Financial Planning

[Mezger]

Current situation;
Thirties (right side of 35), married
Working abroad for past 2 years in a less aggressive tax regime so paying around 15% tax, have managed to save equivalent of £150k in cash savings since working abroad.
Assets, wife house £140k with £105k mortgage outstanding.
Have been promoted recently so gross income is now equivalent to £275k less 15% tax, cost of living reasonably high however I will be in a position to save minimum £100k per annum potentially up to £150k pa.

I have a SIPP worth £93k spread across some UK equities

Also have ISA and other share accounts again, UK equities (racier kind some biotech, some O+G, yes I know need to be patient on these ones given the oil price slump! :-) )

We are planning to reduce UK mortgage to £70k and at a rate of 2.5% we're paying roughly £250 repayment - House rents for £650.
Plan is to save £300 per month from rental profit (keep £100 per month for unexpected bills, bolder blow ups) into FTSE index tracker, not decided yet whether FTSE100 or 250.

I have a SIPP worth £93k spread across some UK equities

Also have ISA and other share accounts again, UK equities (racier kind some biotech, some O+G, yes I know need to be patient on these ones given the oil price slump! :-) )

We are planning to reduce UK mortgage to £70k and at a rate of 2.5% we're paying roughly £250 repayment - House rents for £650.
Plan is to save £300 per month from rental profit into FTSE index tracker, not decided yet whether FTSE100 or 250.

We were looking for a larger family home before we left the UK but have put that on hold, current thinking is do we buy another UK property to rent out, possibly somewhere in London as in the right areas there is stronger capital appreciation potential vs rest of country.

Do i spread some of the savings across global index trackers re-invest dividends, let it compound slowly over time + buy another rental property?
Or focus more on building a property portfolio for income and if over next 20 years capital appreciation happens so be it.

The only landlord experience we have is renting out the wife place, so we're not exactly BTL guru's!

My question is what would the smart folks of PH do on this situation to build passive income and plan well for the future (retirement income)?

[Mezger]

Ginge R said:

Merger,

Clearly, big stakes. Anything you'll get off here will be subjective - meet with some decent advisers and hold a beauty parade. Get an insight from professional specialists who will take into account your circumstances and not charge you anything for some initial thinking. Whether or not you retain one is then up to you of course, but at least you'll have the basis for a decent start.

Thanks Ginge, hard to sort the wheat from the chaff here but will ask some friends/colleagues for recommendations of good advisers they've used and go from there.

Subjective advice, I'm ok with people chipping in with their opinions, a good diverse crowd on PH and I'm interested to hear what others would do in this fortunate situation.

[Mezger]

Simpo Two said:

You mention unexpected bills - children perhaps? That would certainly affect things.

Yes absolutely, very much in our thinking at the moment...

[Mezger]

nyt said:

If you do buy somewhere in london I'd suggest a purpose-built recent block in a good area,
That way you avoid having to arrange external maintenance (difficult from a distance) and need only get to know a handyman and a plumber to correctly issues.

The downside is that yield is lower - approx 4%. But capital appreciation is making up for it at the moment. Downtime on nice places is negligible too.

PM me and I'll telly which developments I BTL in.


Slightly more risky, but working well for a number of friends is buying good apartments and letting them out via AirBnB. This doubles or trebles the yield. Agencies exist which handle the check-in/ cleaning etc if you're not nearby.: https://www.airbnb.co.uk/users/show/9031605

Thanks, will PM you. Yes we love Air BnB use it all the time when we visit different countries, I'm not sure we'd manage the hassle factor living abroad whilst having different guests every night/week - but agree it would be lucrative if you had a decent property in the right area.

[Mezger]

Thanks Gangzoom, it's a fortunate position to be in, I just want to ensure I make the most of it and set my family up well.

[Mezger]

What are peoples views on BTL's vs low cost index trackers? Hear lots of conjecture about BTL's being an obvious target for increased legislation and taxes + hassle factor but on the plus side property gives opportunity to leverage much more so than dumping it in an index tracker - spread betting far too racy for me.

Say you had £150k to invest which route would you go and why?

[Mezger]

wisbech said:

Are you in HK? 15% tax sounds like you may be. There's a tax treaty HK/ UK that means that a HK pension isn't taxed by the UK. Worth looking into

Not HK but not too far... thanks, useful to know if I ever end up there.

So would people start to build a BTL portfolio (seems gov't see's this more and more as a tax boosting area) or stick it in Index trackers and let it compound slowly over time?

[Mezger]

BoRED S2upid said:

Thing with BTL is what happens when it goes wrong? Even fully managed if a st tenant trashes the place it's worthwhile being around to check out the damage before authorising repairs etc... Sounds like your doing most things right do you want the extra hassle of more property for very little return.

Very true, super important to pick the best tenants you can to mitigate that risk as much as possible. "do you want the extra hassle of more property for very little return", the attraction of property is that it does offer a degree of leverage (depending on deposit size) which is not available with other options - I'm never going to attempt spread-betting. It's that leverage if its at a sensible level that is attractive.

[Mezger]

What are people planning to do to generate (reasonably) passive income (obvioulsy nothing is completely passive and you get out what you put in)?

Given interest rates will start to rise next year, presumably there will be a lot of money moved out of equities into fixed interest and UK Gov is intent on squeezing BTL Landlords?

[Mezger]

sideways sid said:

OP, you sound like you want exposure to UK property, but without the hassle of managing it.

Why not just buy shares in UK Property Companies, or REITs?

There are plenty that buy properties (retail, office, residential etc), rent them, manage them, and pay most of the rental income out as dividends. Job done.

Thanks Sid, not something I had considered, will take a look.

