Saving for Buy to Let Investment - 3-5 years

Marcusian

Just to sanity check this. I am looking to save 25k for my first buy to let property. Outside of the merits of that (maybe for another thread), I am in a position to save very heavily towards getting to that goal in 5 years maximum. This could well be a shorter timescale due to a 15-20k inheritance I am due (due on the passing of my grandmother). I am breaking down the goal to saving £5k a year. 

In light of this - I can see how investing in my stocks and shares ISA towards this is simply not suitable for this purpose. 

Given the short horizon, I am just going to have to bite the bullet and save old school, take the low risk/zero-inflation return approach of saving cash in my 0.5% return Marcus account? And in that try to shorten the time to get to my goal, and therefore off set as much as possible the inflation hit. 

Or could I invest SOME of the 400 a month i am going to save. For example, in my Vanguard Lifestrategy Fund 100% and accept that this is speculative but only forms part of my wider attempt to raise the capital in 3-5 years? Is another option to switch to say the 20/80 Lifestrategy fund? or a target retirement fund to 'lessen' risk? Please go easy on me, I am very very committed to learning, but I am still learning.

I am siding with the former, perhaps a tiny bit morbid, but the inheritance could be in 1 or 2 years, so might mean an even shorter window. In simple terms, in 2 years have 10k cash saved, 15-20k inheritance, in the Welsh valleys 25k puts you right in the Buy to let market. If BTL isn't doable, then I put the 25k to other uses.

I am 37 years old, so in my still learning understanding, I could just get this up and running then starting investing say from 40 more heavily. I have a work place pension and just started a SIPP, so will be saving for my retirement alongside this. 

Grumpy_chap

Don't make any plans that rely on the inheritance.  Grandmother may live longer, hopefully, and she may spend the money on all manner of things which may include care costs.  Your Grandmother should use her own money for her own benefit first and foremost.

Marcusian

Grumpy_chap said:

Don't make any plans that rely on the inheritance.  Grandmother may live longer, hopefully, and she may spend the money on all manner of things which may include care costs.  Your Grandmother should use her own money for her own benefit first and foremost.

I think if you re read - my plans do not rely on inheritance, all it might do is shorten the time needed to raise £25k. 
I save £5k a year - 5 years I have 25k, IF inheritance happens, then this timescale will shorten. 
The OP was regarding the best way to raise capital, the potential for the inheritance means that I have to be even more mindful of the fact that I only have 5 years, potentially less, and as such making investing as part of that strategy unsuitable. 

Alexland

Investing in volatile assets over the short term is a gamble.
You would get a better interest rate than Marcus if you opened various bank accounts that either have promotional rates or similar on their associated regular savers.
However if its going to take you 2 years to get £10k together it might be worth doing a reality check on if your financial circumstances are ready to be a landlord as it takes some financial resilience to deal with initial costs, unexpected costs and periods of no rental income.

Marcusian

Alexland said:

Investing in volatile assets over the short term is a gamble.
You would get a better interest rate than Marcus if you opened various bank accounts that either have promotional rates or similar on their associated regular savers.
However if its going to take you 2 years to get £10k together it might be worth doing a reality check on if your financial circumstances are ready to be a landlord as it takes some financial resilience to deal with initial costs, unexpected costs and periods of no rental income.

That is a fair point - i like to be realistic. 5k a year is a minimum and based on the revenue a small part of my business, face to face personal training, generates. If the sky fell in on the main part of business (I also have a part time job of 21 hours a week), then I can still save 5k. 

I earned a wage of £62k (pre tax) last year, which in the Valleys is decent. However, this was due to my business being set up and exploding. I just don't want to assume (although i am on course to even better in 2021), that this is a given each year. I switched to a limited company and with gyms about to be opened back up I now am able to offer the face to face training. So i am confident, but not complacent, I can beat last year's take home. 2021's revenue is ahead of 2020's on average, and gyms being back open can only help in my sector (95% of what I do is online diet and fitness coaching and bodybuilding show prep coaching, a monthly paid for service).

It's very much, get the capital together regardless. Then see from there. If, as you say, I might need a 'reality check' then worse case I just saved a load of money (in relative terms to someone who used to take home 1750 a month in Wales) to use on something else to improve my financial lot. 

Alexland

Aah if you earned £62k last year and things are looking good going forward it does lead me to wonder why you are only expecting to save £5k a year and where the rest of the money is going but of course that's none of my business. As you say there is no harm building up a pile of money and then taking a view later.

Rather than 'leveraging up' with a BTL have you considered a more traditional approach of just building wealth using the SIPP (with a limited company assume you are making director contributions) and perhaps a workplace pension for employer contributions from your part time job?

Grumpy_chap

Aged late 30's and salary £60k, so take-home £4k/month, £44k/year (might be higher if having own company is beneficial).
The OP's first priority IMO should be to clear all debts including mortgage so that they are secure whatever happens.
Then the OP should be able to save considerably more than £5k/year and that consideration of BTL should be part of a balanced plan for future investment / retirement including the SIPP. 
(Even now, if the OP takes home £4k/month and was, until recently, bringing home £1,750/month, why is the savings target as low as £400 monthly?)
Looking to go for the BTL in 2-5 years, there are few options other than secure low-yield, though bonds may be slightly higher-yields than deposit accounts.
A balanced strategy that include BTL if that is what the OP fancies seems fair enough.  The OP has 2 - 5 years to learn about the obligations of being a landlord and confirm their decision.  BTL mortgage usually requires 25% deposit, so the £25k the OP targets means a property purchase at £100k - does that get an attractive rental?

Alexland

Grumpy_chap said:

The OP's first priority IMO should be to clear all debts including mortgage so that they are secure whatever happens.

So you would advocate the OP paying both corporation and higher rate tax to draw income from their limited company in order to pay back their probably low rate mortgage (assuming they are already a homeowner) at an accelerated rate? Being 'secure whatever happens' comes at a significant price of paying an unnecessarily high level of tax and not getting the improved market returns and security in old age that pension investments would likely provide over the long term.

Marcusian

Thanks guys this is really helpful. 

steampowered

Marcusian said:

I am in a position to save very heavily towards getting to that goal in 5 years maximum. 
...
In light of this - I can see how investing in my stocks and shares ISA towards this is simply not suitable for this purpose. 

Your approach seems very contradictory.

When it comes to stocks & shares, you are worried about taking any risk.

When it comes to property, you are happy to take the highest level of risk possible. You want to buy a highly leveraged buy-to-let property, with a minimal deposit, using as much debt as the bank will allow you to take, without much savings behind you to cover void periods or maintenance costs, in a high risk area. I can't imagine a property you buy with a £25k deposit is likely to give you high quality tenants.

The risk of losing money on your BTL is much higher than the risk of losing money on an unleveraged stocks & shares ISA.

Over a 5 year time period, the chance of making a gain with a stock market tracker is about 90%. The chance of making a loss is about 10%. It is completely rational and logical to take that risk. That is a risk that you should be willing to take, given your attitude to risk on the BTL. 

Personally I strongly believe you should take out a 100% equity fund given the time period you are looking at and your attitude to risk. Think 80/20 if you want to be careful about it. Not 20/80.

Marcusian

You know i live in Torfaen in South Wales right? I myself was a tenant in the very same type of property I am looking at until late last year. 

Now - the stuff on investing - this is massively helpful and what I was looking for. It's just most of the replies i ever get on here are 'unless you are investing for 10 years don't bother'. Thank you for the link too. It's more that 5 year is the maximum, as the potential inheritance could shorten that.