Pay off mortgage or invest in a BTL?

Lee_1992

Hi

I am looking for some advice on what to do with our current savings. We currently have 25k sat in an ISA doing nothing.

We’re either planning on paying 10% of the mortgage off before the end of this year.

Or

Put the money towards a second property and start a BTL portfolio (Something we’ve always wanted to do)

Just a few points to add:

- Myself and my partner are both 27

- Currently have an 180k mortgage

- Our budget would be around the 75-90k area which would comfortably get a 2/3 bed terraced/end terraced house in my area achieving 400-475PM rental income.

I'm swaying towards BTL where as my partner is swaying towards getting the mortgage down..

Thoughts?

El_Torro

Option 3: Convert your Cash ISA into a Stocks & Shares ISA. Assuming you invest the money sensibly the money certainly won’t do nothing, there’ll be some volatility. Over a long enough time frame though (10 years or more) you should get a much better return than cash though.

BTL is an investment option, I have one myself. Don’t be fooled into thinking it’s less risky or a better return than the stock market though. It certainly requires more work than sticking the money in an ISA or a pension.

What I usually say is that a BTL property can make sense if you already have other investments covered, especially pensions. If you both have good pensions already, and will be paying a decent amount into them until you retire, then BTL might be an OK option for you.

Another_Saver

Would need info like LTV of your current mortgage to give an idea of whether or not it's sensible. BTL is certain the riskier option of the two but if you're confident that you know enough about property and real estate, and ideally your main sources of income (jobs) are reasonably secure, and you will have ample cash savings leftover, then go for it.

enthusiasticsaver

I would not do a BTL.  Stocks and shares ISA will give you diversification and no maintenance, risk of housing crash  or dodgy tenants.  Much more tax efficient too. 

steampowered

El_Torro said:

Option 3: Convert your Cash ISA into a Stocks & Shares ISA. Assuming you invest the money sensibly the money certainly won’t do nothing, there’ll be some volatility. Over a long enough time frame though (10 years or more) you should get a much better return than cash though.

This is a better option than BTL. More profitable, and much less hassle. The average return generated by the stock markets over the long term is 7-8% per year. Get that £25k our of a savings account and get it into a stocks & shares ISA with a sensible diversified investment fund.

There is also Option 4: Use the money to boost your pension. 

Now is the time to take an honest look at whether you are putting away enough for retirement. Remember that you could easily be retired for 20-30 years. If you wait until your 40s or 50s to start taking pensions seriously, you might be looking at a baked bean retirement, and might not be able to retire until your 70s.

Putting money into a pension allows you to benefit from compounding interest returns over a long period of time. It also benefits from an instant 20% or 40% top-up from the government via tax relief (depending on whether you are a basic rate or higher rate tax payer).

Another_Saver

Stocks aren't necessarily better than BTL on a mortgage and you cannot assume the average 7-8% nominal will repeat in future (and it's more like 9-11%), a reasonable long term expectation is around inflation plus 4% from a global equity index fund.
If you use a BTL with an interest only mortgage you can achieve higher rates of return, it all depends on the property. There's a lot more work and more to consider, voids, fire damage, landlords insurance, tenant issues, pets, cleaning, agents, dispute etc. You probably know that if you've been thinking about it. Just sticking it in your mortgage or transfering to a stocks and shares ISA is easy by comparison.

Thrugelmir

Lee_1992 said:

 We currently have 25k sat in an ISA doing nothing.

Does that include your emergency savings pot?