Author Topic: Investment Advice Please  (Read 2022 times)

therixonator

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Investment Advice Please
« on: September 16, 2015, 11:30:16 AM »
Hi Mustachians,

I'm new here and I was looking for some thoughts on what to do next to get me closer to financial independence.

I'm 35, I'm married, no kids. We live in London, England where there is public transport everywhere so we do without cars. We bring in about 5700 a month between us. We spend 2200 on mortgage, bills, transport, phones, food and keeping the house running and a further 850 paying into my personal pension and overpayments on the mortgage. Our bills are really nice and tight, I always have my eye closely on these and switch everything to the new best deal when intro rates run out. I have recently got rid of cable tv, our broadband costs us 2 a month! Our non-mustachian traits are having a cleaner (130 a month), taking the train/tube to work instead of biking (we live 6 miles and 8 miles from our jobs but its a very busy and hectic city to ride in, bikes are also trouble to store in small London houses). And we buy food at work rather than make it at home, about 5 each per day (5 days a week for me, 3 for my wife).

My company also pay in approx. 500 a month into my work pension. The mortgage has 165,000 left to go and the house is worth around 530,000, approx. double what we paid for it 6 years ago. Interest rate is fixed for 5 years at 2.18%, well it will be once the new mortgage kicks in around a week or 2. It's currently 2.59% but can go up with interest rate rises.

We have no other debt apart from the last months living expenses on CC which we pay back each month (cashback card) and my wife's 3000 student loan which at her current repayment rate (9% of gross salary over 15k), will never be paid back and will be cancelled in about 2030, so no point repaying it.

We have about 53k in cash and shares.

Up until one week ago we planned to spend all of this and borrow another 10k on 0% credit cards building a large extension on the back of our house. But after I let the Mustache into my life we've now decided to scale this back and spend around 25k doing a simple version instead. We have to do something as the back of the house is in a bad state of repair. The rest of the house is very nice, we've spent a lot of time doing it up. We do all our own repairs and renovations.

So we will have about 30k left once the extension is finished.

I want this to work as hard as possible for me to start building the stash I need to retire on. My original plan was to pay down the mortgage and then build the stash, but I think retirement will come quicker if I invest it. Up in some parts of northern England houses are still cheap but can be rented for reasonable sums. I've seen small rundown 2 bedroom houses go at auction for less than 25k. You can do them up for 5-10k and let them out for 300+ a month which is a great yield.

Should I do A, B, C or D?

A) Pay my savings into my mortgage and then overpay it as much as possible over the next 5 years until it is paid and then build my stash. I have early repayment penalties but I could save it in something else and then use it to pay off the mortgage after 5 years.
B) Buy a cheap house as above, do it up, rent it out and collect the income, save that income plus some of my spare monthly money to build up again and repeat and repeat until my rental income exceeds my expenses? Probably need about 9 of these houses in total which would take me about 9 years until FI.
C) Do the same as B) but buy 4 houses and pay down 25% deposit on each and take out 4 mortgages for the rest. Mortgage set ups cost around 1k each here. Putting 30k deposit on a 120k house doesn't get the same high yield in this region for some reason so that isn't really an option.
D) Put it into a tax efficient investment and buy some tracker funds etc?

By the way I would live approx. 200 miles from the rental houses. I wouldn't plan on visiting them often as I work 5 days a week but I have a brother-in-law up there who is starting out in property dev so he will most likely help with maintenance for me for reasonable fees.

Any help greatly appreciated! Many thanks,

James

Pinch of salt

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Re: Investment Advice Please
« Reply #1 on: September 18, 2015, 06:05:12 PM »
Hi, another Londoner here. I would not pay off/accelerate your current mortgage at the moment because it's on such a low interest rate. Invest the money for better returns.

 I would also perhaps start off with one house up north instead of many at a mid-size city with growth potential - many such cities are seeing house price increases because of the effect from London. Also what about looking at something closer to London instead which is in the commuter belt so to speak. This would of course cost a bit more than 25k, but as an investment may yield better return. Have a look at the Second Crossrail plans, the North East to South West part and some of the towns at the periphery may increase in price quite substantially when finished. That and checking other transport links was the method I used to decide where to buy - and cycling can still be done along the beautiful canals and the Thames! Hope this helps! Px

worms

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Re: Investment Advice Please
« Reply #2 on: September 19, 2015, 12:34:51 AM »
I'd be wary of building a property portfolio so far from your home and equally wary of mixing business with family.  200 miles "up north" for you is about 400 miles "down south" for me so my local knowledge is limited.  However, from this end of the telescope...

You live in what is probably the world's most in-demand property market and could make more on a single property investment there than in a dozen properties outwith London.  I'd seriously be looking for opportunities closer to home - including a cold-hard look at the costs and benefits of your extension. Perhaps sinking the whole 53k in that and moving on to another development opportunity might give you a higher return?

therixonator

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Re: Investment Advice Please
« Reply #3 on: September 21, 2015, 02:30:18 AM »
Hi Pinch of Salt and Worms,

Firstly many thanks for taking the time to respond.

I actually live at one end of the planned cross rail 2 route at the moment. Well, the bit that will have new tunnels built. The problem with London for the investor property market is you need a big stash to get started and I think you'd do well to get above a 5% yield. We live in what is still considered a poor area and yet 2/3 bed terrace houses here are going for 500k, renting for 2k per month. There are also hundreds well informed builders/investors competing with first time buyers and outbidding each other so the chances of getting a bargain is very slim.
The advantage of going for small towns in the north these cheap places with really high yields. I'm actually wondering whether I want the house prices to go up?! If I'm still buying over the next 9 years I think I want it to stay cheap with just enough rental demand to keep the places occupied.
We've pondered a lot over whether to spend the money developing our own house. The thing is we have already developed it a lot and I think if we dropped all the cash on this last extension we wouldn't see any of the difference in our pockets for a while, we would be in danger of over developing the place.
Eventually we will sell this place, move somewhere cheaper and take the profit to design and build our own place. But whilst I'm full time stash building, this is the ideal location.
So I think we can safely deduce paying the mortgage is out. It's really down to going to the extra bother of investing in property to get the higher yields, or sticking to the big dividend payers in the stock market. I have a book coming that is all about tax efficiency in property. I think that might swing it for me. If I have to pay full income tax on rentals that I wouldn't have to pay buying stocks in an ISA, then that would swing it for me.

Many thanks,
James