Buy to let vs SIPP VS ISA

[ukessex09]

I have savings of around £30k

I have my own house bought on mortgage 2 years back.

I am currently have no pensions or investments as i work as contractor on Multiple projects.


Please could you advise what should be my options to generate monthly income/pension in future.

Buy to let -which areas to look for best yield freed hold vs leasehold
Limited company pension (SIPP)
ISA Shares or funds.

[Testaburger]

ukessex09 said:

I have savings of around £30k

I have my own house bought on mortgage 2 years back.

I am currently have no pensions or investments as i work as contractor on Multiple projects.


Please could you advise what should be my options to generate monthly income/pension in future.

Buy to let -which areas to look for best yield freed hold vs leasehold
Limited company pension (SIPP)
ISA Shares or funds.

Lots of knowledgeable folk here, my friend.

My (very layman’s) opinion is that while you’ll want accessible/liquid assets in an ISA, it’s hard to argue against using higher rate tax relief on SIPP contributions. Effectively that’s going to provide you with a 20/40% gain on your investments, depending on your tax circumstances.

Standby for some excellent info from some of the finance stalwarts.

[putonghua73]

I'd really separate any BTL aspirations from an investment vehicle held in either an ISA or a SIPP.

With a BTL you'll require a mortgage which will incur costs:
- mortgage repayment [re-occuring]
- mortgage set-up [one-off]
- repair fees (trade)

You'll need to factor in time to research the local area in which you'll intend to buy, whether you will act as a landlord or hand your property over to a
- legal fees [one-off]
- stamp duty (if applicable) [one-off]
- broker fee (if applicable) [one-off]

You'll then have all the other fees:
- redecoration / refurbishment
- agency fees (if applicable)management agency, etc. You will need to calculcate potential return after subtracting all of the above costs, as well as building in a reserve if you cannot find tenants, or need to cover a tenant repair, bad debts, etc.

I would start with reading through the BTL thread and doing a quick calculation to determine if it is worth your while, and whether you have sufficient time. The easy money with BTLs has long since sailed.

Edited by putonghua73 on Monday 17th June 14:09

[JulianPH]

BTL

Cons - As detailed above but I will also add rental voids and the impact of income tax and capital gains tax. Liquidity has also been mentioned but again factor in that if you want a partial cash withdrawal you cannot sell part of a residential property, it is all or nothing.

Pros - Leverage from the mortgage.

Limited Company SIPP/Pension contributions

Cons - You can't access your money until 10 years before your state retirement age (though this could also be seen as a pro).

Pros - About the best tax treatment you can get. All company contributions are made with no deduction of income tax or NI and can be offset against your annual corporation tax bill. All growth and income within your SIPP/Pension is free of income tax and CGT. You can take 25% out free of any income tax with the balance taxed like any other income at your marginal rate(s).

ISA

Cons - Apart from not being as tax efficient as a SIPP/Pension (though they are very tax efficient) it is hard to think of any.

Pros - Tax free income and growth within your ISA and tax free income and lump sum withdrawals at any time.


With both SIPPs/Pensions/ISAs there is a very large range of investment choices if you are looking to make your own investments decisions and a range of fully managed options if you would rather them professionally run for you.

Also with SIPPs/Pensions you have the ability to do a BTL commercial property investment within your SIPP (with all of the tax relief going towards the purchase price and all rent payments being paid into your SIPP for you).

I hope that helps and have tried to just give a simple overview. If you would like to know more on anything just shout!

[selmahoose]

BTL by a far country mile!

BUT: Remember it's a business. So for it to be successful either you need:

a) general business skill

and

b) specific landlording skill

OR

c) very good management available.

[ukessex09]

Buy to let which areas in uk produce the best yield

Should we consider freehold houses or leasehold apartments or hmos


South east or both of England

Any pointers?

[selmahoose]

that'll be a c) then

[FWIW]

I would be doing my own research rather than listening to Selma/Groak (entertaining as he is). I’m not saying he’s wrong but he has a very blinkered/single-minded view on BTL; BMV in particular...

[Pit Pony]

ukessex09 said:

Buy to let which areas in uk produce the best yield

Should we consider freehold houses or leasehold apartments or hmos


South east or both of England

Any pointers?

Close to home. Freehold.
Hmo has higher potential yield, but is more work.
We rent out a 1950s ex council.house on the edge of a nice suburb.in North Liverpool.
We don't use a letting agent.
Demand is high. Families desperate for a nice area and good schools.
The first stayed 2 years, until they got a new housing association house but in a less nice area. The second on has been in 18 months.
As an investment. It was a total.of 40k with deposit, stamp duty and fees. It's value has risen by 20k but the plan is not to sell. But let the tenants pay the mortgage. We think.it will be paid off in 12 years from.now.

We have pensions. I have SIPP. Wife has something I pay money into.

[NickCQ]

ukessex09 said:

Any pointers?

If you want to play selma's game, you are looking for the cheapest possible hovel that can legally be rented out on a DSS rate.
This will lead you to look in the more exciting parts of Glasgow.

For what it's worth my opinion is that you are already really exposed to the property market through your main house so you would be better off putting your £30k savings (less cash emergency fund) into something that's less correlated with UK property (e.g. global fixed income or equities).

Be careful on the pension - you never know what lifestyle changes might mean you want the cash out again (have kids / want to upsize).

[BoRED S2upid]

You don’t say how old you are so it’s hard to judge what should be your priority. I’d argue it should be pension then isa (s&s) you can start each with a lump sum then trickle money into both every month over decades you won’t even notice the money going out then further down the line a BTL. I certainly wouldn’t be splashing your life savings on a BTL without addressing other investments first.

