Is this a stupid idea?

[okcurtains]

Long post, sorry. Will try to keep it concise.

I inherited and invested about £180,000 in December last year. I chose "ethical" investments brought an advisor. They're now worth about £156,000. I get that a drop in the market is to be expected sometimes but I've never invested before and have previously been quite bad with money, ie spending all I had, not saving enough etc.

Facts about me:

1. I have 3 kids living with me, two of whom might want to leave in next 5-8 years (early teens). One is younger and likely to stay another 10-12 years maybe. Not sure about uni for any of them, oldest definitely capable but not a partier and nervous about student debt. Younger two possibly not academic enough. There is a modern university in our city.

1. I literally HATE my part time professional job. I do have a pension with it but it's not great as haven't worked full time for years.

1. Generous maintenance from ex but this will diminish in next few years as kids become of age.

1. Struggling to make ends meet with cost of living crisis, like everyone. Cannot increase hours as work have no budget to do that. Plus, hate job but unlikely to earn as much if I change sector/role.

1. I want to enjoy my life NOW because my parents died young and I might do too (but I am in good health, luckily). I don't want to be impoverished in old age either though.

My idea is, and because I am shit with money, I can't tell if it's a good one so please tell me if there's a glaring pitfall I've overlooked:

• Withdraw maybe £100,000 of investment and buy a flat outright when market falls in the spring as is predicted. This is a realistic price for a two bed flat in our area.

• rent it out and pay income tax on the rent

• if oldest child/older two children want to stay local when they're older, rent it to them

• potentially sell many years in future and pay capital gains tax (but I don't know what that would be)

Am I being ridiculous? Has anyone done this with a property for young adult children? Are there any flaws that I can't see?

Thank you for any input; I am a dolt about this kind of thing.

Personally I wouldn't invest in a flat, but only because I've had a bad experience with the leasehold. Made it difficult to sell, though it did Increase in value. Also the housing market is not going to perform as strongly in the next decade or so in my opinion, it's really over bought and with a recession looming another crash similar to what we saw in 2007 can't be ruled out. I wouldn't sell your investment at a loss, ride it out for a few years and then maybe look at buying property once the housing market looks a bit brighter.

Have you actually run the sums on the expected return for your flat plan, including expected periods of vacancy, upkeep, getting the certifications you need to be a landlord, what you'll do if a tenant trashes the place or you have to evict? Because you need to do that. Managing a property is a job and one that's only getting harder. Are you going to manage it yourself or pay an agent? Being a landlord can be a hassle and a half.

When do you want the money back? Because if you cash out now you'll cement your loss, whereas if you have scope to wait it out you have at least a good chance of your money growing again where it is. Investing is a long term game in general.

Tbh, if you hate your job then I think your main need is to do something to change it; apply for new jobs, retrain, what have you.

Well, it seems a shame to sell in a dip if you don't have to.

Re the flat- I'd speak to some local agents about it and get advice on the rate of return you can expect. I'd also think about the other assets you hold- do you own your own home? Any other shares? Be wary of having everything you own in one asset class.

I don't see how this plan helps with the issue of hating your job.

Everyone's investments have tanked since Dec 2021 because of the war. Just in case that makes you feel better - you didn't do anything wrong it's just the way it is.

What are you passionate about? No point in being in a job you hate when you could use the money to do something you love. Personally I'd go full on Sarah Beeny and get into the property renovation/turning business!

Maybe I wasn't clear enough about the job thing... right now I can't afford to do something different because it's have to start again and I arm less. So, if I had income from rent, I could afford to change careers.

Lots to think about, thanks for replying

• I'd have to start again and earn less 🙄

That's really bad advice, given the OP is very bad with money.

It wasn't advice - it's what I would do. Maybe the OP would love to bake cakes, make jewellery, walk dogs, write books, teach yoga, etc, etc. My initial question was "what are you passionate about?"

If you withdraw £100 000 and put in a fixed rate bond - use two to safeguard your money as £85 is the limit that is safeguarded. There are money products on the market paying over 4%

At the end of year one you will have £104,000
at the end of year 2 you will have £108,160
at the end of year 3 you will have £112.486

You will not have lost money on a flat deprecating, not paid out estate agent and solicitors fees.
You will now have a monthly income of £374.95 - you will have to pay tax on this at 20%

I would suggest moving £20k from a fixed bond into a cash ISA each year as the interest on a cash isa is tax free but the limit is £20k - there are cash isa paying 4% so the amount of interest in 3 year would still be the same but obviously tax free

atom bank have fixed rate bonds paying over 4% and Kent alliance also have similar rates, there are many more though paying decent rates - just don't put £85+ in one account

I wouldn't buy a property in the climate as prices are set to plateau or fall.
I wouldn't rent a flat to a relative, don't mix business with family as when things go wrong it causes a lot of pain. Better to give them money instead with no strings attached.

Capital gains is 40% tax on the profit, so if you purchased a property for £100000 and it made £20k in 5 years then you would pay £8000 in tax, you'd be able to claim some expenses.

You would pay tax on the income of the property and also have other associated costs, yearly renewal of tenancy, unless you are going to do that yourself, gas certificate, for example and any repairs. The property will need to be etc rating C by around 2025.

