Author Topic: Houses Vs flats & what to do with extra funds if we downshift...?  (Read 1786 times)

jade

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Hello all,

I haven't been here for a while so hope you're all well.

My husband and I (no kids) are thinking about moving locally next year. It should be a finalish move. I'm 46, he's 52. We own our 2 bed cottage outright which we're guessing is worth £290k ish. We want a low maintenance place next time. Pros of buying a house again is no leasehold/freehold issues etc but houses in the areas we want on our budget (not too rough) may be limited, though there's lots of flats.

The main question I have is if we bought a flat for somewhere between £170-250k approx what would be the best thing to do with the released equity? We're nervous particularly about releasing over say 100k and not being efficient with it. We don't need to keep anything for inheritance. We're aware we'll need to keep some money aside in the case of a flat for ongoing fees as above.

We have a nearly £100k pension /ISA pot plus different bits of pensions so are nearly set early retirement wise (I'm still earning around £22k a year, putting £10k a yr away for the next three years when I'll reduce my hours a bit), hubby's retired . We live comfortably on around 11k a yr. Any advice on how to choose good flats / freehold/ leaseholds would be appreciated too.

Cheers!
« Last Edit: November 13, 2022, 12:04:42 PM by jade »

daverobev

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Re: What to do with extra funds if we downshift...?
« Reply #1 on: November 13, 2022, 05:34:48 AM »
I don't think there's anything special about this extra cash; just follow your normal asset allocation.

Consider buying state pension years if that makes any sense (you can become self employed doing little things, and then buy Class 2 NICs which are much cheaper than Class 3). It may make sense to buy years for the person closer to SP age if you're not both going to buy.

Fill ISAs, even if not earning you can put £2880 into a SIPP each year and have it topped up by £720 by the government.

Keep whatever cash you think you're going to need over the next 5 years available, consider investing that money in expense reduction if it makes sense - it can be lower risk than investing in stocks (eg spending the money on insulating reduces your heating costs, on an electric car reduces the cost of driving, etc).

jade

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Re: What to do with extra funds if we downshift...?
« Reply #2 on: November 13, 2022, 07:35:15 AM »
Thanks daverobev.

I think we're wondering about putting such large amounts into my SIPP in one go in terms of it being a big chunk of money (and ISA). We usually invest 10k a year paid monthly.

I'll be ok SP wise after 3 more yrs work and hubby is planning to buy a few soon that he needs.
Thanks for the other ideas too.

I guess we're also wondering if there's any downsides to releasing that money and not keeping it in property though as mentioned we don't need to leave any inheritance etc.
« Last Edit: November 13, 2022, 08:08:45 AM by jade »

daverobev

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Re: What to do with extra funds if we downshift...?
« Reply #3 on: November 13, 2022, 09:54:45 AM »
Well yeah, there's a downside - your home is tax free! If the market goes up that's huge!

But if it goes down...

IMO owning the least house possible is still the better idea - lower council tax, lower heating, lower maintenance. I've serially made the 'mistake' of owning smaller or otherwise less expensive places, and in some ways it has been 'a mistake'... but no when you look at the cost of debt, the cost of maintenance, it's fine.

Over medium-long term the stock market should do better. However there is a lot of risk with stocks. If you have enough home and don't ever plan on 'needing' more, 'having' more is risk without a reward you need. It sounds like you're way way over already if you can live on 11k.

You can of course put money into the SIPP and keep it in a risk-free fund (not 100%, in North America it'd be called a 'money market' fund, there must be something similar? - where it is safe as cash but does return at least a little interest), and drip it into ETF shares every month. Statistically 'all in' is better though.

Basically you have to tally risk vs reward. You won't be getting off the housing ladder entirely, but its fluctuations will affect you less.

jade

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Re: What to do with extra funds if we downshift...?
« Reply #4 on: November 13, 2022, 10:49:43 AM »
Well yeah, there's a downside - your home is tax free! If the market goes up that's huge!

But if it goes down...

