70k to invest for income - best options

Technoholic

Thrugelmir said:

Technoholic said:

Gary1984 said:

You could split the funds between the world high dividend ETF mentioned above and trackers for FTSE 100/250 and Asia Pacific.

You could also consider some REITs to earn rents without the hassle or other investment trusts targeting income.

Individual company shares like Unilever pay steady dividends as well but they're higher risk and you'd own them in a FTSE100 tracker anyway.

Pick a few of these options and sit back and collect the dividends. Much simpler than buy to let and much less risk due to diversification. You might get a yield of around 4% a year.

So, simpler than BTL for sure, and maybe more of a yield if I am lucky but with BTL at least the renter is growing my capital at a rate unlikely to be achieved in the markets though, right? So while capital growth isn't my goal with this money, at least at the end of my mortgage, I have a property that can add to my retirement pot, or am I missing something?

At the end of the mortgage term the debt owed needs to be repaid. 

what debt would there be?

grumiofoundation

Technoholic said:

Thrugelmir said:

Technoholic said:

Gary1984 said:

You could split the funds between the world high dividend ETF mentioned above and trackers for FTSE 100/250 and Asia Pacific.

You could also consider some REITs to earn rents without the hassle or other investment trusts targeting income.

Individual company shares like Unilever pay steady dividends as well but they're higher risk and you'd own them in a FTSE100 tracker anyway.

Pick a few of these options and sit back and collect the dividends. Much simpler than buy to let and much less risk due to diversification. You might get a yield of around 4% a year.

So, simpler than BTL for sure, and maybe more of a yield if I am lucky but with BTL at least the renter is growing my capital at a rate unlikely to be achieved in the markets though, right? So while capital growth isn't my goal with this money, at least at the end of my mortgage, I have a property that can add to my retirement pot, or am I missing something?

At the end of the mortgage term the debt owed needs to be repaid. 

what debt would there be?

If you get an interest only mortgage (more common for BTL) you will need to repay the loan.

If you get a repayment you won't, but then you have a much higher monthly outgoing. 

How many months could you afford to pay a mortgage (whether interest only or repayment) if the tenant isn't paying rent?

Technoholic

oh I see, yeah I wouldn't be considering an interest only mortgage, worst case scenario I have to pay the monthlies with my salary, that would be more than doable on the sort of properties I'd be looking at

Albermarle

but with BTL at least the renter is growing my capital at a rate unlikely to be achieved in the markets though, right?

You can not make that assumption, as nobody knows how house prices or stock markets will behave over the next few years.

You can guess/predict, but you might be wrong.

Before going into BTL , maybe a good idea to watch a few episodes of this programme .

 My5 - Nightmare Tenants, Slum Landlords - Season 6 - Episode 2 / Episode 2 (channel5.com)

Technoholic

Albermarle said:

but with BTL at least the renter is growing my capital at a rate unlikely to be achieved in the markets though, right?

You can not make that assumption, as nobody knows how house prices or stock markets will behave over the next few years.

You can guess/predict, but you might be wrong.

Before going into BTL , maybe a good idea to watch a few episodes of this programme .

 My5 - Nightmare Tenants, Slum Landlords - Season 6 - Episode 2 / Episode 2 (channel5.com)

Yes all true, and I make it sound like im set on BTL, which I'm not, and I'm fully aware of all the pain that can happen with BTLs, but that's a risk I'm willing to take if I do go that route

Gary1984

Both equities and property has an income component (dividends, rents) and a growth component (share price movement, house price change). Nobody knows what those components will actually be in advance so hard to say what the better investment is in pure return terms.

A buy to let mortgage will increase your yield as you only need to put down the deposit but also increases your risk as you still need to pay the interest even if the property is unrented. So this is a risk as well as a potential advantage.

However B2L has additional disadvantages of

1) Hassle/work

2) Tax, equities are tax free when in an ISA

3) Expenses, trackers cost 0.1% in expenses. Maintaining a property would cost considerably more

4) Lack of Diversification. If the property is empty you get zero income. With equity funds you'll own hundreds of companies. Even if some stop dividends unlikely they all would at once 

Technoholic

Gary1984 said:

Both equities and property has an income component (dividends, rents) and a growth component (share price movement, house price change). Nobody knows what those components will actually be in advance so hard to say what the better investment is in pure return terms.

A buy to let mortgage will increase your yield as you only need to put down the deposit but also increases your risk as you still need to pay the interest even if the property is unrented. So this is a risk as well as a potential advantage.

However B2L has additional disadvantages of

1) Hassle/work

2) Tax, equities are tax free when in an ISA

3) Expenses, trackers cost 0.1% in expenses. Maintaining a property would cost considerably more

4) Lack of Diversification. If the property is empty you get zero income. With equity funds you'll own hundreds of companies. Even if some stop dividends unlikely they all would at once 

1) Hassle/work
agree, that's a question of whether I'm willing to deal with it, this isn't my first experience with rental properties as I manage the rental property my dad owns as he lives abroad, so I've got some experience with that. 

2) Tax, equities are tax free when in an ISA
agree again, though looking at this from a non income perspective, as my income after expenses would be minimal with a rental, my tax implications would therefore be minimal too, but something to be considered for sure.

3) Expenses, trackers cost 0.1% in expenses. Maintaining a property would cost considerably more
that's an unavoidable truth

4) Lack of Diversification. If the property is empty you get zero income. With equity funds you'll own hundreds of companies. Even if some stop dividends unlikely they all would at once 
Also true, mitigated to some extent by using a management company with rent guarantees but then also impacts the income 

Albermarle

1) Hassle/work
agree, that's a question of whether I'm willing to deal with it, this isn't my first experience with rental properties as I manage the rental property my dad owns as he lives abroad, so I've got some experience with that. 

Having some house maintenance /DIY /building skills yourself is certainly an advantage with a BTL property , as it can keep costs down .

Prism

Technoholic said:

But then surely I'm eroding the capital rather than potentially growing it? It's not a priority but I'd rather not dig into it if possible. 

Dividend based income was my real alternative thought, if 1.5% is the most I could expect that's less than I was basing my calculations on

1.5% is currently what the world index pays but it's not the most you could get. You could invest more in let's say the UK FTSE 100 but then you are still beholden to if those companies pay a full dividend or if they cut like last year. Or maybe you select an investment trust that pays 4%. However that does exactly the same thing - it sells capital to pay the dividend just like you could do yourself 

Thrugelmir

Technoholic said:

Gary1984 said:

Both equities and property has an income component (dividends, rents) and a growth component (share price movement, house price change). Nobody knows what those components will actually be in advance so hard to say what the better investment is in pure return terms.

A buy to let mortgage will increase your yield as you only need to put down the deposit but also increases your risk as you still need to pay the interest even if the property is unrented. So this is a risk as well as a potential advantage.

However B2L has additional disadvantages of

1) Hassle/work

2) Tax, equities are tax free when in an ISA

3) Expenses, trackers cost 0.1% in expenses. Maintaining a property would cost considerably more

4) Lack of Diversification. If the property is empty you get zero income. With equity funds you'll own hundreds of companies. Even if some stop dividends unlikely they all would at once 

2) Tax, equities are tax free when in an ISA
agree again, though looking at this from a non income perspective, as my income after expenses would be minimal with a rental, my tax implications would therefore be minimal too, but something to be considered for sure.

Any future capital gain made on disposal of the property will be subject to tax at the prevailing rates at the time. There's rumours that rates of capital gain tax will be aligned with income tax in the future.