Capital gains tax is not 40%, on residential property it is 28% for a higher rate tax payer and 18% for a basic rate tax payer. You also get a tax free allowance of £12300.

It is more complex for basic rate tax payers as depending on your income your gain could push you into the higher tax bracket meaning you'd pay the higher rate.

A financial adviser/accountant would be best served to advise you of the most tax efficient way.

"Capital gains is 40% tax on the profit, so if you purchased a property for £100000 and it made £20k in 5 years then you would pay £8000 in tax, you'd be able to claim some expenses."

CGT tax free allowance = £12300

Gains £20000 - CGT allowance = £7700

Worst case scenario assuming you're taxed at the higher rate you'd have to pay £2156.

The thing with investment is you need a plan and have an idea of your risk tolerance. For 100% stock portfolio you need to be looking at a 10 year investment horizon minimum.
The fact your thinking of selling after a drop is indicative of someone taking on to much risk than they are comfortable with.
There are a lot of resources online with which to educate yourself.
I suggest looking into asset allocation. The idea being you combine different asset classes which have low correlation to reduce volatility and give steadier if a bit lower returns.
The classic being the 60/40 stock/bonds portfolio.

Beneficialchampion2 im thinking of IHT so sorry

Make sure you understand the tax on the rent.

Personally i’d stay invested.

I do understand why ethical investments are important for some people, it sounds like you’ve managed to weather the storm well.

Persoanlly i’d make sure your investments were migrated to an ISA over the course of the next few years, and depending on age making use of SIPP pension allowances, to store some for long term too.

OP, since you are bad with money, I would strongly advise against taking any money out of your investment. Pay an independent financial advisor, the ones who don't take commission from your investment. You can find an independent financial advisor (IFA) here: www.fca.org.uk/consumers/types-investment-adviser

Landlord here. I would advise you not to invest in a £100k flat. You need to be very knowledgeable with property, good at DIY, know the local market well, understand the risks associated with a leasehold flat, an organised person in general. You need an emergency fund to pay for big ticket items such as a boiler replacement, local council rental licensing fees, service charge, building sink fund, void period, full refurbishment if tenants trash the place, court fees, legal fees, accountant fees, deposit protection, annual gas safe certificate, electrical safety certificate and general maintenance.

The rental market for a £100k flat is quite different. The tenants are mostly social, a different demographics to manage.

Many social landlords have to do a complete refit if they rent to asylum seekers who rip the kitchen appliances, metal pipes and any wood out of the house and sell them on. It is quite common in the social rental sector.

There are too many pitfalls for you. Not getting a licence? The tenants can demand fill rent back, retrospectively. Not have a gas safe certificate? Full rent refund. Not protecting deposits? Full rent refund. All with fines on top.

local council rental licensing fees,

what is this licence?

Many local Councils charge a licensing fee for landlords Birmingham CC have recently proposed one circa £300+ a year.

I’d not invest in the flat because I think you need a strong business head and that’s not me. Rental market is full of pitfalls.
If you did buy the flat and in the future rented it to your DS, be aware that he would get no housing benefit as a close family member is his landlord.

Many local Councils charge a licensing fee for landlords Birmingham CC have recently proposed one circa £300+ a year.
for sole occupancy of a tenancy? Or do you mean for HMO's, which do need a licence across the country

@ivykaty44 It depends on the council. The licensing scheme is supposed to improve rental standards.
Some councils like Newham and Wales require a licence for every rental, including single family let. Councils have been introducing them aggressively. It is a cash cow for the council. They don't even inspect all the properties. As a LL, I think they should visit each property at least once. I want to do the right thing too. Each council set their own standards. They are so vague that my tradespeople are not clear what additional standards they have implemented. When they say smoke alarm, do they want it wired, accept battery operated, or wired with a central control panel? When they say some properties require emergency lighting, is it type A or type B? What type of properties need emergency lighting?
Even if a gas safe engineer and electrician signed it off, it might not meet the specific (unwritten) requirements that the council set.

I do agree with a pp early on in the thread who said be wary of leasehold.

I did not mean HMO they are already regulated.
A registration scheme for landlords with some local authorities.
Presumably there may be a scale of charges eg 1-3 houses £300
4-6 houses £500 but expensive for incidental landlords with one property.

www.localgovernmentlawyer.co.uk/housing-law/397-housing-news/51673-birmingham-to-introduce-largest-selective-licensing-scheme-for-private-rented-properties-in-uk

Actually it's £700 for 5 years regardless of number of properties.

I have invested in commodities and in last 4 months my £48k investment now jumped to £57.7k. I invested in following shares: Shell, BHP, Rio Tinto, ExxonMobil's, Totalenergies, Newmont, Freeport MacMoran, Hess and Franco Nervada. Have a look at their performances over last 6 months.

I would never invest in a flat as leasehold but a 2 bedroom house would rent. Get EPC C rating. If you buy in Spring when prices are low your purchase should increase year on year. Let through an agent to make sure you stay legal.

When you invested what was your timeframe? Were you planning on leaving the money untouched for 5, 10+ years? That's usually the timeframe for such investments. As others have said, stock markets have tanked this year, but if you look long term they'll regain their value and more. I would leave it untouched unless you desperately need the money and wait for markets to bounce back (though with china going full COVID this may take a while as supply chains are going to be seriously messed up given our reliance on China).