IMO owning the least house possible is still the better idea - lower council tax, lower heating, lower maintenance. I've serially made the 'mistake' of owning smaller or otherwise less expensive places, and in some ways it has been 'a mistake'... but no when you look at the cost of debt, the cost of maintenance, it's fine.

Over medium-long term the stock market should do better. However there is a lot of risk with stocks. If you have enough home and don't ever plan on 'needing' more, 'having' more is risk without a reward you need. It sounds like you're way way over already if you can live on 11k.

You can of course put money into the SIPP and keep it in a risk-free fund (not 100%, in North America it'd be called a 'money market' fund, there must be something similar? - where it is safe as cash but does return at least a little interest), and drip it into ETF shares every month. Statistically 'all in' is better though.

Basically you have to tally risk vs reward. You won't be getting off the housing ladder entirely, but its fluctuations will affect you less.

Thanks again. Good to hear your positive experiences with owning "less". Less maintenance, heating bills etc would be a plus. I think the risky part of a flat for us is feeling uncertain about the fees and not having control on increases  by management companies and / having read a few stories about nightmares with organising share of freehold with neighbours.

I think a smaller place will suit us, my hubby does most of the DIY and it's never ending in our current place.

Thanks for the ETF suggestion too. Are you saying "all in" is better as in putting say £100k all in if released?

Ta 😊

daverobev

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Re: What to do with extra funds if we downshift...?
« Reply #5 on: November 13, 2022, 11:07:00 AM »
I think the thing with a flat is that it isn't 'yours' in the same way as a freehold is. You never know - but it's statistics isn't it, millions of people live in flats, own flats, and it's fine for them. I also don't 'like' the management company stuff. It's just carte blanche to be taken advantage of, with little you can do about it. However! If it gives you £100k to put into investments, that's a lot of slush to deal with nonsense. I guess there aren't freeholds cheaper within a reasonable distance that are also less expensive than what you currently own?

Yes - again statistically, lump sum investing outperforms 'dollar cost averaging', but of course it'd be painful to be on the wrong side of the numbers (eg if you put in £5k a month for 20 months you're likely to be worse off than putting £100k in in any given month, but sometimes...). Depends how well you sleep at night, and what percentage of your total net worth we're talking about - if you've already got £500k invested then putting in another £100k isn't such a large percentage to chuck in. If you're adding to £50k invested, and you get a 20% drop the following month, it might feel a little worse.

jade

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Re: What to do with extra funds if we downshift...?
« Reply #6 on: November 13, 2022, 11:15:00 AM »
I think the thing with a flat is that it isn't 'yours' in the same way as a freehold is. You never know - but it's statistics isn't it, millions of people live in flats, own flats, and it's fine for them. I also don't 'like' the management company stuff. It's just carte blanche to be taken advantage of, with little you can do about it. However! If it gives you £100k to put into investments, that's a lot of slush to deal with nonsense. I guess there aren't freeholds cheaper within a reasonable distance that are also less expensive than what you currently own?

Yes - again statistically, lump sum investing outperforms 'dollar cost averaging', but of course it'd be painful to be on the wrong side of the numbers (eg if you put in £5k a month for 20 months you're likely to be worse off than putting £100k in in any given month, but sometimes...). Depends how well you sleep at night, and what percentage of your total net worth we're talking about - if you've already got £500k invested then putting in another £100k isn't such a large percentage to chuck in. If you're adding to £50k invested, and you get a 20% drop the following month, it might feel a little worse.

Absolutely. We're aware we do get quite anxious about stuff and the fees thing could be something that we'd find difficult. As you said, having some extra money to play with could help that side of things though. There's a few freehold houses for less than ours but not many.

Thanks for the further info on lump sum investing.

Appreciate you chewing the fat with us on this and the info you've given. Definitely pros and cons each way.

Howdotheyriseup?

