Pay school fees or investment in BTL for kid

[topsy777]

Hello all,

Just got the latest school fees bill and that has gone up way above inflation as the school cites increased in pension ands NI contributions.

I pulled out the spreadsheet and at this rate of inflation, there may well be another £300k+ to go before DS finishes university.

On the other hand, it looks like houses in good areas are earning more than people.

So now the dilemma - to educate DS as well as I could and he may well end up with a fairly ordinary professional job and house-less or go through a decent state education (our area is not too bad) and has property investments to fall back to.

All views are appreciated.

[MN164]

Is there a half way house (forgive pun) where you BTL and make enough rental profit to part pay fees?

A £300k property might yield 5% in rent, say £15k per annum less expenses and tax (if appropriate). Yields will vary a lot though.

[topsy777]

Thanks MN164.

I suppose it would be like 2-3 years fees 'saved', deposit for BTL (25%/50k) for a £200k property. After costs etc the profit will be minimal in the near term but the capital gains will accrue. After a while, save up another deposit and do a second one etc.

Wondering if a good education wins or a good investment prevails (financially anyway).

[Hoppinggreen]

There is so much more to consider than pure finances surely?
How would your child feel about changing schools? For us Private Education isn't about increasing the DC 's earning potential, it's about them having a good school experience and achieving their potentIal - not saying that's not possible in a state school by the way.
If school fees are unaffordable then fair enough but I wouldn't change schools based on return on investment.

[ReallyTired]

Lots of children are happy in state schools an the money saved can easily provide the "extras". A lot depends on what you consider to be a "good education". I would go for the property investment and save for his university fees.

i have two buy to let investments. Both of them have done well, but you will have to spend some money every year on maintaince. Its necessary to provide a good service if you want high quality tenants.

I am not sure that house prices will carry on rising at stupid rates. In my area house prices have flattened out. I have made money from income rather than the asset appreciating. In twenty years time I will own both flats outright. I am making plenty of money, but it is not disposible income as the mortgages eat up the money.

[afussyphase]

I've thought about this a bit (DC in state school). My point of view would be: how confident are you that your DC will achieve their potential that much more (or however you frame what you're in independent schools for) compared to how much a flat of their own plus any benefits you perceive in the state system would enable them achieve that potential? Many 20-somethings would probably go for having their own flat, unless their private education was truly astonishing :)
I suspect that those who are privately educated do make more money, on average, and that it varies quite a lot they also have wealthier families, on average, and more "social capital" but perhaps not so much more that it would balance out starting their adult life with 300k plus interest/earnings!

[jeanne16]

It also depends on what your local state schools are like. We have paid for both our DCs to go through the private school system but only because we never managed to get places at decent state schools. While I don't regret the money, I would not have done so unless I had felt we had no other option. As you say you have decent local state schools, I would save the money.

[topsy777]

@Hoppinggreen - Thank you for your reply and point taken. We of course want DS to be happy and would not consider the local state that will result in bad experiences. Having said that, while bullying happened rarely (and did get addressed when reported), the independent isn't 100% bullying free. Also, don't think we can afford to pay the fees and then help via BoMAD (got to worry about our own interest only mortgages...)

@ReallyTired - Thank you. And a part of me do think along your line of thinking.

@afussyphase - Thank you and part of me agree with you too - how much more 'potential'. Further, the extra potential may get 'adjusted' away during university application (and perhaps even job applications) stage as well. There won't be £300k plus interest though..it gets dripped feed in as we earned that over the many years to come. Years and years of above inflation increases in school fees may have tipped the balances.

[senua]

If there are £300k+ of fees yet to go then it sounds as if your DS is still quite young or your school is ridiculously expensive. As an alternative to BTL, why not move to the catchment of a very good Secondary? You will get the good education, naice neighbours/schoolmates and still get the increase in value of the house without the faff of being a landlord.
If needs be, you downsize or remortgage later and release capital that way. I'm guessing that one stonking house will increase in value more than two houses of half the value.

