UK Expat Investment Advice - how to invest £64k!

[LadyMustache]

My husband and I emigrated to the US about four years ago and are pretty settled here. We have £64k sitting in savings accounts in the UK earning 0.20% (which we are subject to US tax on). So basically we have the money there doing less than nothing but depreciate. My question, very broadly, is what do we do with it?!

Unfortunately, the sterling exchange rate has tanked and our money is worth about 25% less than it was pre-Brexit, so we don't want to transfer it into dollars. Note that we have enough money in the US to cover our outgoings, a good emergency fund, and enough left over to invest about 20% of our income, so don't "need" the money over here. Also, we'd like to keep some wealth in the UK in case we or our children want to move back. We also earn about £6k a year from my self-employment income (I'm paid in pounds), so our £64 will be added to gradually over the years.

I've been looking at buying a rental property in the UK but I just can't get the returns to add up when compared with the risk. If we buy a £64k property outright, after paying the 3% stamp duty and fees, and renting it out at £450 a month, we'd be grossing only about £2.5k a year after overheads, and of course we'd have tax (from 30 to 45%!) to pay on that. That looks bad no matter how much I spin the numbers. Cash-on-cash return, I work this out to be about 4%.

What do other savvy UK expats do with their money? Do you take out bonds? Can you take out Index Funds in the UK? Do you just take the hit on the exchange rate? Do you buy a property for cash and just accept it's only going to have a 4% cash-on-cash return?

Can anyone offer any advice or insights? Anything would be helpful!

Thanks,

Laura

[AdrianC]

I used to have a UK account with Schwab and invested in UK listed stocks. I don't need much in pounds these days and just keep enough there in a bank account for trips.

If I were to keep a large amount in pounds I'd go with some Vanguard funds. Probably a Lifestrategy fund to keep it simple:

https://www.vanguard.co.uk/uk/portal/investments/all-products?assetType=BALANCED

This would be my choice:

LifeStrategy® 100% Equity Fund - Accumulation (GBP)
https://www.vanguard.co.uk/uk/portal/detail/mf/overview?portId=9232&assetCode=BALANCED##overview

[AdrianC]

Oh, when I first came to the US I rented out my house in the UK. What a nightmare. Barely a month went by without the property manager deducting some cost or repair from the rent. The net proceeds didn't cover the mortgage. I was glad to get out of it when prices picked up.

[LadyMustache]

Thanks for your reply, AdrianC. I'm definitely going to look into that fund. Simple is absolutely what we're looking for at this stage!

That's interesting what you're saying about your UK property. We sold up when we moved over here and bought a US property, but have met so many Brits who kept their UK homes and tell us it was the best thing they ever did and how much property values have gone up. Which makes me turn green even though I know that the rent on the property we had wouldn't have covered costs! I can't understand how anyone is able to cashflow a UK property at the moment - the tax implications and 3% stamp duty on a new second home seem to wipe out any gains but I've just been wondering if I'm doing the maths/math wrong.

Thanks again for the tip :)

LM

[AdrianC]

It's all about timing. I was underwater on the UK house and didn't want to sell at a loss. I did sell once the market recovered and made a small profit. The person I sold to doubled their money in a few years. That's the way the property market goes sometimes. It didn't matter because we bought a home in S. California which also doubled in a few years, and that was a lot more money!

I just wouldn't want the hassle of a rental property across the pond. I don't even want one across the street, actually. My philosophy is to simplify as much as possible. I want less to worry about, not more.

Now it's different of you're sure you're going to move back there. Keeping a foothold on the property ladder could be useful.

But the way, could you really buy something outright for 64k? Even in my old, rundown, small midlands town I don't think there's anything that cheap.

[LadyMustache]

Totally agree about timing being key. We sold our place in Cambridgeshire four years ago and it's since gone up about 20%. Luckily, the place we bought here has increased by a little more and is worth more, so it's swings and roundabouts :)

Yes, there are one-bed properties in the north-east, where I'm from originally, for under 70k. The one we've been considering is a one-bed on for 60k. Rental yield: approx 450 a month. No refurb needed as it's 11 years old and in tip-top condition. Service fee/ground rent: 1000 per annum. Major downside is that it's leasehold and has 89 years left on the lease. We'd be cash-flowing about 3k a year, but would have to pay income tax. Factored in is the stamp duty at 3% for second homes/buy-to-lets, which swallows another 2k. This particular property was bought for 95k 11 years ago. Not sure if this is because they made a bad buy at the height of the market or because the market is terrible or because the lease will need renewing in the next 10 years, which is putting people off, but it's either a great investment or a useless one! And the answer to that comes down to...timing!

[AdrianC]

You should do a thread on the property board. They'll be able to help, I'm sure.

Whenever I've looked at buy to let the numbers don't work unless I assume price appreciation (speculation) or an uncomfortable (to me) amount of leverage. Then there's the geographical problem. Vanguard is just so much easier, and has, so far, been very rewarding.