New to investment - need some advice on buy-to-let

Roselondon_2

My husband and I are both over 40 with two young children. We moved to the UK 10 years ago with very little saving. We managed to buy our first house at Outer London before my first child was born with my family's support. We've remortgaged after the first 5 years fixed rate and since have been overpaying a little bit every month. 

Lately, I've inherited some cash from my family. We used most of it to carry out an extension to our family home. After that, we have about £110k left including our own saving. We know we can't leave this in saving account with inflation basically would depreciate it over time. But neither of us are risk takers - we are actually the OPPOSITE.

So our plan is to buy a flat in central London. It sounds a bit crazy. But we don't have big appetite wishing to make big money. We would be happy just to have the property value increase year on year (general trend). If we are lucky to earn enough rental income each year to pay off the mortgage in a few years time, we'd be more than satisfied. (I'm aware of the tax issue and intend to set up a LTD as the ownership media.)

I read some posts in the forum about Buy-to-let. People suggest it's really not the best time to get into the market. Lots of people favour stocks and bonds at the moment which offer higher return and less tax implication if in ISA. But it would be a complete new domain for us to face, plus I just think I can't deal with the stress of handling the constant speculation/fluctuation in those volatile dimensions.

So the above is a lot of background information. My questions come down to:

1. Is our goal in buy-to-let realistic? i.e. to keep the value increase above inflation overtime plus maybe some extra income.

2. Is there any "relatively" safe investment portfolios out there other than property?

sevenhills

Roselondon_2 said:

But neither of us are risk takers - we are actually the OPPOSITE.

So our plan is to buy a flat in central London. It sounds a bit crazy.

But buying property is high risk.

You would be better buying unit trusts, within an ISA or SIP. I am sure you will get other comments.

Have you checked your state pension forecast, will you have paid national insurance?

colsten

Roselondon_2 said:

......But neither of us are risk takers - we are actually the OPPOSITE.

So our plan is to buy a flat in central London.........

These two statements are totally contradictory. If you want to buy property, you are prepared to take high risk. Since you indicated you are risk averse, you should stay clear of property.

What pension provisions do you and your husband have? I.e. how much income will you have once you can no longer work, and will this be enough to live on?

What have you planned to spend on your kids education?

How big is your emergency fund (boiler breaks, car packs up, either or both lose their jobs etc)? 

How much have you budgeted for regular maintenance to your home?

Roselondon_2

sevenhills said:

Roselondon_2 said:

But neither of us are risk takers - we are actually the OPPOSITE.

So our plan is to buy a flat in central London. It sounds a bit crazy.

But buying property is high risk.

You would be better buying unit trusts, within an ISA or SIP. I am sure you will get other comments.

Have you checked your state pension forecast, will you have paid national insurance?

Is this "high risk" for buying property associated with the fluctuation of the housing price in the market year on year? If I look for property value in 20 years time, would you still call it a high risk? 

Thanks for commenting about unit trusts. I will look into it.

Roselondon_2

colsten said:

Roselondon_2 said:

......But neither of us are risk takers - we are actually the OPPOSITE.

So our plan is to buy a flat in central London.........

These two statements are totally contradictory. If you want to buy property, you are prepared to take high risk. Since you indicated you are risk averse, you should stay clear of property.

What pension provisions do you and your husband have? I.e. how much income will you have once you can no longer work, and will this be enough to live on?

What have you planned to spend on your kids education?

How big is your emergency fund (boiler breaks, car packs up, either or both lose their jobs etc)? 

How much have you budgeted for regular maintenance to your home?

We really didn't think buying property is a high risk... We don't intend to sell. So only expect the property value increase as a general trend. Maybe we need to factor in the high risk of non-payment from tenant occassionally?

Haven't check the combined pension status yet! But really grateful you pointed all these out. I just looked up how much a retiree  needs to spend in a year. Shocking!

Thrugelmir

Have you drawn up a financial plan?  BTL property is a little more complex than simply collecting rent, paying the mortgage and pocketing the difference. 

coyrls

You won't be able to buy a flat in Central London for £110K.

Roselondon_2

Thrugelmir said:

Have you drawn up a financial plan?  BTL property is a little more complex than simply collecting rent, paying the mortgage and pocketing the difference. 

We are aware of the combination of costs including mortgage repayment, agent fees, maintenance cost and tax plus problematic tenants if unlucky. Anything else to factor in?

Roselondon_2

coyrls said:

You won't be able to buy a flat in Central London for £110K.

Of course we use this as deposit for a mortgage only!

sevenhills

Roselondon_2 said:

Is this "high risk" for buying property associated with the fluctuation of the housing price in the market year on year? If I look for property value in 20 years time, would you still call it a high risk? 

Its more the tenants not paying rent which is the main risk, it can cost thousands to evict them.

House prices crashed in 2008 and took 6 years to recover, but they were well up after 10 years.

Not sure how that would compare to holding shares within unit trusts.

https://www.moneynest.co.uk/property-vs-shares/

https://www.thisismoney.co.uk/money/mortgageshome/article-5836583/Has-home-investment-Equity-release-guide.html

Steve182

I would suggest the chances of losing money on a BTL over 20 years are greater than losing it on a diversified stocks and shares portfolio. 

One major difference, assuming you sell the BTL at a profit in 20 years, you would pay 28% CGT on most or all of the gains at today's rates. Also you pay tax at your marginal rate on the annual rental profits.

With stocks/shares in an ISA, all gains and dividends are tax free!

Current tax rules MASSIVELY favour ISA investors over landlords.