Financial advice
Discussion
Hi guys,
would really appreciate your views on my situation.
I'll cut the long story short and get down to it..
I have four properties with three mortgages on the go at the moment. I'd like to sell a house and clear two mortgages but my wife wants to rent out two. I live in property number 1 and my brother lives in number 2, rent free.. Don't ask as long story! He pays council tax etc.
Properties 3 & 4 are empty at the moment, 6-8 weeks and they will be ready to either sell or rent out.
The properties are in Glasgow and made of sand stone and always going up in value. I spoke to a financial adviser through my work who said sell 3 & 4 and he'd invest it for me. Not convinced by him as interest rates are poor with only property looking sensible?
My wife and earn around 45k per year.
If we rent what's the best way as the tax would be in higher rate. I've read various options but looking for honest opinions on my situation. On paper it looks like a good situaion to be in but to be honest I'm stressed out my jumper as paying three council taxes and three insurances and the works to get the houses up to great condition.
- Value of property - Mortgage owed - Rental income
1 - £400,000 - £150,000 - I live here
2 - £200,000 - £65,000 - Brother
3 - £250,000 - £140,000 - £900 p/m
4 - £250,000 - £0 - £900 p/m
Cheers,
Alan.
would really appreciate your views on my situation.
I'll cut the long story short and get down to it..
I have four properties with three mortgages on the go at the moment. I'd like to sell a house and clear two mortgages but my wife wants to rent out two. I live in property number 1 and my brother lives in number 2, rent free.. Don't ask as long story! He pays council tax etc.
Properties 3 & 4 are empty at the moment, 6-8 weeks and they will be ready to either sell or rent out.
The properties are in Glasgow and made of sand stone and always going up in value. I spoke to a financial adviser through my work who said sell 3 & 4 and he'd invest it for me. Not convinced by him as interest rates are poor with only property looking sensible?
My wife and earn around 45k per year.
If we rent what's the best way as the tax would be in higher rate. I've read various options but looking for honest opinions on my situation. On paper it looks like a good situaion to be in but to be honest I'm stressed out my jumper as paying three council taxes and three insurances and the works to get the houses up to great condition.
- Value of property - Mortgage owed - Rental income
1 - £400,000 - £150,000 - I live here
2 - £200,000 - £65,000 - Brother
3 - £250,000 - £140,000 - £900 p/m
4 - £250,000 - £0 - £900 p/m
Cheers,
Alan.
Not sure if your earnings are each or combined (meaning different tax rates would apply).
The Financial Advisor appears only to be seeking commission so drop him/her straight away as a decent advisor would almost certainly advise to retain a blend of investments that include rental property.
Given equities markets are (according to most measures) overheated and ripe for a correction, personally I'd stick with the property and get them rented. Interest rates are fantastically low and this leverages your investment.
I won't comment on the situation with your brother as I have one that is useless and I'd probably end up housing him for free if it came to that!
The Financial Advisor appears only to be seeking commission so drop him/her straight away as a decent advisor would almost certainly advise to retain a blend of investments that include rental property.
Given equities markets are (according to most measures) overheated and ripe for a correction, personally I'd stick with the property and get them rented. Interest rates are fantastically low and this leverages your investment.
I won't comment on the situation with your brother as I have one that is useless and I'd probably end up housing him for free if it came to that!
Halitosis said:
Not sure if your earnings are each or combined (meaning different tax rates would apply).
The Financial Advisor appears only to be seeking commission so drop him/her straight away as a decent advisor would almost certainly advise to retain a blend of investments that include rental property.
Given equities markets are (according to most measures) overheated and ripe for a correction, personally I'd stick with the property and get them rented. Interest rates are fantastically low and this leverages your investment.
I won't comment on the situation with your brother as I have one that is useless and I'd probably end up housing him for free if it came to that!
For most investment products financial advisers have not been paid commission for 8 years now, they advise on a fee basis.The Financial Advisor appears only to be seeking commission so drop him/her straight away as a decent advisor would almost certainly advise to retain a blend of investments that include rental property.
Given equities markets are (according to most measures) overheated and ripe for a correction, personally I'd stick with the property and get them rented. Interest rates are fantastically low and this leverages your investment.
I won't comment on the situation with your brother as I have one that is useless and I'd probably end up housing him for free if it came to that!
You also state that any decent adviser will recommend a blend of investments that include property, that is true. Yet you are happy for the OP to have only one asset class i.e. residential property.
One could also argue that residential property is overvalued.
If OP sells two of the properties then he could diversify his investments to include a number of asset classes including bonds, equities etc and differing geographical regions to lower risk, however before doing so it would be advisable to check any capital gains that may arise from the sales as this could impact the suitability of any advice. A good IFA would be able to advise you on that.
