£200,000

[SplashingAroundTown]

Bit of context, I have £200,000 inheritance and would like to use it to set up some sort of passive income. Ideally buying a flat outright to rent out but I wondered if anyone had any other genius off the wall ideas?

I have a small mortgage so don’t really need to use the capital to pay it off - much mor interested in a long term investment that will provide an income.

AIBU to ask? Hope not!

I used some of mine to buy a property for my children. I did it up and my son lived in it with two tenants. It is now just my youngest in there on a reduced rent. The property has doubled. I could have sold it after five years because they rose rapidly then slumped a bit but now risen and levelled off. I have five years on the mortgage but could pay it off. It has always paid for itself bar the initial paint and furniture. The kitchen was paid for with the rent and the bathroom has been done twice. I wished I had bought two at the time because it has grown more than my investments although they have done well. Good luck with your choice.

Anything but but to let. Please dont be a parasite.

You could spend the whole £200,000 on rice and pasta. It's bound to double in price after Brexit.

Rebecca36 sounds similar to flats I’ve rented in the past. I bought a flat when I was very young and was only able to do so because I always had a lodger and rented the whole property out when I took a cut in salary (I rented a room in a shared house with friends).

xsahm Yep. I quite agree. It’s really interesting to hear what other people have done though.

Renting out a property is not passive unless you are a slum landlord who doesn't give a damn(speaks from bitter experience).

When I rented out my flat I paid a managing agent to manage it (Which they did brilliantly). My tenants had my phone number and could always call with any problems.
But the property was a new build under a 10 year building guarantee and all appliances were new so not much to go wrong.

So although I appreciate it’s not entirely passive income, if you have a sound, well maintained property and good tenants who are happy to live there and pay a fair rent then it shouldn’t take too much time to oversee.

You seem very set on property.

As an accountant - I would advise not to go for that for many reasons including reduction of mortgage interest relief for landlords, risk of Brexit on house prices (job losses reduce the pool of buyers and the max mortgages available to them if they end up on lower salaries), unexpected costs for maintenance/bad tenants etc.

If I was you I'd go for equity funds and similar. Go for low-fee tracker funds with an income option (such that you receive the dividends paid as income and they are not reinvested). If you have a partner you can both utilise your ISA allowances. In a few years your whole investment will be in ISAs, dividends will be received tax free and if you wish to sell the holdings in the future e.g. during retirement, the gains will not be taxed either. If Brexit uncertainty is scaring you from equity you can diversify and have holdings based on other stock markets e.g. Europe excl. UK, USA

I do seem set on property don’t I. I suppose it’s what I’m familiar with. But your advice is great and I’m definitely going to see an IFA.
Ideally I want this money to provide an income immediately you see. So it’s tricky. Diversifying is probably the way forward. As pp have said, keeping 3 months salary aside in a cash isa (for example), maybe buying one cheap property with a BTL mortgage and the majority of the money invested in a tracker fund...

There's a lot to be said for investing in what you know. So using part of it for a property, given that you already have experience of renting and have your eyes open as to the issues, would seem a good approach to me. Investing some of the money in a fund and starting to learn more about other areas of investment can be a longer term plan.

My mother is very keen for my sister and I to use what she can pass on as inheritance (potentially some of it "in advance") to build a longterm property portfolio that might be able to keep benefitting the family down to our children and even beyond. Her impression of what has happened in previous generations in her family is that the illiquid but solid nature of property creates more lasting wealth than doing other things with money.

I'm trying to research a range of options in advance and understand what would be involved. For me, running a small property portfolio may be an appropriate "career adjunct" in the future. If you think you are likely to be happy to put more time into running property then using this inheritance as a start on that could make an awful lot of sense. Market risks will affect you less if you select location carefully (will there always be a need for rental property there?), and don't overstretch in terms of borrowing. Some borrowing will really help multiply your returns though.

We didn't want to get involved with any savings or schemes that have the small print "You can get less than you put in"
Unless you have to sell a house when the market has crashed or is low, you can't fail to win.
There are far fewer risks with investing in property, and you don't have to be too clever to swerve these.

Wait until after brexit before buying any property

If I was you I'd go for equity funds and similar. Go for low-fee tracker funds with an income option (such that you receive the dividends paid as income and they are not reinvested).

This would be my advice as well, for at least half of the inheritance. I bought such a equity fund from Vanguard in 2008 and it's now worth two and half times the amount of my original investment.

I fell into property because I needed to make enough money to put myself through university. It was very scary at times in the beginning and I took my responsibilities very seriously. I've always run it as my business and I don't consider it passive income. It's work. There is this perceived glamour to property but it's really not at all. I've had my hand down toilets and I've had to sit down and comb through regulations, contracts etc to make sure I'm compliant.

I've had to take one tenant to court who decided to paint a picture of my father promising her the rental property. She had 5 DC and I felt so sorry for them. She was crazy. The judge was and sided with me wholly. She tried to appeal and when leaving completely trashed the home. The whole exercise cost me £20k in legal fees, 3 weeks of me working to fix the damage and £45k to completely rebuild. She had poured concrete down the pipes. I sold the place because I just couldn't take much more from the ex-tenant who would come back to the property while I was doing the work, once running up the driveway to shake the ladder I was standing on while clearing out the gutter. I will say the other tenants have all been fine but you need to be able to tolerate a tenant like this. For those who say it won't happen to them, bad tenants happen all the time to good and bad LLs.

Buy a property. Facepalm!!! Second stamp duty, solicitors, surveys, insurance, fees, income tax, tenant risk, disposal costs, CGT. Its a shocker and much higher risk than you think. Unless you're a professional or can accept big losses, stay clear.

If you are considering property, wait until after Brexit as a significant property crash is forecast. We have a property portfolio which DH inherited. We’ve sold many of the home rentals now and the majority are holiday rentals in the UK which we believe will still be wanted for holidays regardless of what happens with Brexit. They are all in good locations with high quality furnishings, fixtures and fittings. A percentage of the annual income is plowed back into the properties. We don’t have the time to run the business ourselves but have a good agent. This lessens the profit but makes it manageable for us. As with any property investment, there is always a risk but we’ve make good profits over the last 20 years.

We are still buying property atm, you can get some good bargains as people want to move before any crash.
A long term investment won't be affected by a crash.

I too would recommend the Vanguard option. I am a FIRE aspirant and it is a proven robust investment option for long-termers that want to be able to draw down as they go.

Don't want to be a negative nancy but we all must stop assuming that we have 30 years ahead of us guaranteed, so make sure that whatever investment option you settle on can be easily accessed by those you choose to name in your will as beneficiary. And with that in mind, do try and use some of the money to bring some joy into your here and now. I am sure whoever gifted it to you hoped for nothing less.

I would diversify.

Personally I found being a good LL a fucking pain in the neck, it is not passive at all.

If I had £200k I would go see an IFA and talk though my motivations and risk appetite.

Like, do you need any income from it now? Or for retirement? What investment horizon would you look over?

I’m my personal situation I would keep a bit back in ready access savings, some in 1 and 2 year fix accounts, max out my stocks and shares ISA allowance and drip the rest into a couple of index portfolio funds with low mgmt fees.

IMO equities are very toppy at the moment hence why I would drip in eg over 12 months or maybe even longer.

I’d probably also put some into some of the more risky peer to peer lending and SME bond funds. Not much, maybe £20-40k.

One thing to consider re property is that you already have a major investment in property- your home. It is somewhat "eggs in one basket" to invest this in the same. NB also that many people think prices are likely to fall/continue falling in London in the short-medium term.

I would speak to an FA. Would personally be thinking about a spread across a number of investment funds.