What would you do with this money

[Kuachui]

Hey all, not sure if this is the best place for this but I'm posting for a friend.

She has 500k roughly and wants to use it to get a good income. She's smart and works hard but has no job currently due to just having had a baby and doesn't know what to do.

She only knows about property investing and was planning to buy 2 or 3 properties to rent out but is wanting to know if there is anything else people could suggest.
She doesn't really have any skills she could specifically use for a business.

Thank you all :)

She wants to earn at least 3k a month

Anyone? :(

Investments are a little tough atm, she might struggle to get 3k a month.

I agree 3k is on high side. Does she want it to grow by 3k a month as an investment, or generate an income of 3k a month that she then spends/lives on? Because the first would be more likely than the second.

@planderaccordement she wants an income of 3k a month or near about like anything over 2.5k. She was thinking of buying some hmos and going that route but shes wondering if that's the best solution

If I'm honest, 3k/month income from that amount sounds ambitious to me. I'm not very up with the whole BTL world, but having said that, a lot of people I know are trying to get out right now as things are getting less profitable because of new legislation. Happy to be corrected on that though. What are the rents like in her area? I know that where I live, the rent generated from a property worth that amount would be less than 3k/month.

I think PPs are right to say that a 3k return might be hard to achieve with investments on just 500k... an annual 4-5% drawdown on that sum in, say, a pension account (with the aim of preserving principle and living off the excess) would be more in the region of 1650-2100/month I think. Obviously investments can go up much higher than 4-5% in a year, but the ones that would give returns closer to her desired 3k/month will also experience higher volatility and could potentially tank.

Does she NEED 3k/month or is that just a goal figure?

Not enough money to generate that kind of income at all. But indeed if invested sensibly in property could lead to good capital growth and ultimately that income longer term. But hmos for example
Are a total pain to manage and need skills and grit.

@misscruelladevil sorry I should have said, it doesn't need to be an investment it can be anything, a business etc

She got the 500k through savings and stocks as she made a really good stock investment earlier this year.

She doesn't have a mortgage or rent just bills and is ideally wanting a business or investment to get around 2.5k a month which is why she was thinking maybe property investing was best

@linguaphile it's a goal figure but not needed just what she wants to aim at.

She's seen/been offered some good properties selling for £110-£130k each that would rent out around 800-900pcm and would earn her about £2500 per month if buying 3 of them or 4 if she got a good deal as a cash buyer with no chain she worked out she could get 3k a month if buying 4 properties and wouldn't need to rely on them too much as she would have other savings if for example a property wasn't let out

@ffsffsffs

Yeah she's thinking more long term, this is all money she doesn't need right now so the income generated is like a bonus as she has a husband who earns income to live on, the 2.5 - 3k a month she wants is just because she's calculated she could probably get that through buy to let's obviously not taking of tax etc as that would come off

She just wants more income as her husband can just about pay the bills but nothing spare so she would like 1k a month to spend /live off and ateast 1k a month to save / put in retirement pots as they have none and says she ideally wants another 500 to out in her kids saving accounts as she has a few kids.

[quote Kuachui]@linguaphile it's a goal figure but not needed just what she wants to aim at.

She's seen/been offered some good properties selling for £110-£130k each that would rent out around 800-900pcm and would earn her about £2500 per month if buying 3 of them or 4 if she got a good deal as a cash buyer with no chain she worked out she could get 3k a month if buying 4 properties and wouldn't need to rely on them too much as she would have other savings if for example a property wasn't let out[/quote]
She might make that gross if she’s lucky.

But she’s not allowed any deductions to

Buy the properties and pay legal costs and taxes
Refurbish them
Pay services charge, insurance , repairs and maintenance, voids, all new let costs , gas and electricity certificates, letting agent fees.

And after she has paid for all that she needs to pay income tax. So I’m afraid it won’t be anything like 2.5k a month. More likely half of that.

Plus she needs to keep on top of the more than 100 laws that apply to landlords. Ignorance of the law is no excuse.

Then there’s repairs, which are often required at evenings and weekends. And dealing with tenant issues.

Remember that the Covid rules mean that tenants can move in and pay no rent for a year or so. It takes a long time to get them out. But she needs to go on paying out every months for the property and also for legal and court fees on top.

@Kuachui

She just wants more income as her husband can just about pay the bills but nothing spare so she would like 1k a month to spend /live off and ateast 1k a month to save / put in retirement pots as they have none and says she ideally wants another 500 to out in her kids saving accounts as she has a few kids.

