What to do with a large(ish) sum of money?
Discussion
For reasons I’m going to keep private, my stepdaughter is about to come into a sum of money, circa £200k. Plus some compensation of an unknown amount.
She’s 24, and in all reality is unlikely to ever earn much more than minimum wage. She’s a sensible girl, not into clothes, going out etc.
She lives with us at present, and I’m more than happy about that, but I (we) are worried about what to do. To give an illustration, she is incredibly naive, and it wouldn’t surprise me if, for example, she had her own house, to be amazed that she has to pay for power etc.
So far, and we do discuss this with her, the options seem to be..,
1) She buys a couple of houses here (easily done, couple of terraced houses), rents them out, uses rental income to boost her own income and use the house value as a backup.
2) She buys her own house at £200k, and moves out. However it would mean she would be running a 200k house in minimum wage, and in all honesty it would be more hassle (management) for us than option 1. And anyway, she’s happy here, and we like her being here.
3) Use it for some form of long term low to (potentially) medium risk investment - she has no pension and I’m scared once we’re gone she’ll be in serious trouble, both through naivety and low income (she will get half of our assets when we go however)
We will obviously get proper financial advice (not intended as an insult!) but I’d rather go into this informed as to any other potential options (no yachts or Ferraris please).
I’m not trying to dictate what she does with the money by the way, I’m just trying to avoid a car crash through naivety (ours and hers).
Incidentally, at least before she decides what to do with the money, and especially given what seems to be an extremely precarious financial situation at the moment, I take it we would be wise to split the money over various accounts with no more than £85k (?) in each?
She’s 24, and in all reality is unlikely to ever earn much more than minimum wage. She’s a sensible girl, not into clothes, going out etc.
She lives with us at present, and I’m more than happy about that, but I (we) are worried about what to do. To give an illustration, she is incredibly naive, and it wouldn’t surprise me if, for example, she had her own house, to be amazed that she has to pay for power etc.
So far, and we do discuss this with her, the options seem to be..,
1) She buys a couple of houses here (easily done, couple of terraced houses), rents them out, uses rental income to boost her own income and use the house value as a backup.
2) She buys her own house at £200k, and moves out. However it would mean she would be running a 200k house in minimum wage, and in all honesty it would be more hassle (management) for us than option 1. And anyway, she’s happy here, and we like her being here.
3) Use it for some form of long term low to (potentially) medium risk investment - she has no pension and I’m scared once we’re gone she’ll be in serious trouble, both through naivety and low income (she will get half of our assets when we go however)
We will obviously get proper financial advice (not intended as an insult!) but I’d rather go into this informed as to any other potential options (no yachts or Ferraris please).
I’m not trying to dictate what she does with the money by the way, I’m just trying to avoid a car crash through naivety (ours and hers).
Incidentally, at least before she decides what to do with the money, and especially given what seems to be an extremely precarious financial situation at the moment, I take it we would be wise to split the money over various accounts with no more than £85k (?) in each?
ChevronB19 said:
Taita said:
5-10k on some worldly education?
Depends what you mean I guess. She has ‘challenges’ (not going deeper into that). But a good sum on some travelling etc wouldn’t be a bad idea. For clarity, we’re not trying to ‘baby’ her, these situations are all individual.Im a big fan of BTL but I wouldn’t touch it until I had my own place and certainly not in the current economy.
Based on your description, I would encourage her to buy a place outright for cash. No rent or mortgage forever is an amazing start which would benefit her every day of her life.
As other posters say, you could rent it out for a while if she isn’t ready to move out.
Maybe keep some cash back for savings or further education if there is enough in the kitty.
Based on your description, I would encourage her to buy a place outright for cash. No rent or mortgage forever is an amazing start which would benefit her every day of her life.
As other posters say, you could rent it out for a while if she isn’t ready to move out.
Maybe keep some cash back for savings or further education if there is enough in the kitty.
If you go down the house rental route, watch out for using up her first time buyers SDLT allowances prematurely (in case she wants to buy a house to live in).
There is some cost associated with it, but you could consider putting a couple in a Ltd structure where she is shareholder but not necessarily a/the only director.
There is some risk to capital in the current climate. Personally I’d wait a few months as the market is likely to fall a bit due to rising interest rates.
It’s also not guaranteed income/without cost. Workload can be reduced if you use a managing agent (obviously this costs) or by aiming for longer term lets. Expect it to become less attractive when labour next get in.
Tbh, if she’s quite naïve then doing something in a way that is quite “hands off” but makes it hard for anyone to relieve her of the assets might make a lot of sense.
There is some cost associated with it, but you could consider putting a couple in a Ltd structure where she is shareholder but not necessarily a/the only director.
There is some risk to capital in the current climate. Personally I’d wait a few months as the market is likely to fall a bit due to rising interest rates.
It’s also not guaranteed income/without cost. Workload can be reduced if you use a managing agent (obviously this costs) or by aiming for longer term lets. Expect it to become less attractive when labour next get in.
Tbh, if she’s quite naïve then doing something in a way that is quite “hands off” but makes it hard for anyone to relieve her of the assets might make a lot of sense.
dmahu said:
Im a big fan of BTL but I wouldn’t touch it until I had my own place and certainly not in the current economy.