A good adviser would need to fully assess your circumstances and attitude to risk before giving any advice. OP would you be happy to pay a fee for that?
Edited by Enut on Wednesday 17th February 22:21
I'm sure it's not what you want to hear but it really is impossible to give proper, considered advice without knowing a lot of information about yourself, your family, your goals/aspirations, attitude/ability to bear risk etc.
Rental yields on property are attractive relative to yields you might find in bonds/equities however you have to weigh that against the stress that the mortgages/upkeep are causing you and the lack of flexibility of having your net worth tied up in residential property.
You sound slightly sceptical about the intentions of the financial adviser you spoke to, perhaps seeking a second opinion of a well qualified financial planner might help. A good one will help you organise your priorities and help you come to a decision, even if that is to remain as you are.
Rental yields on property are attractive relative to yields you might find in bonds/equities however you have to weigh that against the stress that the mortgages/upkeep are causing you and the lack of flexibility of having your net worth tied up in residential property.
You sound slightly sceptical about the intentions of the financial adviser you spoke to, perhaps seeking a second opinion of a well qualified financial planner might help. A good one will help you organise your priorities and help you come to a decision, even if that is to remain as you are.
Going slightly off topic, how would the OP work out the return on house 4 for instance? Simplistically he has an asset worth £250k which is earning him £10,800 a year or 4.32% gross. That's already a fairly average return before allowing for voids, repairs, safety checks & tax but of course there's hope of capital gain in the value of the house.
Given that return £250k would be better off in Vanguard LS let alone something more adventurous. Or have I got the calculation wrong?
Given that return £250k would be better off in Vanguard LS let alone something more adventurous. Or have I got the calculation wrong?
Mr Pointy said:
Going slightly off topic, how would the OP work out the return on house 4 for instance? Simplistically he has an asset worth £250k which is earning him £10,800 a year or 4.32% gross. That's already a fairly average return before allowing for voids, repairs, safety checks & tax but of course there's hope of capital gain in the value of the house.
Given that return £250k would be better off in Vanguard LS let alone something more adventurous. Or have I got the calculation wrong?
Capital gains year on year increase around 7%Given that return £250k would be better off in Vanguard LS let alone something more adventurous. Or have I got the calculation wrong?
I would be tempted to sell #4 and drip feed the proceeds into your S&S ISAs and pension over a number of years to maximise usage of tax allowances. Depending on the interest rate on the mortgage on #3 you might want to bring the LTV down a bit as well? You already have more than enough exposure to property values through the other 3 so you'll still do well if there's continued capital growth in the future.
That said, it's worth working out an "real world" net rental yield factoring in management costs, mortgage, tax, voids, hassle etc as maybe that £900 pcm is more like £600 when all said and done? If that's the case and the yield is negligible then you are better consolidating your property assets into one primary home that you live to get the same exposure to capital values and (hopefully) some quality of life benefit.
That said, it's worth working out an "real world" net rental yield factoring in management costs, mortgage, tax, voids, hassle etc as maybe that £900 pcm is more like £600 when all said and done? If that's the case and the yield is negligible then you are better consolidating your property assets into one primary home that you live to get the same exposure to capital values and (hopefully) some quality of life benefit.
Pistonheader101 said:
Mr Pointy said:
Going slightly off topic, how would the OP work out the return on house 4 for instance? Simplistically he has an asset worth £250k which is earning him £10,800 a year or 4.32% gross. That's already a fairly average return before allowing for voids, repairs, safety checks & tax but of course there's hope of capital gain in the value of the house.
Given that return £250k would be better off in Vanguard LS let alone something more adventurous. Or have I got the calculation wrong?
Capital gains year on year increase around 7%Given that return £250k would be better off in Vanguard LS let alone something more adventurous. Or have I got the calculation wrong?
JR154 said:
I'm sure it's not what you want to hear but it really is impossible to give proper, considered advice without knowing a lot of information about yourself, your family, your goals/aspirations, attitude/ability to bear risk etc.
Rental yields on property are attractive relative to yields you might find in bonds/equities however you have to weigh that against the stress that the mortgages/upkeep are causing you and the lack of flexibility of having your net worth tied up in residential property.
You sound slightly sceptical about the intentions of the financial adviser you spoke to, perhaps seeking a second opinion of a well qualified financial planner might help. A good one will help you organise your priorities and help you come to a decision, even if that is to remain as you are.
Sound advice.Rental yields on property are attractive relative to yields you might find in bonds/equities however you have to weigh that against the stress that the mortgages/upkeep are causing you and the lack of flexibility of having your net worth tied up in residential property.
