Sensible low risk investment

Audaxer

jake_jones99 said:

Why? FTSE100 as I type is 7593 and the pandemic panic low in March 2020 was 4898. There have been plenty of opportunities to make the stated gain and more.


True. Actually I sold when it was 7000, and had plenty of opportunities to make more. I saw this general trend in the investing community to bash the FTSE 100. Indeed there could be higher profits made elsewhere, but it's not really that bad. 

You have done okay and made a profit investing when the FTSE 100 was low after Covid. The FTSE100 is less risky than individual shares, but have a look at a more diversified global tracker, so you are not fully dependent on the UK market. If you compare the long term history, you will see that a global index fund will have easily out-performed the FTSE100 over the long term.

jake_jones99

Thanks to everyone for the replies. Just for my piece of mind, what would be the main argument to not buy my current apartment outside London with cash, then leave it with an agency to rent it and move to London, so I knock off a few hundreds from my London rent? Mainly because around £60k are coming from relatives who would feel more comfortable with a property.

PS: I've read all your previous comments about the risks of renting, I am trying to find a common ground for everyone

Filo25

 Just to add a slight contrarian view (and not saying FTSE100 only investment is proper diversification at all), I have been as big a bear on UK large cap investment as anyone but I could make a case that it is looking a bit more interesting than it has done in a long time at present.

If we are looking at a new cycle beginning with higher inflation, commodity/energy prices and rising interest rates the FTSE 100 being overweight energy companies, miners and banks, looks like it might offer some protection against sexier sectors and indicies elsewhere. Of course it may be that inflation will remain transitory and this is just a blip with funds and returns flowing back to global growth stocks once more, but for those taking a more active approach to investment allocations it is at least an investable index again.

Voyager2002

jake_jones99 said:

Thanks to everyone for the replies. Just for my piece of mind, what would be the main argument to not buy my current apartment outside London with cash, then leave it with an agency to rent it and move to London, so I knock off a few hundreds from my London rent? Mainly because around £60k are coming from relatives who would feel more comfortable with a property.

PS: I've read all your previous comments about the risks of renting, I am trying to find a common ground for everyone

I take it you mean that the rental income from your apartment would be a few hundred each month, less than your rent in London but enough to make paying that rent less painful? Well, your rental income would be taxable; your rent in London would not be an allowable business expense (so there would be no tax allowances for it); when/if you eventually sold the apartment there would be liability for capital gains tax and of course you have to sell the entire apartment in one go, so cannot just sell a few shares each year to stay within your tax allowance. And of course your entire investment would be in just one apartment, in one location, within just one economy.

jimjames

jake_jones99 said:

Thanks to everyone for the replies. Just for my piece of mind, what would be the main argument to not buy my current apartment outside London with cash, then leave it with an agency to rent it and move to London, so I knock off a few hundreds from my London rent? Mainly because around £60k are coming from relatives who would feel more comfortable with a property.

Having just done my self assessment tax return and got a large bill as a result of rental income you probably want to look very carefully at the tax implications of doing that. Even more so if money is coming from other people then it will be even more complicated. But essentially the rent minus certain costs is added to your income. It's not profit that is taxed, it's the income. If you've paid cash for the apartment then it might not make much difference but you will need to account for the tax in your calculations which could move you between tax bands.

jake_jones99

Voyager2002 said:

jake_jones99 said:

Thanks to everyone for the replies. Just for my piece of mind, what would be the main argument to not buy my current apartment outside London with cash, then leave it with an agency to rent it and move to London, so I knock off a few hundreds from my London rent? Mainly because around £60k are coming from relatives who would feel more comfortable with a property.

PS: I've read all your previous comments about the risks of renting, I am trying to find a common ground for everyone

I take it you mean that the rental income from your apartment would be a few hundred each month, less than your rent in London but enough to make paying that rent less painful? Well, your rental income would be taxable; your rent in London would not be an allowable business expense (so there would be no tax allowances for it); when/if you eventually sold the apartment there would be liability for capital gains tax and of course you have to sell the entire apartment in one go, so cannot just sell a few shares each year to stay within your tax allowance. And of course your entire investment would be in just one apartment, in one location, within just one economy.

Yes Voyager, you got my idea exactly right. Yes, it would be taxed at 20% (I am paying a private pension, so that will keep me in the same tax band). Yes, when I sell there will be a capital gains tax (assuming I get more money). But all of these mean I will still get extra cash. Keeping it in my savings account gives close to nothing. And again, I don't feel comfortable investing the money that my family handed me by selling an apartment (so they would hope that I would buy something).

