Fed up with being a landlord

Marvin42

In addition to the home in which we live, my wife and I own a property which is currently let, and bringing in a profit of about £10,000 a year before tax. We are owner occupiers free of mortgage, in our mid-seventies, and are losing the appetite for being landlords, so are considering giving our tenants notice and selling the property, which might realise up to £300,000 in today's market; after paying CGT we might have a lump sum of around £250,000 to invest. We rely on the income to provide luxuries such as holidays and running a car, to support a son who is unable to work and on meagre benefits, and to supplement our state and small occupational pensions. What alternative investments can be suggested that would bring in a similar, (if not better!) return? We are quite risk averse, so no highly speculative suggestions, please.

Bravepants

You are looking at needing 3.5%, or so, income from your capital per annum. Taking into account inflation of about 2%, this would mean 5.5%. You won't get that without taking on some risk.

If you were to invest it in multi-asset index fund, such as Vanguard Lifestrategy 60, or maybe HSBC Global Strategy Balanced you COULD possibly realise 3% to 3.5 Safe Withdrawal Rate while keeping your capital for decades. You would of course be better feeding it into an ISA at a rate of £20k a year (or £40k for both of you).

Take a look at this:

https://www.charles-stanley.co.uk/group/cs-live/safe-withdrawal-rate-and-sequencing-risk-retirement

For an article on Safe Withdrawal Rates. (I'm not recommending that you use Charles Stanley as an investment platform, just pointing you to the article!)


You might however be better off seeking advice from an INDEPENDENT Financial Advisor.



You should also consider keeping 3 years or so worth of drawdown as cash in case of a crash/downturn in your investments. With a 60%/40% equity/bond split multi-asset fund you might see a 25% fall in you capital value if there is a crash. In down years you draw from that cash buffer to avoid selling investments, topping up cash reserves again when the markets recover, which could take 2 years or so in cases of bad recession.

My partner and I considered a buy-to-let a few years ago, but considering the hassle, maintenance, dodgy tenants, reduced tax advantages etc., we opted not to and have done better with our S&S ISAs.

EdGasketTheSecond

With £250,000 realised; if you just stuck it in a National savings account (100% safe), it would take over 25 years to burn through it at the rate of £10K per year. By that time you'll be over 100 if you are still around.

reeac

Off- topic, I admit, but congratulations for writing " fed up WITH ..." as opposed to the now common but incorrect "fed up OF".

Brian65

EdGasketTheSecond wrote: »

With £250,000 realised; if you just stuck it in a National savings account (100% safe), it would take over 25 years to burn through it at the rate of £10K per year. By that time you'll be over 100 if you are still around.

Yes but what will £10k be worth in 25 years

Malthusian

EdGasketTheSecond wrote: »

With £250,000 realised; if you just stuck it in a National savings account (100% safe), it would take over 25 years to burn through it at the rate of £10K per year. By that time you'll be over 100 if you are still around.

But when the OP says he wants to draw £10k per year, we can safely assume he means £10k per year, not £7.5k per year in 10 years' time and £6k in 20.

GDB2222

EdGasketTheSecond wrote: »

With £250,000 realised; if you just stuck it in a National savings account (100% safe), it would take over 25 years to burn through it at the rate of £10K per year. By that time you'll be over 100 if you are still around.

You are comparing apples with oranges. The present BTL investment is expected to maintain its value and income in real terms HOPEFULLY. Certainly, the income does not depend on drawing down the capital, which will still be available to fund nursing home care or as an inheritance for their son.

I can see that people in their seventies may look ahead and wonder about the practicality of looking after a BTL investment as they get older. It’s possible to get the property professionally managed, but bear in mind that, besides the fees, the maintenance and similar expenses are likely to be higher. So, the net income will be correspondingly lower.

In order to get the same level of income, particularly bearing in mind the CGT, the OP is going to have to take a significant risk. There may well have been a comparable risk in the BTL investment, but that may not have been as apparent.

Gary1984

Can you not just hand it over to a letting firm to manage? They'll take a cut of the profits but it will save you the hassle of evicting the tenants, selling the property and having to look for new investments to replace the income. Would also save on CGT.

MaxiRobriguez

A 3.3% yield before tax and any costs are incurred is pretty dire for a rental property and for most people I'd suggest they sell it and move into higher yielding property or better still stocks.

However, at 70 and already wanting to get out of the landlord game then the first option isn't really a starter and the second one isn't much better with markets pricey and volatility a much bigger prospect than in your house.

Wondering if your tenants may want to buy the property and you could a rent-to-buy type contract with them for 2-3 years whereby all the rent they pay you comes off the purchase price of £300k? Would help you avoid CGT, any estate agent costs and would mean not having tenancy-free periods either.

bertpalmer

Gary1984 wrote: »

Can you not just hand it over to a letting firm to manage? They'll take a cut of the profits but it will save you the hassle of evicting the tenants, selling the property and having to look for new investments to replace the income. Would also save on CGT.

I would agree with this - my wife has a letting agent for her property.

They certainly take quite a bit of stress out of finding tenants and managing the property as it's something she really doesn't enjoy.

atush

But with the new tax rules, how much of those costs are tax deductible?