Author Topic: Newbie from England... where to start...  (Read 1938 times)

Thewolf

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Newbie from England... where to start...
« on: November 12, 2016, 03:46:25 PM »
Hi everyone I'm new here. I decided to stop living paycheck to paycheck in the middle of September (about 2 months ago) however it seems like I have a much lower income than most on here (although I only found MMM 2 weeks ago) and I'm looking for some advice on where to start.

I'm from England, my monthly wages are just over 1100 and since I decided to stop living paycheck to paycheck (2 paydays ago) I have saved just over 1000. I live in a house share which costs just under 350 a month and this includes electric, water, gas, council tax  (I think you call this property tax in the USA) and I don't own a TV (so no extra bills here). I get the bus to work which costs just over 50 per month but this bus ticket allows me to use the bus all day, every day as much as I want. I do martial arts twice a week which costs about 50 per month. I walk the 2 miles to the supermarket (and 2 miles back) to do my weekly shop. And my phone bill is 10 a month. So I have worked out my monthly budget to be 600 allowing me to save 500 per month as this is what I have been doing for the last two paydays.

I want to have 3-6 months living expenses ready and available if I ever need it (1800-3600). I am planning on using the money I save to buy cheap properties which I will then renovate and rent out. I have chosen this route for 2 reasons the first being I have always wanted to do something like this but never known how I was going to afford a property let alone more than one and the second reason is I know very little about investing but as far as I can work out the best strategy for investment as an income revenue is to not withdraw from your investments but allow them to build over time.

So my first question is, is there anyway I can make my money work for me while I am saving it to buy my first property with intrest rates so low there's not much in the way of ROI?

My second question is does anyone have any advice on whether I should go down the mortgage route or save up and buy out right ( I'd be looking at spending about 50k for the first property).

And my third question is does anyone have any other advice on growing that fantastically bushy money mustache we are all striving for on here?

Many thanks - Thewolf

shanghaiMMM

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Re: Newbie from England... where to start...
« Reply #1 on: November 12, 2016, 05:14:55 PM »
Hi, welcome!

Thought I would say hello to try and encourage a fellow Brit! Your decision to stop living paycheck to paycheck is probably one of the best you've ever made!

Firstly, looks like you're doing a great job on expenses, really not much fat to trim there!

I'm not the best to answer some of your questions as I don't like in the UK currently but I'll have a stab:

1) Try looking on MoneySavingExpert or something like that. The site will have a list of the best bank accounts. The interest rate will be low yes, but you don't want to be investing in stocks if you will need the money soon. The market could tank because of Brexit/Trump/The end of the world and your deposit might not recover for a long time.

2) Saving 50k at your rate of saving would take quite a while - with interest rates so low, mortgages seem the best route for you. Caveat - I've never bought a house so take this with a pinch of salt!

3) With your expenses so low, your limiter is obviously your wages. If you could start a side hustle/get a promotion and keep your expenses the same (i.e. avoid lifestyle creep) then that is the best way for your stache to increase more rapidly. Not easy I know, and I feel your pain on this front. It seems many on this board earn 6 figure salaries and those kind of salaries are much rarer in the UK!




Playing with Fire UK

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Re: Newbie from England... where to start...
« Reply #2 on: November 12, 2016, 11:54:44 PM »
Hi Thewolf and welcome!

Great work on stopping living paycheck to paycheck. This is a really impressive turnaround.

Try not to worry about comparing your earning to others on this board. Particularly in the US, one of the reasons salaries are higher is the need to fund healthcare costs, whereas we have the NHS. There are plenty of people here who are on their way to FI (or there already) who have never earned huge salaries. I agree with shanghaiMMM that you might want to look into a side hustle at some point before you become a landlord.

I'd seriously consider using investments in stocks rather than buy-to-lets. For the vast majority of people learning about index investing and setting up an investment account is far less work than being a landlord or developing properties. The Monevator website is a useful UK-focussed resource.

If you still want to go into property, a mortgage will have the benefit that you can buy far sooner, and won't have to worry about inflation and house price rises eating up your savings faster than you can add to them. If, as you mentioned, you are interested in renovating property, can you look into developing your skills before you try it out on your own house? Maybe ask your landlord if s/he would like you to take care of basic repairs in your houseshare (for a reduced rent or for a lower charge than a professional)?

In the short term, keep working on building your 3-6 months living expense fund; I'd look into setting up a second bank account that has access to a regular savings account (First Direct, HSBC, M&S). You can get around 5% interest, but will need to reopen them every year. Depending on how much work you want to put in, I'd set up an online Tesco current account (3%), two Tesco savings accounts (and set up direct debits out of your new current accounts), set up a Halifax account and pay money in and straight out to get 3 per month and then pay it into a Nationwide Flexdirect account (5% interest).

Have you thought about getting a bike? If you get a big backpack it could make your weekly shop easier. Maybe in the summer you could cycle to work and save on the bus fare.

After you have your 3-6 months fund, if you decide that buying a house to rent is right for you, you'll need to think about your mortgage application. It will help if you have a credit card that you pay off every month, making sure that you are on the electoral role and maybe see if you can get your name on one of the household bills (assuming that it is always paid on time). The higher the multiple of your salary you want to borrow (ie 12k * 4 = 48k so a 53k house with a 5k deposit would be a multiple of 4), the more they will want to see an impeccable credit record. With buy-to-lets then they will be interested in the ratio of rent to mortgage; but they will still be interested in your salary as a first time landlord.

Have you considered buying a house to renovate, live in and then rent out the additional rooms? You might find that this would be more cost effective, but it would depend greatly on the house prices and rents in your area.