[selmahoose]

NickCQ said:

If you want to play selma's game, you are looking for the cheapest possible hovel that can legally be rented out on a DSS rate.
This will lead you to look in the more exciting parts of Glasgow.

https://www.youtube.com/watch?v=CUGVOulYh0E

[ukessex09]

I second that for BMW the best car by far miles apart only comes near is the Honda lawnmower!!

Looking the way Woodford funds have gone through it makes me wary of all these funds.
I do understand the vanguards have been doing well for long time.

The ability to make plunge in stocks looks very exciting and the easy way to buy and sell holdings under ISA.
But friends around me have been seen not much making money they buy at wrong time when the stocks are high and are waiting to come back up classic examples being APPLE,Amazon etc.

All get eaten at the end of year by higher fees and transactions costs they say (No wonder they get promoted)

I would welcome some analysis on this one based on all your Investments which have produced the best returns?

[Heres Johnny]

My vote is 20k into a stocks and shares ISA, pick an investment trust you like the look of, trustnet or somewhere like that and head down the route of reasonable returns over 1 3 and 5 years and not just plump for the one which made 90% this year, split into maybe 4 holdings of 5k. You can also get the cash out if you need to.

The remaining 10k I'd keep as cash or maybe 5k to kickstart your pension and then regular savings

If you're a contractor, you need cash to cover at least 3 months emergency living, work may be great at the moment but your health or the market might not be in the future

Property investment is all well and good, but its very hard to free up the cash if you need to. I only went into BTL when I wanted to diversify.

[selmahoose]

Heres Johnny said:

Property investment is all well and good, but its very hard to free up the cash if you need to.

The BMV market's priority purpose is to shift property quickly. And in this it succeeds. And of course the property bought BMV may be shifted very quickly when it is sold BMV. So I can't see why people think that btl property is necessarily difficult or slow to liquidate.

Nor is it at all difficult to refinance to draw funds out of a property including property bought with loans at anything than the highest LTV.

Am I wrong?

[Heres Johnny]

selmahoose said:

The BMV market's priority purpose is to shift property quickly. And in this it succeeds. And of course the property bought BMV may be shifted very quickly when it is sold BMV. So I can't see why people think that btl property is necessarily difficult or slow to liquidate.

Nor is it at all difficult to refinance to draw funds out of a property including property bought with loans at anything than the highest LTV.

Am I wrong?

You really need to know what you’re doing to go BMV - all very well thinking you’re buying below market, maybe you are, but you’re working on the premise that a house is worth say 100k. The seller can’t shift it quickly for 95k but they’ll sell it to you for 90k and you’ll be able to sell it on easily as an empty property for say 95k or 100k, the price they could t sell at... and for the OP it’s not a trivial game to get into

[selmahoose]

Heres Johnny said:

You really need to know what you’re doing to go BMV - all very well thinking you’re buying below market, maybe you are, but you’re working on the premise that a house is worth say 100k. The seller can’t shift it quickly for 95k but they’ll sell it to you for 90k and you’ll be able to sell it on easily as an empty property for say 95k or 100k, the price they could t sell at... and for the OP it’s not a trivial game to get into

Knowing what you're doing is certainly one way, but using good management is another. In my neck o' woods a sourcer will charge me a grand for the phone number where the BMV lives. He will later take a grand from the BMV seller for giving me the number.

Your example gets a £100k valued property for £90k. But BMV or fsv property is more like 20-30% discounted from normal value. And returning it to the market at the same discounted price it was bought at is a totally viable exercise. In fact the only thing that can really go wrong is quickly returning a purchase to a continually falling value scenario - 'catching a falling knife' etc.

But anyway, the purpose of btl is hinted at in the name. It's bought to let, not sell. And in the OP's case he's mentioned "monthly income/pension" which feels as though this is a long term investment rather than buy to flip/sell.

[red_slr]

ukessex09 said:

I have savings of around £30k

I have my own house bought on mortgage 2 years back.

I am currently have no pensions or investments as i work as contractor on Multiple projects.


Please could you advise what should be my options to generate monthly income/pension in future.

Buy to let -which areas to look for best yield freed hold vs leasehold
Limited company pension (SIPP)
ISA Shares or funds.

My advice:
Put 6 months expenses into a separate account.
Put spare into S&S ISA

THEN carry out a bit of research into how best to manage your LTD. Bear in mind putting money from LTD into SIPP is great for tax but not good for your SA302 if you require a mortgage or finance down the road. So think long term, 3 years really.

[Sammyp123]

You could put money into a Sipp and buy commercial property within it to rent out.
You can also borrow money in the sipp to assist with the purchase. That is very simplistic terms, but you can find greater detail online.

[Pit Pony]

Sammyp123 said:

You could put money into a Sipp and buy commercial property within it to rent out.
You can also borrow money in the sipp to assist with the purchase. That is very simplistic terms, but you can find greater detail online.

A mate did this.
He isn t keen on their costs, but admits that it's been very successful.

Basically he got a small complex, 2 down stairs shops on a back street, and office above and a woekshop behind.
It was in need of tlc. But his pension paid £85k for it.
His LTD company rented the whole thing off the pension, and paid towards returning the office mainly. For £700 a month. Most of that goes back into his SIPP minus admin from AJBell
He wanted the workshop for his LTD company.
The LTD company now sub lets all 4 units to assorted traders, for a total of £2.1k a month.
He pays half of the profit back into his SIPP and pays Corporation Tax on £700 of it.

He struck lucky.