What I could do is invest my own savings ~£70k, which might potentially compensate for not making anything with the gift from my relatives. Thinking out loud.

jake_jones99

jimjames said:

jake_jones99 said:

Thanks to everyone for the replies. Just for my piece of mind, what would be the main argument to not buy my current apartment outside London with cash, then leave it with an agency to rent it and move to London, so I knock off a few hundreds from my London rent? Mainly because around £60k are coming from relatives who would feel more comfortable with a property.

Having just done my self assessment tax return and got a large bill as a result of rental income you probably want to look very carefully at the tax implications of doing that. Even more so if money is coming from other people then it will be even more complicated. But essentially the rent minus certain costs is added to your income. It's not profit that is taxed, it's the income. If you've paid cash for the apartment then it might not make much difference but you will need to account for the tax in your calculations which could move you between tax bands.

Thanks Jim, I looked up taxation, and that was one of the first moments when I started doubting the whole thing. It will not make me move tax bands because of my private pension, which does not count towards the band. As a landlord yourself, how much time do you need to consume for it, and would you say it's not worth doing in my case?

P.S: I worked out a budget in my case, considering all fees (legal, stamp duty, agent, maintenance, vacancy loss, rent/service charge, tax) and worked out a net taxed yield of 2.33%. That's very low indeed, however, I would need to make over 5% with just half of the money (my savings) to cover for that (and not involve my family's gift).

jimjames

jake_jones99 said:

jimjames said:

jake_jones99 said:

Thanks to everyone for the replies. Just for my piece of mind, what would be the main argument to not buy my current apartment outside London with cash, then leave it with an agency to rent it and move to London, so I knock off a few hundreds from my London rent? Mainly because around £60k are coming from relatives who would feel more comfortable with a property.

Having just done my self assessment tax return and got a large bill as a result of rental income you probably want to look very carefully at the tax implications of doing that. Even more so if money is coming from other people then it will be even more complicated. But essentially the rent minus certain costs is added to your income. It's not profit that is taxed, it's the income. If you've paid cash for the apartment then it might not make much difference but you will need to account for the tax in your calculations which could move you between tax bands.

Thanks Jim, I looked up taxation, and that was one of the first moments when I started doubting the whole thing. It will not make me move tax bands because of my private pension, which does not count towards the band. As a landlord yourself, how much time do you need to consume for it, and would you say it's not worth doing in my case?

Time varies, just had a call this evening from tenants that pipe is leaking at the property so I now need to arrange a plumber visit tomorrow which will be hassle as well as expense. We've had a decent capital gain over the last 12 years, or at least would if we sold now - who knows what it might be in future.

I can't say for you whether it's worth it or not but I wouldn't want to be messing around with other people's money. What happens if one person wants their cash but the others don't want to sell at that point?

jake_jones99

jimjames said:

jake_jones99 said:

jimjames said:

jake_jones99 said:

Thanks to everyone for the replies. Just for my piece of mind, what would be the main argument to not buy my current apartment outside London with cash, then leave it with an agency to rent it and move to London, so I knock off a few hundreds from my London rent? Mainly because around £60k are coming from relatives who would feel more comfortable with a property.

Having just done my self assessment tax return and got a large bill as a result of rental income you probably want to look very carefully at the tax implications of doing that. Even more so if money is coming from other people then it will be even more complicated. But essentially the rent minus certain costs is added to your income. It's not profit that is taxed, it's the income. If you've paid cash for the apartment then it might not make much difference but you will need to account for the tax in your calculations which could move you between tax bands.

Thanks Jim, I looked up taxation, and that was one of the first moments when I started doubting the whole thing. It will not make me move tax bands because of my private pension, which does not count towards the band. As a landlord yourself, how much time do you need to consume for it, and would you say it's not worth doing in my case?

Time varies, just had a call this evening from tenants that pipe is leaking at the property so I now need to arrange a plumber visit tomorrow which will be hassle as well as expense. We've had a decent capital gain over the last 12 years, or at least would if we sold now - who knows what it might be in future.

I can't say for you whether it's worth it or not but I wouldn't want to be messing around with other people's money. What happens if one person wants their cash but the others don't want to sell at that point?

Thanks Jim, my family won't ask for the money back. It's more like an expectation for them that I buy an apartment (because that's what they're comfortable with, and they don't understand online investments). 
However, I just realised, if I sell in one year, there's a high chance I will be at a loss, or make a ridiculous profit (even assuming the capital doesn't go down). As you said, for 12 years it's probably a good investment. However, I don't want to live in this city, the investment would probably only be for 1-2 years until I make up my mind where I want to live, so there are high odds that I make an embarrassing profit for the investment, or even lose money. 

benbay001

jake_jones99 said:

jimjames said:

jake_jones99 said:

jimjames said:

jake_jones99 said:

Thanks Jim, my family won't ask for the money back. 

Whats the point in investing it then?