Which is the beat investment - go mortgage free or buy to let investment?

[alphasox]

WWYD?
DP recently inherited a decent sum. We can’t decide which is best for us to do:

1. Use it to pay off our mortgage for our family home where we are very settled and expect to stay for a long time. That will save us £900 per month now. It’s also really tempting because DP’s income has dropped dramatically due to Covid. We are still making ends meet but £900 a month saving would mean we can relax a bit.
2. Use it to buy a small property nearby that we rent out, until our son is old enough to need somewhere then it is his house, or he can sell to use the money to buy what he wants (in 10-15 years). That way we make income from the rental now (although we are nervous of the responsibility and cost that goes with being landlords), but also invest in our and our son’s future.

We feel incredibly fortunate to be in this situation and want to make the best decision (financially) for all of us.

What interest are you paying on your mortgage? What tax bands are you both in?

BTL is a mugs’ game these days and not the money maker it once was. I really wouldn’t want the risk or stress.

I would say go mortgage free and enjoy life that bit more.

Regarding helping your son into the property ladder, my (mortgage free through inheritance) parents took out short term small mortgages to help my siblings, siblings paid the repayments but it went down as a gift on their mortgage applications.

Go mortgage free. You don't know what the future holds and Buy to let's can turn into money pits and don't always appreciate in the way you expect.

Go mortgage free. But save a proportion of what you would have spent on the mortgage each month.

Mortgage. Btl too hit and miss

Pay off your mortgage.

Go mortgage free. You don't know what the future holds and Buy to let's can turn into money pits and don't always appreciate in the way you expect.

This. If you’re not very financially secure BTL can be a bit of a gamble. Pay off the mortgage, invest some of the money you’ve saved.

Buy your own home first before thinking of getting one for your son.

Yes, I think go mortgage-free too. It's the safest option, and it's less work and stress.

Use some to reduce your mortgage and put the rest in a stocks and shares ISA

Pretty unanimous. Thank you all!

Defo go mortgage free.

We are due to an inheritance and it has made life so much easier for us.

You can take that 900 quid a month and put it in savings instead. Really quickly build up a great lump sum for yourselves.

I would also say go mortgage free but put aside something for your son. We had a rental property as we moved abroad and it is a PITA unless you make a living out of it and have several. Tenants expect every minor thing to be fixed straight away which as a home owner you would probably live with. You will be taxed on the income and you have the choice of managing it yourself (with added stress) or paying a management company which reduces your incone. You will also pay CGT on any eventual gain if you sell it. There is also the risk that you have a tenant who does not pay the rent of does not look after it well. It really is a lot of hassle if you’re doing it just for one property rather than on a larger scale. Given that having no mortgage would improve your current situation and stress levels, I see that as tipping the balance hugely.

@JensonsAcolyte

BTL is a mugs’ game these days and not the money maker it once was. I really wouldn’t want the risk or stress.

I would say go mortgage free and enjoy life that bit more.

Regarding helping your son into the property ladder, my (mortgage free through inheritance) parents took out short term small mortgages to help my siblings, siblings paid the repayments but it went down as a gift on their mortgage applications.

Yep agree with this.

They've pulled the drawbridge up on that gravy train sadly.

Would you be able to buy the BTL outright, or would you have a mortgage in it?

Do the sums: what is the typical rental for the type of property you could afford, and then net off agency fees, void periods, tax, wear and tear, buildings insurance - and what are you left with?

Then look at whether the property is likely to hold its value - in a thriving town or area? Students galore?

If there is no mortgage on it and you give it to your son there would be no SDLT or CGT to pay on transfer.

What would you do with your savings if you don't need to spend it?

Give a sum to your son each month for a LISA that he could then use to buy a property in due course?

It is really hard to get any kind of interest on savings atm, so your £900 a month would be spent, or not gaining much in a savings account (except LISA or pension).

There is capital gains tax if a BLT is sold and the DS buys a property elsewhere. Only on a profit though.

BTL is really only suitable as part of a savings portfolio. It can be a major hassle and evictions can be awfully stressful. Do you have pensions? Can you add to them? What about paying off the mortgage but saving for DS out of your saved mortgage repayments? Say £500 a month. That would rack up after a bit.

I think, as it is a second property, not your main residence, even if you transfer it to DS, then GCT is payable by you. So other options might be preferable for you.

Yes - sorry, there would be CGT to pay on a gifted property - on any increase in value over £12,300.

This is a useful article: www.thetimes.co.uk/money-mentor/article/gifting-property-tax-implications/

Are you in a holiday area - could you do holiday cottages instead

CGT is payable on them too. I would look at pension provision first. Then repayment of some or all of mortgage. Second property should be last on the list.

We went mortgage free. After doing some sums and weighing up the hassle and risk of BTL (including us having no experience), the income from a property did not seem worth it.

go mortgage free and then make sure you put a good chunk of savings each month into an ISA.

Something like Nutmeg tracker ISA with low fees - set up a direct debit to pay in £200 a month and you'll quickly build up a good nest egg without taxes etc.