You sound slightly sceptical about the intentions of the financial adviser you spoke to, perhaps seeking a second opinion of a well qualified financial planner might help. A good one will help you organise your priorities and help you come to a decision, even if that is to remain as you are.
The only issue is that people generally don't like to or want to pay for advice / service. If you paste the word "free" into any advert or promotion, everyone will be over you like a rash!! In the world of finance, free is not always free as the service will be compromised in one way or another (e.g. DonkeyApple's recent insight to the operational set-up of the free
There's also the old saying, "you get what you pay for" as I discovered from a simple trial last year where I issued the same mandate to both a fee paying Financial Planner and a "free" consultant. From this simple trail, I fully appreciated the value of a fee paying Financial Planner as it clearly identified the shortcomings of the free consultant. Am aware fee paying advice may not suit all, but imo, the small outlay is a worthwhile investment.
Alan-dnd4s said:
Hi guys,
would really appreciate your views on my situation.
I'll cut the long story short and get down to it..
I have four properties with three mortgages on the go at the moment. I'd like to sell a house and clear two mortgages but my wife wants to rent out two. I live in property number 1 and my brother lives in number 2, rent free.. Don't ask as long story! He pays council tax etc.
Properties 3 & 4 are empty at the moment, 6-8 weeks and they will be ready to either sell or rent out.
The properties are in Glasgow and made of sand stone and always going up in value. I spoke to a financial adviser through my work who said sell 3 & 4 and he'd invest it for me. Not convinced by him as interest rates are poor with only property looking sensible?
My wife and earn around 45k per year.
If we rent what's the best way as the tax would be in higher rate. I've read various options but looking for honest opinions on my situation. On paper it looks like a good situation to be in but to be honest I'm stressed out my jumper as paying three council taxes and three insurances and the works to get the houses up to great condition.
- Value of property - Mortgage owed - Rental income
1 - £400,000 - £150,000 - I live here
2 - £200,000 - £65,000 - Brother
3 - £250,000 - £140,000 - £900 p/m
4 - £250,000 - £0 - £900 p/m
Cheers,
Alan.
If you were me you'd take 3 and 4 , sell them, pay off the mortgage, and buy 6 or 7 small unburdened properties with the balance renting each out at £4-500 pcm. You'd then decide if you wanted to refinance and add more.would really appreciate your views on my situation.
I'll cut the long story short and get down to it..
I have four properties with three mortgages on the go at the moment. I'd like to sell a house and clear two mortgages but my wife wants to rent out two. I live in property number 1 and my brother lives in number 2, rent free.. Don't ask as long story! He pays council tax etc.
Properties 3 & 4 are empty at the moment, 6-8 weeks and they will be ready to either sell or rent out.
The properties are in Glasgow and made of sand stone and always going up in value. I spoke to a financial adviser through my work who said sell 3 & 4 and he'd invest it for me. Not convinced by him as interest rates are poor with only property looking sensible?
My wife and earn around 45k per year.
If we rent what's the best way as the tax would be in higher rate. I've read various options but looking for honest opinions on my situation. On paper it looks like a good situation to be in but to be honest I'm stressed out my jumper as paying three council taxes and three insurances and the works to get the houses up to great condition.
- Value of property - Mortgage owed - Rental income
1 - £400,000 - £150,000 - I live here
2 - £200,000 - £65,000 - Brother
3 - £250,000 - £140,000 - £900 p/m
4 - £250,000 - £0 - £900 p/m
Cheers,
Alan.
But you're not me. So I'd suggest you sell them, pay off the loan and buy 3 or maybe 4 with the balance. Not hard in Glasgow to get £700pcm for something costing £90/100k and you'd have 4 little capital gainers to refinance if you were enjoying it.
Bottom line: You're not getting anywhere close to the full income potential of £500k's worth of Glasgow property. That's what I'd primarily address.
Edited by Groat on Thursday 18th February 17:52
Groat said:
If you were me you'd take 3 and 4 , sell them, pay off the mortgage, and.....
Unusually, you, me and the financial adviser are all in the same place on the first steps. Although maybe not on the reinvestment strategy. 
I'd just diversify, making sure to maximise use of tax wrappers along the way.
Enut said:
OP states he's stressed paying 3 council taxes and 3 insurances. I'm not sure running a buy to let portfolio with all the associated risk and hassle is going to be up his street.
