pension, it's probably best putting as much in as you can. Your company may match a certain percentage. Take the free money if it's offered. You may want to consider sacrificing more salary still because it comes with the benefit of avoiding tax at source.
4) Take control of your pension investment choices. Most people just end up in a default fund which is are typically designed to be low-risk rather than high-growth because most people will kick up more a fuss if the pot decreases in value. But it won't matter for you with 30 years to spare, get your investments in things which have greatest chance of growing.