Rental Income or Dividends?

DoctorStrange

If:
Your home was worth say £300k; and

You could get roughly £10k rental income per year after costs;

and you were looking to move abroad;  

and you needed £10k to rent abroad (buying not an option).

Would you think it better to keep the UK property for the relatively stable income/capital, or sell the property and try to achieve a sustained 6% yield instead (4% to withdraw and 2% for inflation).

I see the benefits of selling the property as there's no guarantees of continued rent, there could be unexpected running/repair costs etc.  but then it also feels more safe/sustainable as if the markets fall and the withdrawals don't,  the funds might run out. 

Just toying with ideas at the moment so all thoughts welcome!

Thrugelmir

Property might be empty for a while. Tenants may default and then you face the challenge of evicting them as well.

6% is a high withdrawal rate. If you don't want to risk eating into your capital. 

Neither of your ideas provides a secure income stream. Then you face the challenge of a fluctuating exchange rate on your income. 

missile

10K per year rental income after costs seems optimistic.
10K per year for rental is not going to get you a villa with pool in Spain.
6% yield on investment is optimistic.

DoctorStrange

I'm ignoring the currency risks just now as covering them separately, just trying to choose between the asset classes for income whilst protecting capital against inflation. 

In the dividend example though I'd be looking to withdraw around 4% (i.e around 10k) - the other 2% would be left to protect the capital against inflation (although quite how to achieve 6% is another matter!)

I appreciate this is a simplified example and is likely unachievable - out of interest, if you're income target is £10k and you'd like to protect the capital against inflation,  what would you say your minimum investment should be?

maxsteam

It's just a couple of clicks to deal in shares from anywhere in the world. Managing a property from overseas can be complicated and expensive. If you have a bad agent or tenant, it can be a nightmare.

You need to think about whether you will want to return to UK in a few years and how much you are attached to the house.

lr1277

In your figures from investing the money and taking dividends, you don't seem to have mentioned taxes.

Are you aware, you wil have to pay UK taxes on income (i.e. dividends) and possibly capital gains whilst you are abroad? You would also need to check whether any taxes need to be paid on UK income and gains in the country in which you live. You may not, but worth checking there is what I think is called a double-taxation treaty between the UK and your new country of residence.

Alexland

DoctorStrange said:

In the dividend example though I'd be looking to withdraw around 4% (i.e around 10k) - the other 2% would be left to protect the capital against inflation (although quite how to achieve 6% is another matter!)

There are UK equity investment trusts with reasonably balanced investments paying smoothed 4% dividends which still have reasonable prospects of growing the capital and income by at least the rate of inflation over the medium to long term. I don't see anyone seriously suggesting that some of these medium yield ones are unsustainable.
It does mean you would be lacking geographic diversification and others might suggest you will be paying the price of lower UK performance but then that isn't really compatible with the idea that global (mostly US) stocks are now so expensive that it won't be possible for them to do as well as you need.
In terms of your main question selling you home and renting seems risky as you might not be able to get back onto the property ladder in a position relative to where you were previously.

chiang_mai

I have both rental income and investment income albeit I reinvest the latter....I have also lived overseas for the past twenty years. I personally wouldn't give up one over the other, both have troughs peaks and plateaus'. Void periods interrupt rental income cash flow plus the government squeeze on landlords is unremitting, they are constantly coming up with new ways to make you pay for something new - last year it was fire detection systems that need to be upgraded, previously it was electrical inspection and recertification every time a new tenant moved in. Investment income is not too dissimilar, it has its moments but continuity is not guaranteed. My biggest risk in the past twenty years as an expat has been currency risk along with changing legislation that exclude expats and prevented them from accessing onshore UK facilities such as IFA's, health care, pension uprating etc. My advice is to try and hard and put both investment types in place and give considerable thought to currency risk.

IntoTheForest

I would never rely on rental income. Even good tenants can lose their income and the council advises them to stay in the property and wait to be evicted before they will help. 

Is there a reason why you dont want to buy a property abroad? 

CKhalvashi

It's not worth relying on rental income alone. I've had properties returned in an appalling state before now (but no longer own any property that is rented out), and a friend yesterday found himself in exactly the same situation, albeit nowhere near as bad.

Why don't you want to buy property abroad? This is in many cases cheaper than in the UK, depending on where you're going of course. In some countries it's common to find rental property without even a kitchen (supplied by tenants), so buying in many cases definitely makes sense over renting, especially as LL yields in many countries are higher, therefore meaning that you are effectively losing out.

DoctorStrange

Thanks everybody.  I should have clarified that I wouldn't be relying upon rental income alone, but a mixture of dividends, savings and rent. 

I was trying to ensure a mix of income streams, but my instincts are that property would be more hassle than is worth so was looking for thoughts on the comparing the two. I wouldn't look to buy property for this but given I already own it I was thinking it might be do-able. Also,  the thought of having everything in the markets seemed kinda scary. 

A lot to think about!