But as Groat has posted on another thread the key is to hand everything over to a good managing agent who has the job of handling all the day-to day issues & understands the law, the local council & the type of tenents who are going to be in the properties. Given a competent agent & an insurance policy the OP shouldn't have much contact other than banking the money, other than running the limited company he's set up to hold the properties of course. If I’ve got this right in fag-packet terms, you’re getting about 16k a year assuming your mortgage is about 6k a year on house 3.
So that’s 4% on your 400k-ish of equity. If it’s 3.2% after costs (I could be way off here), that’s 12800.
If you’re making 45k as a single income, then it’s going to be taxed close to 30%, or 20 if your income is joint and fairly equal. Let’s assume the latter is the case - that leaves you about 10250 a year.
That’s about 2.5% net. I’ve simplified and made assumptions on your tax position, but all told, that’s certainly not the best return on your equity. Adjust the numbers to reflect your exact position, but it isn’t likely to markedly change the outcome.
Investing in global equities over medium/long term will hammer those returns. Everything is subject to change, but as it stands, if you were to liquidate house 4 and use up both of your ISA allowances with stocks and shares (currently 20k each, per year) then that growth will be entirely tax free.
Then you can put up to 45k (your income) per year into your SIPP, so your regular income will be tax free, as will the growth within the SIPP. The remaining 165k will be subject to CGT (10%) but you get a 12300 allowance per year there, so you’ll only pay tax on returns over 7.5%.
So, just on the proceeds of house 4, assuming 6% return (historically, that’s quite low), that’s a 15k tax free yield, and a saving of 10k on your tax bill. So, in terms of assets in your ownership through gains and tax saving, that’s 25k.
Assuming 6% annualised, after 10 years that 250k will be worth 450k.
Perhaps you keep house 3 for some property exposure.
Of course, property capital gains may be your goal, but you’re not especially leveraged to take advantage of that, either.
Julian PH is well worth speaking to, see his Intelligent Money sticky. He’ll be able to explain things far better than me. He’s very helpful and I’ll bet you another property that he doesn’t give you the hard sell.
So that’s 4% on your 400k-ish of equity. If it’s 3.2% after costs (I could be way off here), that’s 12800.
If you’re making 45k as a single income, then it’s going to be taxed close to 30%, or 20 if your income is joint and fairly equal. Let’s assume the latter is the case - that leaves you about 10250 a year.
That’s about 2.5% net. I’ve simplified and made assumptions on your tax position, but all told, that’s certainly not the best return on your equity. Adjust the numbers to reflect your exact position, but it isn’t likely to markedly change the outcome.
Investing in global equities over medium/long term will hammer those returns. Everything is subject to change, but as it stands, if you were to liquidate house 4 and use up both of your ISA allowances with stocks and shares (currently 20k each, per year) then that growth will be entirely tax free.
Then you can put up to 45k (your income) per year into your SIPP, so your regular income will be tax free, as will the growth within the SIPP. The remaining 165k will be subject to CGT (10%) but you get a 12300 allowance per year there, so you’ll only pay tax on returns over 7.5%.
So, just on the proceeds of house 4, assuming 6% return (historically, that’s quite low), that’s a 15k tax free yield, and a saving of 10k on your tax bill. So, in terms of assets in your ownership through gains and tax saving, that’s 25k.
Assuming 6% annualised, after 10 years that 250k will be worth 450k.
Perhaps you keep house 3 for some property exposure.
Of course, property capital gains may be your goal, but you’re not especially leveraged to take advantage of that, either.
Julian PH is well worth speaking to, see his Intelligent Money sticky. He’ll be able to explain things far better than me. He’s very helpful and I’ll bet you another property that he doesn’t give you the hard sell.
Thanks for the reply guys, really appreciate you taking the time to offer your opinions on my issue.
I'll get a proper look over the next few days. Some really interesting points in there!
Just as update, we earn around 45k each.
I know this is a total waste of money having properties lying empty too but on a really go slow with current situation.
Don't know where the time goes..
Also forgot to add that property number 4 used to be the mother in laws and my wife wants to keep this and give it to our daughter in the future. Maybe get her to take something like a 100k mortgage on it so she understands the meaning of money and bills etc. That'll be in about five years I think.
I'll get back in touch with more questions shortly.
Thanks,
Alan.
I'll get a proper look over the next few days. Some really interesting points in there!
Just as update, we earn around 45k each.
I know this is a total waste of money having properties lying empty too but on a really go slow with current situation.
Don't know where the time goes..
Also forgot to add that property number 4 used to be the mother in laws and my wife wants to keep this and give it to our daughter in the future. Maybe get her to take something like a 100k mortgage on it so she understands the meaning of money and bills etc. That'll be in about five years I think.
I'll get back in touch with more questions shortly.
Thanks,
Alan.
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