BTL or Home Improvement - What to do

Natasha.rb

Hello,

RE: I'm looking for advice on what to do with some money we have saved. Should we get a BTL or invest in extending our house and adding value. 

I invested in a share save scheme that my company run for employees when I first started my job and I now have quite a large initial share pot of around £17,000 (at the current share price). This will continue to grow every year as I invested in 3x  3-year rolling schemes with 1 large scheme and then two smaller amounts. 2020 was the first year my 'big pot' was due off, 2021 & 2022 will be slightly smaller, and then 2023 back to my bigger amount and so on as I continue in the schemes every time one is due to finish.

We are now wondering what to do with this money and have looked into either a BTL or extending our house as we also have additional savings to add to the pot. We just don't want to waste this money.

Our house:
A newer build in an affluent area, 4 bed - we would look to do a large loft conversion to generate an additional two bedrooms/office space in the loft. Initial quotation is looking at approximately £20,000 and would add potentially upwards of £50,000 to the house value when compared to other houses in local area.
Positives - no additional borrowing required,
Negatives - less risky:less gain?
BTL:
For the area we know and would look to purchase a BTL in we would be looking at £25,000 needed for 25% deposit, stamp duty and other associated fees such as solicitors etc. A rental return would be around £550-600 PCM. We've also spoken to a local broker and have been accepted for mortgage in principle so know it is plausible. 
Positives - more gain: but could be more risk
Negatives - additional borrowing required ie. mortgage

Thanks
 

tacpot12

You have a third option, which is to invest the money in something other than bricks and mortar. If you don't need the space at home, why go to the trouble and risk of extending? If you do need the space, then BTL is not really a choice at the moment. Being a landlord is something of a lifestyle choice - if you like stress, it's a great choice. 

Have you considered investing the money in shares? These can offer a good return, but with a lot less effort than either of your suggestions.  If you invest in shares via your pensions, you get 20% tax relief from the government meaning that your investment is increased by 20% automatically. If you think you might want the money before you retire, you could invest in a shares via Stocks & Shares ISA. Generally any sort of property or Stocks/Shares investment has to be looked at as being for a minimum of 10 years.  
~

Albermarle

This is a 'Savings and Investments ' forum so your answers will be along those lines . Nearly all regular contributors on here think BTL is far too much hassle for the return you get, since preferential tax treatment was removed . BTL is probably best suited to professional landlords and people in the building trades ( they can do a lot of the refurbishment /maintenance themselves or at mates rates )
So my thoughts are the same as Tacpot . What are your current pension  / Cash savings position /mortgage ?

Aceace

You said: 

Initial quotation is looking at approximately £20,000 and would add potentially upwards of £50,000 to the house value when compared to other houses in local area.

That's a near instant 150% gain, and you get to enjoy the extra space. I don't see why you think that a BTL would be a higher gain. 

My partner has a BTL. My experience is that the hassle is way too high for the profits.

Natasha.rb

Thanks for your comments so far.

tacpot12 & Albermarle - My husband and I are both under 30 so not looking to retire any time soon...
Pensions - I currently have contributions of 15% and my husband has contributions of 8%, and the mortgage on our residential property is currently in the 75% LTV, additionally we have about the same value as our shares in cash savings (and we'd want to leave some of our cash for just in case and also to live a little - we love a holiday)

Aceace - I think that's what puts us off BTL, such horror stories and we don't want to be property magnates, just looking to make a sensible investment with this money hopefully.

It's almost we want to be sensible with the money, but not too sensible by lumping of the mortgage or putting in our pension pots, which is why we were looking at bricks and mortar via BTL or extension.

Thanks

pbartlett

btl - hassle and also upcoming abolition of s21 means possible difficulties getting your property back - ever. any growth in house prices - cgt possibility. however you do get an income.

house improvement - no hassle, extra space, growth cgt free if main residence. no income unless you maybe rent-a-room

other property option - buy a holiday let

Albermarle

Natasha.rb said:

Thanks for your comments so far.

tacpot12 & Albermarle - My husband and I are both under 30 so not looking to retire any time soon...
Pensions - I currently have contributions of 15% and my husband has contributions of 8%, and the mortgage on our residential property is currently in the 75% LTV, additionally we have about the same value as our shares in cash savings (and we'd want to leave some of our cash for just in case and also to live a little - we love a holiday)

Aceace - I think that's what puts us off BTL, such horror stories and we don't want to be property magnates, just looking to make a sensible investment with this money hopefully.

It's almost we want to be sensible with the money, but not too sensible by lumping of the mortgage or putting in our pension pots, which is why we were looking at bricks and mortar via BTL or extension.

Thanks

At your age /time of life an extension is probably a good bet . An investment and you get to enjoy it , although the large uplift in value seems a tad optimistic .
If your husband could up his pension contributions a little more ( into double figures)  then that is never a bad thing .