Do I bale out and buy a house to rent?

[Simpo Two]

I have a collection of various investments in various forms accumulated over the years. They go up and they go down, and every quarter I get loads of bumph I don't really understand with photos of happy fund managers telling me the market outlook is good, or volatile. On the whole it seems to track the markets but that's about all. Many of them don't seem to have done much since the late 90's - I suspect I'm just keeping middle-men in commissions.

Hence I'm seriously considering selling a good chunk of them and buying a small property nearby to rent, mortgage free. The area is close to the station an hour from London and very popular for rental. I can understand a house. It's a brick box. You put a tenant in it and you get money every month. If property prices don't go up you still get the rent; if property goes up you win twice. No fund managers, no IFAs, no need to get that sinking feeling every time the newsman says markets have crashed.

So... question is - jump or do nothing? What can go wrong?

[NoelWatson]

Simpo Two said:

I have a collection of various investments in various forms accumulated over the years. They go up and they go down, and every quarter I get loads of bumph I don't really understand with photos of happy fund managers telling me the market outlook is good, or volatile. On the whole it seems to track the markets but that's about all. Many of them don't seem to have done much since the late 90's - I suspect I'm just keeping middle-men in commissions.

Hence I'm seriously considering selling a good chunk of them and buying a small property nearby to rent, mortgage free. The area is close to the station an hour from London and very popular for rental. I can understand a house. It's a brick box. You put a tenant in it and you get money every month. If property prices don't go up you still get the rent; if property goes up you win twice. No fund managers, no IFAs, no need to get that sinking feeling every time the newsman says markets have crashed.

So... question is - jump or do nothing? What can go wrong?

What net yield does it offer?

[Jasandjules]

The question is as above, the return on the investment percentage - both what you get now and what you might make by renting out a house/flat.

What you COULD do, if you were a bit more a risk taker (and depending upon your long term views of the housing market), use the money to pay say 25% of the mortgages on 2-3 flats (or perhaps the smaller houses in your area - there are some lovely ones just down the hill from where you live!) and then rent them out. Use the rent money to pay the mortgages and insurances etc.. and away you go. That way someone else is paying your pension fund.

Of course, this all sounds simple on paper, but I rather think it's not quite so rosy in reality, BUT it's better than (IMHO) putting all your eggs in one basket (a single property).

[Simpo Two]

NoelWatson said:

What net yield does it offer?

We're looking at a purchase price of £110-120K and a monthly gross rental of around £550. I make that 5.7% before tax. Not fantastic but it can't go down, and I have control, and eventually capital gain.

Jasandjules said:

What you COULD do, if you were a bit more a risk taker (and depending upon your long term views of the housing market), use the money to pay say 25% of the mortgages on 2-3 flats (or perhaps the smaller houses in your area - there are some lovely ones just down the hill from where you live!) and then rent them out. Use the rent money to pay the mortgages and insurances etc.. and away you go. That way someone else is paying your pension fund.

I think one house is enough for starters! Plus I don't like the idea of borrowing money - because it costs interest which (logically) means I get less loot. But you know the area! House in question is not particularly smart, there are prettier ones, but they would cost more and heck, I don't have to live in it!!

[Simpo Two]

musclecarmad said:

i gather you don't like IFA's which is fair enough

Well it's not as blunt as that - but I feel they put their own interests ahead of their clients', and rapidly lose interest unless you want to buy something. How can a portfolio that's 'reviewed' once a year (ie 'can I sell you some more products sir?') possibly match the clever guys with computer screens who can press 'sell' the moment the Euro flutters etc? 'But that would be churning sir, and you need to view these investments over 5 years' = 'oh you mean it will take 5 years to claw its way back to where it was last week?' Just sick of it really, fancy doing something else.

[lestag]

What about cark parking spaces? I have a cousin that rents out 2 here in NZ. Not much to maintain, not much to damage...

I had a good run with tennents for about 5 years. The last pair's dog ruined the carpets , now trying to recover $4k....

[NoelWatson]

Simpo Two said:

musclecarmad said:

i gather you don't like IFA's which is fair enough

Well it's not as blunt as that - but I feel they put their own interests ahead of their clients', and rapidly lose interest unless you want to buy something. How can a portfolio that's 'reviewed' once a year (ie 'can I sell you some more products sir?') possibly match the clever guys with computer screens who can press 'sell' the moment the Euro flutters etc? 'But that would be churning sir, and you need to view these investments over 5 years' = 'oh you mean it will take 5 years to claw its way back to where it was last week?' Just sick of it really, fancy doing something else.

Why don't you buy tracker funds directly and cut out the middle man?

[Trommel]

musclecarmad said:

a good friend of mine has around 150 houses all paid for in cash along with various large commercial developments - he's only 25

So £7m+ spent in cash at 25. That's impressive.

Does he trade a lot of computer chips? Good with VAT receipts?

[Trommel]

musclecarmad said:

No, none of that fancy stuff - much simpler than that really.

Senior sales rep for a private pharmaceuticals business?

[Simpo Two]

I don't have the knowledge or dedication to buy and sell stuff on a daily basis, but I know it can be done and that's how money is made. I can watch the news and think 'The markets are going to open well down tomorrow' but I can't connect that to my collection of ISAs, OEICs and other clutter. It's just too much of a shambles.

I'd be very happy to consider tapping into an 'expert' in return for a percentage - I'm a firm believer in performance-related pay - I just need the connections.

Although as my cousin and former IFA heard somewhere: 'A stockbroker is a man who takes your money and invests it until it's all gone'...

[NoelWatson]

Simpo Two said:

I don't have the knowledge or dedication to buy and sell stuff on a daily basis, but I know it can be done and that's how money is made.

How?

[auditt]

Simpo two

Im quite young but you seem to have the right idea.

