Using savings intended for the DC to buy an investment property

[moneyadv]

Just thoughts on the title really.

30k in cash savings, interest rates seem rubbish so thinking of buying a rental property as an investment for them.

How does one go about doing this?

We have a home with a mortgage. Dh has a regular job, i am self employed (if that makes any difference)

Thank you this is all really useful. We used to flip shares with this sort of money before just to build up a house deposit but that was looong ago before the DC and we haven't done it again since.

I will take another look into ISAs

Agree with others on this. Definitely check the tax rules very carefully on BTL before investing. You might end up subsiding the property. This could be fine as your investment, because you are earning and saving. For your kids, not so much. There are plenty of less onerous ways to invest (and if you can start a pension for them that's a brilliant idea, they wouldn't be able to withdraw the money but they would benefit from half a century of compound interest!)

Have a look at Fundsmith or similar. I’m a landlord and I wouldn’t be buying now. In fact, in the next road to me there are four ex rentals for sale as the landlords are getting out of it.

No, you can’t afford it. Also factor in leasehold charges, letting fees, repairs, refreshing the place every few years. Not worth it.

You could also put it into a LISA for them. £4000 a year, and they'll get £1000 top up each year if they use for a house.

Thanks @Cuppasoupmonster for the reply. This is what I need to hear as well

Holiday homes are also fraught with difficulties and councils are being put under pressure to legislate against those as well through higher council tax and in some areas, like Cornwall, banning them altogether due to the strain they're putting on the local housing market.

Yes I would it is short term pain for long term
gain. Property will go up over the years. Tax return on one property is a doddle ut took me 10 mins to do mine.

ive rented a flat it's never been empty as in a good location with commute to London.

Absolutely not in this climate. Get it into a stocks and shares ISA and rethink when interest rates calm down 🙂

Just buy a global index fund in a stocks and shares ISA.
Leave it on autopilot and over the long term you should get 8/10% a year based on historical returns.

BTL is a crazy idea at the moment. The market is not down yet and Capital Gains Allowance is being dismantled.

The sensible thing is a low-fee US index tracker in a LISA an ISA and a SIPP.

@maxelly

My self invested personal stocks and shares isa is doing extremely well!

Op look intoa
Stocks and shares isa instead.

30K isnt a lot ...and dont buy a leasehold flat in a block...yes landlords are selling up but other landlords are buying up...its a long term thing....my rental has proved good over the last 40 years...now a good monthly income and value has rocketed.Also have lovely long term tenants paying a low rent so will keep them until i sell it in a few years to move abroad etc.

I agree with this. Interactive investor is a good and cheap platform. A FTSE tracker or S&P tracker are fairly safe bets. Well as safe as anything. We sold three BTL properties well before Covid and I'm so glad we did. Much less hassle in a S&S ISA. Yes some have taken a hit during Russia's illegal and disgusting invasion of Ukraine but in the long run I'm confident they will recover.

£30k isn’t enough to invest in another property. Not when you still have a mortgage on your family home too. Invest it in either an Isa or a stocks and shares isa. Nationwide were offering a fixed rate of 4% for a year . Put £20k away before April and the rest in the next tax year. If you do eventually want to invest in property keep saving and pay your mortgage off as soon as possible.

I wouldn’t purchase a BTL with a mortgage. £30k deposit as a 75%LTV is a £120k flat. A flat that doesn’t have a cladding issue, more than 72 years on the lease, where there are no s20 notices served or planned, and where the lenders limit on the amount of floors in the building or BTL mortgages in any block hasn’t already been reached. Then factor in your tax at your prevailing rate on 100% of the rental income (no mortgage deduction any more), service charges, ground rent, insurances, annual inspection/certifications, fixtures/fittings refreshment and then tenancy finding/management fees. That’s before you consider periods of non-occupancy or the tenant not paying. The only way of beating the odds in this market is to consider operating a managed serviced accommodation for short term rentals (insurance claims) or a local workforce accommodation market. Which is high risk but higher returns.

Think about other ways of increasing the pot for the children as others have said by taking advantage of rising interest rates. You sound like you have some trading skills? Maybe use those first. You might also consider buying other assets - watches/classic cars (which admittedly requires a lot of research) but may appreciate in value.

I would strongly suggest against this. I am just in the process of selling a flat I bought in similar circumstances a few years ago. At a big loss.
Wish I had invested it in the stock market instead when I see what I could have made there with much less stress.
For a start there is extra stamp duty, you cannot deduct mortgage interest from the tax you have to pay on the rent so if you are higher rate tax payers (or if the rental income pushes you into a higher bracket) it is 40-50% tax on the rent. On top of that you still have to pay the mortgage and expenses.
There are so many rules and responsibilities as a landlord you have to comply with, and that's assuming you get good tenants in the first place.
You can get tenants who don't pay, tenants who complain about every single thing and cause you grief and hassle.
Government regulations are turning so far in the favour of tenants now, it's no surprise so many landlords are selling up, and the government are making it a lot harder to evict problem tenants.
I went into this as a long term thing but I wish I had invested elsewhere now.

As an accidental landlord I would recommend not doing that. Stocks and shares ISAs (or LISAs if you want it to towards first property) would be my personal choice. Bung it in index funds with Vanguard or something (obviously with some research!). You’ll be paying a mortgage, possibly property management fees, maintenance fees, insurance, letting agent costs etc etc etc if you BTL. I can’t wait to either get back into my little flat or sell it. I’ve been really lucky with tenants, but that’s not guaranteed either.

I would open childrens isas for them and invest it in index funds. The children's Isa allowance is around 9k a year which works out well for the 30k split between your three.

We have done this for our son and also put in his new baby, birthday and Christmas money when he didn't need anything. Hopefully he can get good use out of it when he is 18!

You can currently get 4% on fixed rate 12 month term savings (A J Bell) or 2.6% instant access in National Savings. This is much better than it has been since 2008.