Keep doing what you are doing and good luck!

cerat0n1a

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Re: Newbie from England... where to start...
« Reply #3 on: November 13, 2016, 02:30:03 AM »
Have you considered buying a house to renovate, live in and then rent out the additional rooms? You might find that this would be more cost effective, but it would depend greatly on the house prices and rents in your area.

I think this has a couple of other advantages in addition to the obvious one of not paying rent; the rent-a-room tax break allows you to earn something like 7.5k per year in rent without paying tax. It is usually easier to get a mortgage to be an owner-occupier than as a landlord. You also avoid capital gains tax when you sell the place. On the downside, you can't offset property maintenance costs against your profits for tax in the way that a landlord renting out an entire property can.

Personal opinion, I don't think it makes sense to get into property rental today - the sums don't add up for me. Appreciate it's different in different markets round the country, but I don't think the ROI from rent is very attractive. You're basically doing it to speculate on future house prices. Great thing to have done in the late 90s, or in 2008, not so sure about now. I could certainly be wrong though. If you live in area where a house can be bought for 50k, things could be very different, particularly if you can add value through renovation. If you do go down this route, start investigating mortgages in advance. You might find that you get a better deal with a 20% deposit (10k) than 10% (5k) for example.

TheWolf - awesome to be saving nearly half of your income. Your salary is around half of the national average. Is there anything you can do to increase your income from work?

dreams_and_discoveries

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Re: Newbie from England... where to start...
« Reply #4 on: November 13, 2016, 02:56:07 AM »
Hi from London.

That's an amazing turnaround in 2 months well done.

I agree interest rates are really poor at the moment, Santander 123 has 1.5%, and I think some of the other high paying current accounts are still around.

As you don't own a home at the moment, and have a relatively low salary, I think you'd struggle to get a buy to let mortgage, and covering the mortgage and your rent together doesn't seem feasible. I'd second the suggestion of buying a house and renting rooms, it's much more tax efficient, you could live in it when doing the work and could get housemates of your choice to cover the mortgage.

If you can save 500 a month, in 1 year you'd have enough for  a 5% deposit on a 50k house. There are still some 95% mortgages around, or you could wait a year and go for 90/10.  If you buy a fixer upper, and are prepared to live in a bit of a building site, you can slowly do the house up over six months. Then in as little time as 1.5 years get some roommates in for 350/month each, and take the smallest bedroom for yourself. You'd then have say a 400 mortgage, 300 bills to pay each month, and 700 rent coming in mostly tax free.

Then you could up your savings considerably, either in the stock market or doing a buy to let.  Buy to let has got much less profitable lately, but as you don't pay higher rate tax yet, it may still work for you.

gldms

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Re: Newbie from England... where to start...
« Reply #5 on: November 15, 2016, 03:38:55 AM »
Dear Wolf,

If you can keep up this new lifestyle, you will do very well!  The ability to live frugally can make you rich very quickly. 

I agree with others: the buy-to-let thing is over, and I doubt that you will make the kind of money that the previous generation did.  Some people made a lot of money because they made significant capital gains on leveraged investments (borrowed money).  That won't happen to you; house prices are now at an unsustainable high. At best, future growth will simply keep up with inflation; at worst, you'll lose everything.  The actual income returns on house letting are pretty modest.  My landlord rents out this 600K house (2 flats) for 2000 a month.  That's a 4% return on his capital.  You can do much better than that just by buying an index ETF.  The ETF won't call you up at 3 am because of a burst water pipe.   Many people go into buy-to-let because they understand it (or at least they think they do) and shy away from stock/gilts because such things seem too complicated/mysterious.

On the other hand, renting out a spare bedroom in your primary residence is certainly a frugal (and tax-efficient) thing to do.

My advice is to stash your savings in an ISA and buy some sensible low-fee index ETFs (e.g., VOO, VTI, QQQ).  Do NOT get the kind of stocks and shares ISA where they manage the money for you in high-fee unit trusts (mutual funds).  On the other hand, do not buy and trade individual stocks.  Seriously, just get a broad stock-market ETF and keep adding to it in your ISA every month.  Don't panic about the ups and downs.  You'll need to read up on this stuff, but it doesn't have to be complicated.

The most lucrative investment for you, however, is in yourself.  Right now, you are earning minimum wage.  You need to develop some skills that would enable you to get a higher salary.  Learn how to code (if only something like javascript and php for website development). If that's not your thing, and you are really interested in property, then learn a building trade (plumbing, electrical, plastering).  Maybe you have a passion (cooking, music, photography) that could earn money with a bit more formal training.  Your local college has programs for you and, depending upon your age, it might even be free.  If not, spending money on this could still be a very worthwhile investment.

Also,  regardless of what you go into, I would advise you to develop your writing skills.  Learn what a run-on sentence is and how to avoid it. Your writing style projects your competence and authority; good writing can open doors and ward off trouble.  Finally, get seriously up-to-speed with excel and basic math for finance.  I find that many people, even university graduates, are barely literate and practically innumerate.  It doesn't take much to leave most of the competition in the dust...

Good Luck!

SpreadsheetMan

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Re: Newbie from England... where to start...
« Reply #6 on: November 15, 2016, 04:11:36 AM »
Great advice from gldms.

You've got the low living costs / minimalism thing nailed already which is a very good start.

ShoulderThingThatGoesUp

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Re: Newbie from England... where to start...
« Reply #7 on: November 15, 2016, 05:37:41 AM »
Great turnaround! Do you mind sharing what you stopped doing?

What is your job? Are promotions available, or would you need to switch careers to make more money?