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Re: Houses Vs flats & what to do with extra funds if we downshift...?
« Reply #7 on: November 14, 2022, 04:59:03 AM »
If you know people in the area who own flats - can be really helpful to ask them about their management companies.
We are looking at this for my mum who wants to downsize, and she has found it really helpful talking to friends... the quality of service management companies provide differs a lot it seems. Another thing to ask about is whether they have a repairs fund... you don't want to move in and then discover there's a huge bill waiting for you in terms of fixing the building roof or something.

jade

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Re: Houses Vs flats & what to do with extra funds if we downshift...?
« Reply #8 on: November 14, 2022, 05:25:15 AM »
Good ideas Howdotheyriseup? ! I hadn't thought of the repairs find side of things. I think friends we have in flats rent rather than own but one plan I have for wherever we move to is to speak to neighbours first so we can add that to our list of questions.

MisterA

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Re: Houses Vs flats & what to do with extra funds if we downshift...?
« Reply #9 on: November 14, 2022, 06:13:18 AM »
We own our 2 bed cottage outright which we're guessing is worth £290k ish. We want a low maintenance place next time.

The main question I have is if we bought a flat for somewhere between £170-250k approx what would be the best thing to do with the released equity?
Objectively, if you sell for £290k and buy for £250k, you won't release much equity at all once selling and moving costs are taken into account. Not forgetting that you'll end up replacing some furniture and likely re-modelling (even just some carpets) part of the new place, to get it how you like it.

My parents lived in a flat in the region of the value that you're targeting, they moved there when they got older. The management fees are close to £2k/year, although I suppose that the council tax and energy costs will be slightly reduced. My point is that if you don't release much equity, but have an additional management fee to pay, if you stayed where you are you could pay for the maintenance with the management fee you've 'saved'. And you'd still be in a house.

Just being devils advocate, obviously I know next to nothing about your circumstances.

Manchester

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Re: Houses Vs flats & what to do with extra funds if we downshift...?
« Reply #10 on: November 14, 2022, 06:15:23 AM »
Time in the market beats timing the market most of the time.  So don't try and be too clever with any windfall, just continue investing the money wherever is tax efficient for you.

Flats can be great but be careful with management companies, check all the contracts etc.  A friend of mine has just been stung with a £7k bill towards repairing a lift in her building... She lives on the ground floor and has never used it, but she has to contribute the same amount as any other person there.

jade

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Re: Houses Vs flats & what to do with extra funds if we downshift...?
« Reply #11 on: November 14, 2022, 06:58:09 AM »
We own our 2 bed cottage outright which we're guessing is worth £290k ish. We want a low maintenance place next time.

The main question I have is if we bought a flat for somewhere between £170-250k approx what would be the best thing to do with the released equity?
Objectively, if you sell for £290k and buy for £250k, you won't release much equity at all once selling and moving costs are taken into account. Not forgetting that you'll end up replacing some furniture and likely re-modelling (even just some carpets) part of the new place, to get it how you like it.

My parents lived in a flat in the region of the value that you're targeting, they moved there when they got older. The management fees are close to £2k/year, although I suppose that the council tax and energy costs will be slightly reduced. My point is that if you don't release much equity, but have an additional management fee to pay, if you stayed where you are you could pay for the maintenance with the management fee you've 'saved'. And you'd still be in a house.

Just being devils advocate, obviously I know next to nothing about your circumstances.

You're right MisterA. We were talking this morning and saying just that.. we need to have a cut off point for flats (maybe £220k) to ensure its worth our while with fees on top of the buying price.

jade

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Re: Houses Vs flats & what to do with extra funds if we downshift...?
« Reply #12 on: November 14, 2022, 07:00:52 AM »
Time in the market beats timing the market most of the time.  So don't try and be too clever with any windfall, just continue investing the money wherever is tax efficient for you.

Flats can be great but be careful with management companies, check all the contracts etc.  A friend of mine has just been stung with a £7k bill towards repairing a lift in her building... She lives on the ground floor and has never used it, but she has to contribute the same amount as any other person there.

Thanks Manchester - that's good advice. Yikes.. your friend has been unfortunate. These are the types of things I want to be aware of so we go in with our eyes open, thanks for sharing.