What to do with money

[Tunaandbobby]

i am coming into a bit of money within the next few weeks. I’m using around £20k of it to repay some debt. After everything has been repaid, i should be left with around £20k.
I need a few jobs doing in my house but after talking to a friend yesterday she advised to use the money as a deposit to purchase a house/apartment to rent out. She said the income from the house should pay for the mortgage on the property. I hadn’t considered this option, I was just going to get the jobs done on my own home and spend it all really.
Just wondering what others thoughts are on this, or what would you do with £20k in the hope to make more money from it.
I’m a bit of a spender so never been in this position before.
thanks

I don't think £20k is nearly enough to buy a rental property. Being a landlord is very expensive.

You pay tax on rental income, pay for gas, electric checks, if a tenant doesn't pay rent you still have to pay mortgage and to pay legal fees to get them out.

Lots of landlords are exiting the market at the moment as it's not worth the stress and all the costs involved plus Capital Gains Tax is due to go up, i believe, so when selling second property more money will be due to the Government.

To be honest if you've never considered becoming a LL now is probably not the time. it's not easy, so many expenses. The government are planning to make it harder. It's not an easy route to money.
Check adding to your pension or long term investments.

you need to talk to a qualified financial adviser and get professional advice about what to do with the money

Do you have an emergency fund of approx 6 months of living expenses? Saved in an easy access savings account. (Like CHIP)?

Do you have a pension / SIPP?

Do you have investments in simple funds in an ISA (Vanguard has low fees and is easy to access)

Meaningful money podcast is UK based and very useful to listen to and covers basic investing. They also wrote a book, easy to read and covers this

Stick it in premium bonds whilst you think what to do with it, you never know....

You need a 25% deposit for a buy to let mortgage, so I’m not sure you’d get one easily.

I don’t think you should spend it all, but look to invest or save! It could be worth quite a bit in a few years if you’re happy to leave it be.

No, this isn't enough money to warrant that, and would simply eat into the capital.

And what happens when you get the tenant from hell who doesn't pay his rent and it takes you a year to get him evicted and costs a fortune and during which time you can't pay the mortgage as you aren't getting any income from him....

Nope. I wouldn't do that idea.

I would put it in an ISA.

As you will have paid off your debts you should have some spare cash from your monthly income. Set up a DD and put this in a regular savings account. Once you have saved up use it to pay for the jobs you need doing.

You can use this flowchart to work out where you are on your financial journey:

ukpersonal.finance/flowchart/

It sounds like paying off debt, then putting this into an emergency fund would be a really good idea.

I was in a similar position and asked on here. Lots advised me to pay a chunk of my mortgage.

i did the following:

put 10k in long term savings account with high interest rate
spent 10k on garage conversion to give our family some much needed extra room
3k holiday
paid off a car loan 5k (which gave us £300 extra a month)
some went on just living as our mortgage was massively hiked up. We had about 4 months where we were also paying out massive amounts in childcare. Both of us have since had job promotions so should be ok now.
I still have around 6k that is going into another savings account that we access more frequently and take things like holidays and new cars out of.

I don’t think the property idea is practical, unfortunately.

Do you have an emergency fund? If not, I’d put 3-6 months’ worth of net income into a high interest easy access account. Anything over (or all of it if you already have an emergency fund) in a S&S ISA, basic global tracker with eg Vanguard.

Without this money you would still have a big debt. So presumably you are still at risk of living beyond your means and have no savings / rainy day fund?

Do not plan to spend it. Put it in a high interest savings account. Have a look through MSE for the type of account that would suit you best.

Work on your budget. Can you live without building up debt? Not using your credit card? Can you save the money you were using to pay off debt / service the interest on the debt? Save this money to pay for your household jobs.

And don’t buy a rental. V bad idea. You pay more in stamp duty, you have got enough, it’s a huge risk, you will owe capital gains tax when you sell, and you won’t get any net income. Even if you could buy with such a small deposit all the income would go on the big mortgage (and boiler and washing machine repairs, letting costs, renewals etc etc)

presumably you haven’t used your ISA allowance for this year, which conveniently is 20k!! Could consider an equities tracker fund as low fees and providing you’re happy to keep it as long term savings should give you a good return. Income from ISAs is tax free.

Definitely don’t buy a BTL. The only rationale to buy now is as a cash buyer who wants to diversify their overall investment portfolio. The yields with a mortgage are not good as interest on a mortgage is not tax deductible so you pay tax on rent less other expenses ( for us this has been about 20% rent on average)

I would not buy a btl unless I had a lot more than 20k to spare and I could afford the mortgage repayments whether the rent came in or not. Too risky that you have nightmare tenants that trash the place and don’t pay, and too many hoops to jump through as a good landlord.

Spare 20k id probably put it in an ISA. If shorter term then cash, if longer term then stocks and shares.

Your friend's advice is out of date. The days when you could get a BTL mortgage with a tiny deposit are long gone.

Thanks for the replies. I do really appreciate the advice from people who know what they’re talking about.
I have a really good pension in place already with my employer which I pay around £400 a month in to. I don’t really have savings and live month to month mostly. I and a bit silly with money at times and definitely buy things I don’t always need. I need to look at this and see where I can cut back on things.
The only reason I have debt at the moment is because i paid for an extension to be built so that I could work from home after covid turned my working world upside down!
You’ve all helped me to decide that I will pay the debt off initially and then put the remainder in an ISA and then save monthly for the jobs I need to do on my house.
I’ll look at putting some money in a longer term investment.
It will be nice to have a ‘safety net’ of savings for the future.

Not sure if this is something you'd consider, but if I were you I'd buy a digital business which will bring you in passive income so you can work from anywhere. There's so many out there including SaaS, KDP, POD, blogs etc. I bought an e-commerce dropshipping business that wasn't doing so well last year, and now it's doing around $2k a month and still growing month by month based on me just using my initiative and skills to develop it. Best investment I've ever made tbh and I bet it doesn't cost as much as you think to buy one. Nowhere near £20k!

Good plan OP. It really reassures me to have money in savings in case it is needed.

Sounds like a really good plan that you will give you a strong financial foundation to build on 🙂.