Property Investing vs ISA

skyblue5559

Hello. I’m looking for some advice 

I have around £100k in a stocks and shares ISA, invested in a fund with an average return of 7%, and I have around £50k in other savings. I have no debt.

I’ve been offered the opportunity to buy an investment property from a family member for £120k, which is below market value. It’s currently let and bringing in £1k/month.

Would buying the property be a sensible investment in the long run, or would it be better to keep investing in the ISA?

Ayr_Rage

Ask yourself "Do I want to be a landlord with all the hassle that could entail?"

£1000 a month sounds great until the boiler breaks, the roof gets storm damage, gutters leak and the dog they shouldn't have poops all over the carpets.

I went the S&S ISA route, reinvested all dividends over many years and eventually became an ISA millionaire.

El_Torro

You won't find many posters here who are fans of Buy To Let. I have a Buy To Let property myself, though I would only recommend it as additional diversification, for someone who already has a good amount in Stocks & Shares ISAs and their pension. What that good amount is depends on your individual circumstances. 

I would also suggest that you should only get into Buy To Let if you know what you're getting yourself into. It definitely isn't a get rich quick scheme. 

Roger175

So 7% in your S&S ISA is entirely tax free. On £120k (like for like investment) that's £8,400pa.

£1,000 per month or £12k pa on the £120k investment property is £10% in theory, but that's gross, so knock off an amount to cover insurance, repairs, agents fees, void periods etc and you're probably be down to say 8%. But you will be taxed on the profit. Are you a standard or higher rate tax payer? With an extra £12k rental income, you may well be pushed into higher rate band if currently only a standard rate taxpayer and bear in mind that rental income is treated as unearned income in terms of pension contributions - in other words you can't bung a load in your pension and get the tax relief.

Furthermore, you'll end up paying various fees to buy and eventually sell the property and if you become a second home owner it adds a whole level of pain in terms of double stamp duty on your main residence etc.

Trust me, buy-to-let is not a very attractive proposition these days - we sold our BTL property 2 years ago and are currently helping our son to sell his. Neither of us could make it stack up any longer.

Hoenir

skyblue5559 said:

I’ve been offered the opportunity to buy an investment property from a family member for £120k, which is below market value. It’s currently let and bringing in £1k/month.

Gross or net. i.e. before or after expenses. Then there's tax to be considered. 

invested in a fund with an average return of 7%

Investments can rise and fall like the tide. 

What's your risk appetite? What's your long term objective for the money? 

Eyeful

1. This family member:
How long have you known them?
How much do you trust them?
Why are they selling the house at this time?
Why are they selling you the house below market value?
How have you checked it is being offered at below market value.

2. Do you:
Know anything anything about being a Landlord?
Know about the risks you will be taking on.
Want to take on the hassle of being a Landlord instead of just holding your stocks & shares ISA.

3. If you already have a mortgage, then you will already investing in property. Why invest in more?

4. Remember the saying:
If it looks to good to be true, its because you do not understand the risks involved.

MX5huggy

The thing about BTL is you can leverage your investment this increases potential profits and losses. For reasons I don’t understand a bank won’t lend you £100k so you buy £150k of shares in a Global tracker fund yet they would lend you £100k to buy a (or against a house you already own) £150k property. If you run a company they would also lend you millions. There’s a man near me who owned 1 petrol station now his group has 60 plus all on borrowed money. He nips around in his Aston, Range Rover and helicopter.

thegentleway

MX5huggy said:

The thing about BTL is you can leverage your investment this increases potential profits and losses. For reasons I don’t understand a bank won’t lend you £100k so you buy £150k of shares in a Global tracker fund yet they would lend you £100k to buy a (or against a house you already own) £150k property. If you run a company they would also lend you millions. There’s a man near me who owned 1 petrol station now his group has 60 plus all on borrowed money. He nips around in his Aston, Range Rover and helicopter.

Surely it's because S&S are too liquid. Nothing stopping you selling them and buying a lambo.

thegentleway

Personally I would keep investing in S&S: I sold my B2L to invest in S&S instead.

Investing in property is not a sensible investment in the long run: residential property prices have only just kept up with inflation in the last 20 years.

wmb194

skyblue5559 said:

Hello. I’m looking for some advice 

I have around £100k in a stocks and shares ISA, invested in a fund with an average return of 7%, and I have around £50k in other savings. I have no debt.

I’ve been offered the opportunity to buy an investment property from a family member for £120k, which is below market value. It’s currently let and bringing in £1k/month.

Would buying the property be a sensible investment in the long run, or would it be better to keep investing in the ISA?

How much below market value?

Section62

MX5huggy said:

The thing about BTL is you can leverage your investment this increases potential profits and losses. For reasons I don’t understand a bank won’t lend you £100k so you buy £150k of shares in a Global tracker fund yet they would lend you £100k to buy a (or against a house you already own) £150k property. If you run a company they would also lend you millions. There’s a man near me who owned 1 petrol station now his group has 60 plus all on borrowed money. He nips around in his Aston, Range Rover and helicopter.

It's simple.  In exchange for the loan on the property they want security - i.e. they get the property if you default on the loan.  Likewise if they lend to a business there will be some form of security involved.  They won't have that security if they lend individuals cash to invest in global tracker funds.

The petrol station owner will do Ok so long as he can continue to service his debts.  If one of his loans comes due and he can't find anyone willing to cover what he owes then the wheels on his Aston and Range Rover could very quickly fall off... unless he has access to some other form of funding (like selling the helicopter, or his home).  For everyone who made it big, there will be others who found their best-friend bank manager quickly became their worst enemy.