2.5k + per month - Invest?

Hi,


I am reaching out to MSE'ers for some advice. I have lots of ideas, but structuring them isn't my forte and is where I would require a little guidance! First, a little about my circumstances;


I am 32 and married. I am a homeowner with c.100k equity in the property, my current fixed rate 2.19% expires in October. remaining mortgage c.190k - 21 years


My wife and I have been paying off our debt over the past number of months and are approaching the stage of being debt free. Once we are debt free we will have c2.5k per month which we would like to work for us in the long term.


Our long term 10 year goal is to Open a guest house/B&B. In the short term(within 2.5 years), we acknowledge the need to upsize and it is my intention to keep our current property and rent out. Our current property is in a desirable area and I believe would be relatively easy to let. I estimate that we will need c80k LTV to purchase a bigger property.


The ultimate aim within 10 years would then be to sell both properties, to provide us a large enough deposit to make the Guest House/B&B more of a lifestyle choice with us both having the ability to contract when we need to top up the pot.


I therefore would appreciate your suggestions on investment/savings for the following


Option 1


2.5k per month - 0-2.5 years
then 1k per month - 2.5-10 years.


Option 2


2.5k per month 0-10 years
Using equity in current property to upsize and dropping the idea of renting out current property.


Any advice would be gratefully received

Thanks

Comments

  • kidmugsy
    kidmugsy Posts: 12,709
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    Letting the property: ensure you understand the rather recent tax changes involving landlords who are paying interest on mortgage loans.

    In general, it's not obvious to me why you'd want to receive a rent and pay tax on it rather than instead use the capital to reduce your new owner-occupier mortgage and thereby save outgoings. Saved outgoings are untaxed.

    I suppose the answer is that you hope that a geared investment in two houses would give you large capital gains (thought the capital gains on the let property would be taxed). Maybe: but gearing works in both directions. If ever the price of those two houses heads downhill you might be in trouble.

    I suggest you see an accountant: your hoped-for B&B would presumably be run as a limited company - see whether it could make sense to let your current house as a limited company. Maybe the stamp duty would knock that idea on the head.
    Free the dunston one next time too.
  • One of the ideas I was playing with would be to set up a ltd company that owns my rental property although I do appreciate that mortgage rates for businesses are more expensive and I would have to pay stamp duty on transfer of the property to the business.


    Ignoring the renting out of my current property and looking at option 2 if I were to invest 2.5k per month over the next 10 years, what would your opinions be on where to do this?
  • kidmugsy
    kidmugsy Posts: 12,709
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    edited 17 July 2018 at 2:38PM
    if I were to invest 2.5k per month over the next 10 years, what would your opinions be on where to do this?

    I suppose I'd go for a mixture of regular saver accounts paying up to 5% AER, and subscriptions to S&S ISAs in which I'd probably invest mainly in passive "tracker" funds or ETFs.

    If I wanted a bit of diversification beyond cash:equities I'd look at gold (especially gold sovereigns - no VAT, no CGT, no income tax obviously), and perhaps an ETF or fund of TIPS - the US equivalent of Index-Linked Gilts, but paying out much higher returns.

    If I wanted to invest in commodities I'd consider silver: have a look at the Royal Mint website to see the tax position if you refrain from taking physical delivery and allow the Mint to act as your safety deposit. I'd also consider foodstuffs even though that means investing - directly or indirectly - in futures and options about which I understand very little. Which is one of the reasons I'd start with silver. If I wanted an utterly mad gamble I'd look at oil but I'd need first to decide whether I foresee its price rising or falling.

    Addition: or I might work backwards from the proposed purpose of the money i.e. purchase of a large residential property for use as a B&B. How about investing in Hearthstone or any competitors it might have? That might offset risks quite well. House prices shoot up; OK Hearthstone shoots up too. Hearthstone tumbles: OK, so probably does the cost of your B&B property. Might that be a better diversifier than TIPS and precious metals?
    Free the dunston one next time too.
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