[MyArksNotReady]

I would get a tutor, send to a good state school and obtain the BT property.

[senua]

"got to worry about our own interest only mortgages..."

This bit has just sunk in. ? Do you have a plan to pay the capital off because that is more important than theorising about DS getting a house in 10/15/20 years' time.

[topsy777]

@senua - Thank you for your reply. It is not a ridiculously expensive school, but if you look at another thread here

www.mumsnet.com/Talk/education/2342368-Private-schools-cant-read-inflation-figures

you will see that the schools (especially the SouthE ones) think parents print money. So, if the fees freeze at current level, it will not be £300k, but with a little bit of inflation++ compounding (the 8th wonder if it works for you, but the 8th disaster when it works against you), it will get there.

As for the IO mortgage part, if we go down the investment route, the hope is of course to sell one of that to pay off the IO. If we carry on the private school fees route, then well, we will have nothing to sell, and nothing in the bank to help DS either. If DS gets a good job, then all works out fine, else...

[senua]

if we go down the investment route, the hope is of course to sell one of that to pay off the IO.

But the investment will have transaction costs (stamp duty, solicitors fees, estate agents fees, managing agents fees, insurance, etc, etc). And any income or capital gain will have a chunk of tax taken off it. Do the sums add up? Would you be better off doing a repayment mortgage?
Might be an idea to run it past an IFA.

[topsy777]

@senua Thanks Sena. Will run those figures based on repayment.

[ReallyTired]

I feel that security in retirement is important. With I/O mortgages you do need a cunning plan to pay it off. Hence we have two flats.

[yoyo1234]

Is there an alternative school that you are equally happy with? Maybe a cheaper private school? If the state schools are equally good why not?

[topsy777]

@yoyo1234 - Thank you for your input.

[Out2pasture]

You haven't mentioned the age of your child, so excuse me if this does not pertain. As your child ages you have very little control as to how he/she will choose to live their lives. So please don't count on their income to support you.
I believe having a secure roof over your head and not needing the help of a child to provide housing is a far greater gift than primary or secondary education, save your support for trades school/college or uni.

[topsy777]

Thank you Out2pasture for your view.

No, we don't count on them to support us and we are fairly confident that we can pay off the IO. We just cannot extend Bank of Mum and Dad (BOMAD) help if we already paid for the educations.

So effectively, it is a Bomad now and no expensive education, or expensive education and they are on their own after that choices.

[ratsintheattic]

FWIW we're sending ours to state schools which are ok to good and keeping our investment properties to help them later and for our retirement. I get tutors if they struggle with particular subjects and am prepared to change schools if they are unhappy.

[topsy777]

ratsintheattic - Thank you for your view.

[Superexcited]

BTL is always a gamble though. If you buy at the right price, get good tenants who look after the property and pay then rent on time then you are quids in. But it isn't unheard of for landlords to have problems with tenants who behave in a less than ideal manner. Could you go six months without rent whilst going through the legal process required for eviction? Could you afford major repairs if the tenants don't look after the property?
What if you had a tenant who left you without rent for six months and caused thousands of pounds worth of damage to the property?

Capital gain over the long term is almost a dead cert but you have To be prepared for any losses in the short term and be able to absorb them.
If you have good state schools then it might be worth using them regardless until at least secondary age when you can reassess.

[topsy777]

Thanks superexcited. Some good points there.

[ReallyTired]

You could consider investing in a junior ISA with the risk that your dc will blow the money at 18.

There is an element of risk with investment properties and its certainly not risk free. It is hard work being a good landlord and in my experience agencies are generally crap at managing properties. You need to be realistic about the maintaince costs of property as a property needs to be kept in a good condition to attract and keep a good tenant.

[topsy777]

ReallyTired - Thank you for your experienced words. I suppose neither routes - invest in education or the bricks are risk free or hassle free. I have taken note of your wise words.

Thank you and have a good Easter Break.