Ahhhh, so actually more like 1k income would work for her? It sounds like 1.5k of what she wants will go straight back into savings. The thing is, if it's already invested then it's already 'saved' and at work, so she can just leave that in the investment pots to keep earning. Taking it out to invest elsewhere to be able to put money back into savings is just adding an extra step, surely?

I agree your friend really hasn’t thought this through. There are so many costs associated with buy-to-let’s nowadays that she hasn’t accounted for at all.

£500K invested in equities with a 3% drawdown rate would give her that £1K/month without all the hassle; and it means she’s got a pot for retirement etc.

Well - shares can go down as well as up - is what we are always told so would equities be safe enough?

Im limited e you share a large sum over different investments so if disaster happens it probably won't happen to everything. So maybe buy one property. equities and any savings account that gives a bit of return.

Definitely property investing

www.rightmove.co.uk/properties/113045063#/?channel=RES_BUY

This for example is going to bring in almost £3k a month

Choose a holiday area like Cornwall/ Norfolk/Suffolk/lakes/Cotswolds

She should go to an IFA who specialises in BTL.

It doesn't make financial sense to cash buy. She needs to use the £500k as 75% deposits on a dozen properties with BTL interest only mortgages.

She's also MASSIVELY underestimating the costs-
-tax

• letting agents
• void periods
• repairs

-communal costs on flats

• big long terms costs like roofing/ glazing
• contingency for non payment/ house getting trashed
• legal costs

-accountancy costs

• council tax
• buying/selling costs
• surveying
• furnishing
• stationery/ travel/ sundries/phonecalls/ her time

It is a full time job but she can pull in £3k a month from it.

She'll need childcare!

IMO she seems to be getting well ahead of things. You say her OH’s salary just about covers bills, suggesting that some months it doesn’t. That would be a worry for me. If something happened to his job, what would they do, if she had invested the £500k in BTL and it ran into trouble?

If it was me, I would put some aside to cover 6 months worth of living costs. The rest would be invested in ISAs, JISAs for the kids, and a diverse range of low cost funds and investment trusts for her and her husband They would probably give a 3-4% income, pre tax. The ISA income would be tax free, the rest taxable.

Personally, I think in her situation I wouldn’t put it all in BTLs, too risky for her situation.

A FTSE 100 bong had a yield of around 4.5% on average, but will fluctuate from year to year, as well as a capital growth on average of around 5%.
4.5% would yield around £2k a month pre tax. The other advantage of a share bond is that dividend is taxed at a lower rate. A couple of houses/flats depending on the area might yield a bit more but probably not much more and comes with other issues and challenges.

In reality her idea of £3k a month is unrealistic, that needs a 7.2% yield and you will not get that with a lot more money or a lot more risk. She needs to cut her cloth according to her potential income and appetite to risk rather than try and guide investments based on a a desired income.

Why doesn't she just make an appointment with a financial advisor?

Thanks for everyone's thoughts, she's taken them on board, she has 500k to spend but also have 100k saved up for emergency etc she just wants a decent income and to her that's anything over 1k as when she was on universal credit she was on £1300 so feels that 2k should be doable.

And no her husband always gets the wage so they do get to pay the bills every month if he lost his job it wouldn't matter as they have savings they could live on until he found another.

She just wanted to know what someone would do with 500k whether it got them 1k 2 k or 3 k a month, some people have advised she go into air B&B for example.
@fivefourthreetwo she has got an appointment just wanted ideas

In her area she could afford to buy 4 properties each worth 900pcm
That would give £3600ish a month which even with the extras taken off she should be left with atleast 2.5k a month which would give her what she needed 1kish to live off and 1 k to save.

Having a property portfolio is a job. One that needs time and knowledge and a lot of running costs. Has she even sat down and worked out a realistic set of figures? Looked into setting up a limited company? Considered the laws she has to abide by and what it would cost to make her properties compliant? Or is she just seeing pound signs?

Is your friend you?

The way this thread is written sounds so bizarre.

@buffysummersreportingforsanity yeah she knows about it all as her BIL has a few properties he rents out so has discussed things with her and husbands job is self employed as a company.

@shadyaf yes it is a friend, if It was me I would just have said I'm looking for advice.
Not quite sure why it's bizarre.

I will say she is related to me but not by blood.