Based on your description, I would encourage her to buy a place outright for cash. No rent or mortgage forever is an amazing start which would benefit her every day of her life.
As other posters say, you could rent it out for a while if she isn’t ready to move out.
Maybe keep some cash back for savings or further education if there is enough in the kitty.
Have to admit I am definitely leaning towards that, but she’s an adult and it’s her money, so I can only advise. Further education has been tried, but didn’t work, however that’s not to say she might not change her mind in future. I agree a life right from the start with no mortgage would be a massive relief to pretty much anyone.Based on your description, I would encourage her to buy a place outright for cash. No rent or mortgage forever is an amazing start which would benefit her every day of her life.
As other posters say, you could rent it out for a while if she isn’t ready to move out.
Maybe keep some cash back for savings or further education if there is enough in the kitty.
BTL’s are a business and need working at.
Management companies will takes 10% plus vat for their trouble.
We have a small domestic property portfolio and have done for many years. It’s fairly easy until it’s not. Things have to be kept up to date, gas certificate, insurance, electric certifications every 5 years, repairs and such like. You can’t let these checks slip, they need to be completed before they are due.
Our returns have never been more than 6%, if cash rates get to that then from a simple return point of view it’s a no brainier. 12k before tax, 1k per month and she’ll still have the 200k.
Maximise ISA, 20k this year, 20k next shelters a chunk from tax.
I’d avoid the stock market at present, how would she or you feel if 200k turned in to 180 or 170.
It’s a good amount of money and will set her up well.
Good luck.
Management companies will takes 10% plus vat for their trouble.
We have a small domestic property portfolio and have done for many years. It’s fairly easy until it’s not. Things have to be kept up to date, gas certificate, insurance, electric certifications every 5 years, repairs and such like. You can’t let these checks slip, they need to be completed before they are due.
Our returns have never been more than 6%, if cash rates get to that then from a simple return point of view it’s a no brainier. 12k before tax, 1k per month and she’ll still have the 200k.
Maximise ISA, 20k this year, 20k next shelters a chunk from tax.
I’d avoid the stock market at present, how would she or you feel if 200k turned in to 180 or 170.
It’s a good amount of money and will set her up well.
Good luck.
I’d recommend she allocate a small proportion (10%?) of it to having a good time.
It’s only when you look back at your 20s you realise how free you were. Best time of your life to have fun, whether that’s travelling, owning a sports car, having a weekend at a swanky Spa with your friends, throwing a massive party, buying designer clothes. whatever. Trouble is, most of us don’t have the cash in our 20s to do what we really want. So spend at least some of it on making some lifelong memories.
The rest I’d get a good IFA to help her invest in a good range of funds. That way, when she does grow up a bit and wants a house, she’ll have the cash plus a bit more.
It’s only when you look back at your 20s you realise how free you were. Best time of your life to have fun, whether that’s travelling, owning a sports car, having a weekend at a swanky Spa with your friends, throwing a massive party, buying designer clothes. whatever. Trouble is, most of us don’t have the cash in our 20s to do what we really want. So spend at least some of it on making some lifelong memories.
The rest I’d get a good IFA to help her invest in a good range of funds. That way, when she does grow up a bit and wants a house, she’ll have the cash plus a bit more.
jm8403 said:
Can she use it to get an education / skill to earn more than minimum wage?
Appreciate the suggestion, but in essence, been there, done that, and it didn’t work.It sounds awful I know. She’s a lovely girl, but incredibly naive (my 11 year old is more worldly wise). I’m not by any means saying that a change wouldn’t happen, but it looks unlikely, and we need to put in place long term planning.
There is nothing, nothing more than we would like than for her to be a bit more aware of what the real world is like. But at least in the interim, while we hope and encourage change, we have to think about the longer term.
IMHO and this is only my opinion I wouldn’t touch a BTL at the moment, a btl is a double edged sword, one you get an income and two the growth in value (area dependant)but I think the second part has peaked and on the first part I think you can now get nearly as much in savings without the hassle and there can be a lot of hassle and cost! So immediately I would park lumps of £85k in instant access savings ie YBS are doing instant access of 2.5% and these rates expected to rise over coming months, so when you decide on the long term solution you are ready to go.
BTL works fine until something goes pear-shaped and then it can be seriously hard work - are you/daughter going to be able to deal with repossession/dealing with anti-social tenants/aggro about rent increases etc
Given that it will be a long-term commitment I would not advocate it - if property is appealing and there is local demand - maybe an Airbnb place ?
Personally, given the long investment time frame I would definitely be looking at the stock market and filling up her ISA and putting something into a pension as she can put up to whatever she has earnt for the last 3 years in one go - so a sizeable lump sum
There is some really good stuff on Bogleheads - managing a windfall which is worth a read
Given that it will be a long-term commitment I would not advocate it - if property is appealing and there is local demand - maybe an Airbnb place ?
Personally, given the long investment time frame I would definitely be looking at the stock market and filling up her ISA and putting something into a pension as she can put up to whatever she has earnt for the last 3 years in one go - so a sizeable lump sum
There is some really good stuff on Bogleheads - managing a windfall which is worth a read
Gassing Station | Finance | Top of Page | What's New | My Stuff