Is investing in property a wise long term investment for child?

mjgreen81

Hi all,

My daughter (nearly 3) has nearly £20k in a premium bonds account. We are considering possible long term investments for her and are considering whether it might be a good move to use that money as a deposit for a small property with the plan to let it and use the income received from letting to pay the mortgage.

We would want the minimum fuss so ideally would want to pay a letting agency to take care of everything including maintenance etc (if this service is available).

The end aim is so that when my daughter reaches adulthood, she has a property that she can either live in, sell or let herself depending on her situation. We would ideally want all mortgage/service costs covered by the income received via the letting (I appreciate there will always be the possibility of unforeseen costs).

I understand that we will need to pay a higher stamp duty rate as a second property, will likely need a minimum 25% deposit for a mortgage and will have to pay capital gains tax when selling, but I'm not too sure about other costs/considerations.

We are in the very early days of researching this so would appreciate any thoughts/experiences/considerations.

Thank you 

Bigwheels1111

I stopped renting property 3.5 years ago.

All the new rules and regs coming in.

For me was not worth the risk.

The tenants were getting more rights than the owner.

Just put upto 9K a year in a childs S&S isa.

No tax, capital gains etc.

I got off lightly at £10,000 CGT.

Albermarle

For a long term investment for young children the usual recommendation is to open a Junior Stocks and shares ISA and buy a low cost  fund that tracks global stock markets. You can add up to £9000pa and with the long time scale ( 15 years minimum) you are almost certain to see some decent growth.
Much, much simpler than what you are thinking about, with no tax implications.

These two investment platforms offer JISA's with no fee, just a fee for the actual investment(s) which can be as low as 0.15%

Junior ISA | Invest in a Junior Stocks and Shares ISA | Fidelity

Junior ISA | Hargreaves Lansdown (hl.co.uk)

El_Torro

While I strongly believe that BTL has its place in some portfolios (including mine) I also agree that you’d all be much better off, and with fewer headaches, if you were to go down the Stocks & Shares JISA route. Luckily we’re coming up to the end of the tax year so you can invest £9k now and £9k after April 6th.

Keep_pedalling

Frankly the idea is nuts, there are plenty of other investment options for such a young child and most are are more tax efficient than a house.

DoublePolaroid

mjgreen81 said:

We would want the minimum fuss so ideally would want to pay a letting agency to take care of everything including maintenance etc (if this service is available).

Inadvertent (long story) landlord with three properties with the wife, trying desperately for a while to not be (also a long story).

The bit quoted made me chuckle because if you want minimal fuss the last thing you want to do is let property. Yes there are plenty of folk who will say they’ve had no problems, but that requires a degree of good fortune, or the spare time to deal with problems that do arise with good humour. In my experience agents do the bare minimum for their fees and even good ones will send a steady stream of queries and issues your way because they can’t/won’t deal with the issue and/or need your input for one reason or another. The longer you let - and you’ll be doing so a while, presumably - the more likely you are to run into hassles. Maybe nothing major, but certainly not fuss free. 

I also don’t believe (though I don’t have any evidence to back it up) that historically letting in the U.K. produces an average return that would beat index investing in equities, all costs considered. 

If minimum fuss is your priority then I echo what has already been said. We have JISA’s for both our little’uns invested in a low cost global equity index. Their investment horizon is so long (assuming we manage to not raise a brace of wasters) that short of apocalyptic scenarios occurring, it’ll produce a very nice return for them and pay for their further education/first homes. 

Hoenir

Whose name is the mortgage and property title going to be in? 

Have you crunched the numbers to see if the after tax return will be adequate to meet the capital repayment element of the mortgage? 

MEM62

Keep_pedalling said:

Frankly the idea is nuts, there are plenty of other investment options for such a young child and most are are more tax efficient than a house.

I have to agree.  It is not a passive investment and it comes with its own set of risks that are not insignificant.  It is also a very poor way to invest in terms of tax efficiency.  I would look for other investment options.     

subjecttocontract

With property there are 2 main sources of capital......rental income & capital gain.I

 If you buy the right property, in the right area for the right price then, over time capital gain has been automatic with little to no input from you. Unfortunately it does result in a rather large tax bill when you sell.

Rental income is far more difficult because in spite of paying an agent to deal with stuff for you you'll find that legislation & income tax takes a very large share of your profits. It's hard work, extremely risky and poor on returns.

Don't be fooled into thinking it's easy money. Those landlords who self manage, bought years ago and have a small mortgage will be doing far better but many of them are calling it a day. Government have virtually killed off the Private rental sector and it's organisations like e.g. Lloyds Bank who are building rental portfolios.

Veteransaver

Yields on BTL have been low for ages, you'd be lucky if you can cover the interest rate on the mortgage. It sort of worked when rates were a couple of percent and house prices were rising, but that's not the case now. 
Also, if your rental income pushes you into the high rate tax band it's rarely worth it.

JohnWinder

‘The authors used these ingredients to derive a consistent measure of long-run returns. The results are fascinating. The net annual real return on residential property was 2.3%. That is surprisingly low. By comparison “The Rate of Return on Everything”, an oft-cited study published in the Quarterly Journal of Economics in 2019, puts the net returns on British housing at 4.7% over the same period.’
https://www.economist.com/finance-and-economics/2021/01/21/property-investment-some-hard-truths
Not to be scoffed at, if it's 4.5%/year real. But that’s average. Buy one property and the returns can be below or above average. Most people think they’ll do better than average, or they wouldn’t invest if below average was the prospect as similar returns are available from shares. One property is badly under diversified. Three strategies to reduce risk: insure; hedge, and diversify. One property sounds like folly.