Happy to take on the "hassle" where there is a decent return for the right property.

Do people expect the interest rate rise (which will start at some point next year) to have a major impact on house prices ie a severe decline or just cool off the growth rate?

[Mezger]

Quick update, we've been saving hard and reading up on options. I met a few "advisers" here, who when you do some digging are complete shysters peddling "offshore" pensions which are horrifically expensive when you analyse the costs over 25-30 years and the exit penalties! Had a lucky escape with one as I was thinking about investing, then I got tipped off about a couple of good books to read - Millionaire Teacher by Andrew Hallam and Global Expats guide to Investing by same author.

I have read through both books and they are very sensible and practical (none of this get rich quick crap) - essentially advocating Index Trackers and bond trackers allocated based on your risk appetite/age/closeness to retirement. Pound-cost average over time and let compounding work its magic - when you look at the biggest draws on performance, taxes and fees it looks a very solid approach. There will always be some fund managers who beat the indexes some years but nobody who does it consistently and if Index Trackers are what Mr Buffet would recommend thats good enough for me. Also most of the costs are well below 1% some as low as 0.15% when you look at Vanguard etc.

So we reduced the UK mortgage down to £80k and will be setting up monthly contributions plus lump sum to get things moving in a UK FTSE ETF index tracker (need to decide whether just the 100 or All-Share), global share ETF index tracker and Bond index tracker (AAA and first world government bonds) 40/40/20

Some interesting changes with regards to BTL in the last 6 months, we would need to get a wriggle on and buy before April I believe to avoid the new tax measures and higher stamp duties.

[Mezger]

Dave3166 said:

Very nice car.

Would like a 996 Turbo.

Used to own a 993 carrera, one of the best cars i have ever owned.

funds permitting, would love a 993 Turbo 4.

Sorry for hijacking this thread chaps

No worries, you could almost class Air Cooled Pork as an investment class these days! ;-)

[Mezger]

Ginge R said:

Merger,

Can I make an observation? The anticipated spread of investments that you mention is quite wide and still appears uncertain. You're going to experience a huge variety of volatility there (not nessesarily the same as risk) so bear these three points in mind when you address investment risk.

Risk required is the risk associated with the return required to achieve your goals from the financial resources you have available.
Risk capacity is the level of financial risk you can afford to take, and..
Risk tolerance is the level of risk you are comfortable with.

Well done for reading up and for avoiding the sharks.

Absolutely, given your vocation you're more than qualified, my whole reason for posting was to get a good cross section of opinions, something which PH never fails to deliver! :-)

The trackers I was looking at are;
i-Share UK Gilts 0-5yrs - IGLS 20% allocation
Vanguard UK FTSE 100 index - VUKE 40% allocation
Vanguard All World - VWRD - 40% allocation

OR
the below which I believe are fundamental indexes (not cap weighted)
i-Share UK Gilts 0-5yrs - IGLS 20% allocation (same as above)
PowerShares FTSE RAFI UK - PSRU 40% allocation
PowerShares FTSE RAFI All-World 3000 UCITS - PSRW 40% allocation

Still doing some final due diligence.

[Mezger]

Dave3166 said:

Thanks, Have you ever thought of dabbling in the used car market, the money you are talking about would see you in the top end of motors.

Buy one, store it for a year, see how much it is worth then, even if its for a bit of fun.

I'm two years too late for that one, I was aspiring to a 997 GT3 when I left the UK 3 yrs back, but can't bring myself to pay the prices their at today!

[Mezger]

Ozzie Osmond said:

I've never perceived the words "car" and "investment" as sitting comfortably in the same sentence, but note,

• Nick Mason (Pink Floyd)
• Chris Evans (Radio & TV)
• Mark Knopfler (Dire Straits)
• Rowan Atkinson (Mr Bean)
• Adrian Newey (F1 Red Bull designer)
• ... of Brunei (the Sultan)

Worryingly, although all of the above own expensive classic cars none of them make their living from it....

Yes, seems there is definitely an asset bubble when it comes to cars and current values, it will burst, as to when who knows, in a low interest, QE environment it may take a while longer but the music will stop..

[Mezger]

What is the general consensus on strength of the good ol pound once Brexit really starts (ie formal talks) post the new Govermment being formed in Germany next Sept?
We are looking to buy a family home in UK later next year so trying to decide whether to convert some foreign currency now to £ or wait to see if # drops further?

[Mezger]

superlightr said:

buy the house this year......

still working abroad, so not entirely feasible but not impossible... Why do you suggest this year?

Given Brexit has not formally started I was anticipating a drop in £ and also the housing market to at least slow if not decline slightly...

[Mezger]

superlightr said:

Yes was part of the thinking but also if you are buying in a generally good area (certainly in my local bubble in the SE house) prices are very strong and I don't believe will decline or slow. Hence a property this year will be cheaper to buy then next year.

Thanks, that logic holds, good properties in good areas will retain value well. Therein lies the conundrum, we need to decide where to live, ranging from Leicestershire (great bang for our buck) to Hampshire or Surrey (less bang for buck).. Decisions, Decisions.

[Mezger]

superlightr said:

buy the house this year......

Hindsight being 20:20 vision, rather glad we didn't. Though truth be told, despite looking we hadn't got our final deposit together so it was not as a result of any master strategy on our part. Now we will buy in the next 6 months most likely.

Fortuitously, it appears asking prices are being reduced on 90% of the properties we were looking at, in both Leicestershire and Hampshire.

Does anyone give credence to the possibility that Theresa May (assuming they win, very possible) will allows houseprices to deflate, can always "blame Brexit" and gamble they can "fix" things in the next 5 years?

[Mezger]

Around the Langtons/5-10 mile radius of Market Harborough.