Dont listen to the person who reckons you should spread the equity so you can have 5 billion properties, this is how the novices get burnt. It comes down to greed.

Start of with 1 property, run it for a year and see how it goes.

If you get a good tenant your laughing.

If you get a sh*it one just be prepared. Being a landlord is great when times are good but crap when its not.

Will you manage the place yourself? or will you have an agent?

If you have an agent, they'll put any old toss pot in your property so make sure you are happy with him, her etc etc

Forget the local GIRO, More bother than you can deal with.

Dont forget to take into account tax, renovation, damages, insruance, contracts etc etc

I recommend joining the http://www.landlords.org.uk/index.htm

Even if you never buy a place its worth being part of the NLA, Legal advice etc and you can read up about all new laws etc etc

[dibbly dobbler]

Simpo Two said:

So... question is - jump or do nothing?

Do nothing!

Simpo Two said:

What can go wrong?

It'll be a pain in the arse and you'll long for the old days when all you had to do was read an annual statement to find out how your investments were doing. Pension ?

[Super Slo Mo]

I have a couple of alternative suggestions Simpo, both of which will require a bit of involvement on a day to day basis, but probably no more than managing a rental property.

What about buying a property in need of modernisation, tidying it up and moving it on. No dealing with tenants and all the associated crap. One or two of these per year should keep you busy enough to stay out of mischief, and hopefully will make a nice little margin into the bargain. If nothing else, you can justify building up a nice collection of Man Tools that you don't need!

Alternatively, open a stockbroking account, online with someone like Barclays, Lloyds etc. Start off with a mere £10k or so, and slowly research and buy into a few funds. The research need only take a bit of your spare time and can be done largely online. You can buy with a view to the stocks appreciating, generating a healthy yield, or both. You can buy one stock that's a bit risky, but likely to yield high growth, and balance it with a lower growing (if at all) stock that's a safe bet, and also hopefully returns a reasonable dividend. You don't need to 'day trade', but can buy stocks with a short term view, and get rid once (if) they return whatever profit you're happy with. Even if in the short term your shares seem to drop in value, it's still possible that they can return you a dividend, and if you're looking to the longer term, it's not that unsafe. There is a wealth of information around, although it takes some sifting to sort out the nonsense from the valuable (which I quite enjoy).

Just a couple of thoughts. Obviously it's all your choice. I'm not sure you could pay me enough to deal with tenants/members of the public (worked in retail many moons ago!).

[Simpo Two]

Thanks very much for all the ideas folks, much appreciated.

I've visited some properties in the target area and had a good discussion with a colleague who's a letting expert and knows the area well. Our conclsuion is that, for the moment, the numbers don't add up to make a decent investment.

SuperSloMo - an interesting idea and of course the classic property developer route. Whilst I have most of the skills required to 'do up' a tatty house, somehow I just can't get the same enthusiasm for it as I have for my own house. Then again, 'property developer' does have a certain ring about it... perhaps I need to team up with Sarah W on the Homes & DIY forum...

The right thing will happen when or if the time is right

[Yeast Lord]

Rented my place out since February and already forked out for replacement washing machine, dishwasher, sink, windows, carpeting and that's just off the top of my head. Also needed a plumber 3 times and now need an electrician. After these bills, utils, service charge etc it can't be good. Also got to instruct an accountant to disclose all this crap to the inland revenue for 09/10. To be honest I'd rather have the money in the bank getting 1% than endure my flat getting slowly wrecked.

[Simpo Two]

Yeast Lord said:

Rented my place out since February and already forked out for replacement washing machine, dishwasher, sink, windows, carpeting and that's just off the top of my head. Also needed a plumber 3 times and now need an electrician. After these bills, utils, service charge etc it can't be good. Also got to instruct an accountant to disclose all this crap to the inland revenue for 09/10. To be honest I'd rather have the money in the bank getting 1% than endure my flat getting slowly wrecked.

When I had to rent out my mother's house last year I was advised to leave the white goods outside the contract, and did so. In other words, the tenant can use them free of charge, but if they break, it's up to them to get another. Almost a year in and the only thing I've had to replace are the window blinds, which to be fair were shot anyway. And the tenant has made the garden tidier than it was before

I suspect it's partly luck but mostly how you choose your tenants.

[purplepolarbear]

If you want exposure to the market but can't be bothered with the associated hassle, what would your opinion be of funds like this (I've no connection with this fund and don't invest in it myself)?

http://www.moneymarketing.co.uk/news/garratt-to-la...

[Simpo Two]

purplepolarbear said:

If you want exposure to the market but can't be bothered with the associated hassle, what would your opinion be of funds like this (I've no connection with this fund and don't invest in it myself)?

http://www.moneymarketing.co.uk/news/garratt-to-la...

Thanks for the thought PPB but I don't see a recovery in the UK residential property market. If I felt that property was going to rocket then my sums earlier would make more sense; however I think there is more recession to come as we somehow try to get out of Labour's economic mess.

[Wings]

Simpo Two said:

purplepolarbear said:

If you want exposure to the market but can't be bothered with the associated hassle, what would your opinion be of funds like this (I've no connection with this fund and don't invest in it myself)?

http://www.moneymarketing.co.uk/news/garratt-to-la...

Thanks for the thought PPB but I don't see a recovery in the UK residential property market. If I felt that property was going to rocket then my sums earlier would make more sense; however I think there is more recession to come as we somehow try to get out of Labour's economic mess.

In order to avoid the possible increases in IHT, CGT and a further deepening in the housing market, I will be disposing off several properties in the next several months.

These properties were bought in the early 90’s, and all will show a substantial capital gain, this action however will not stop me buying further properties, if those properties show early potential capital growth.

So Simpo Two, leave your options open, it could be a buyer’s market soon.