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Investing an inheritance

strategic planning Jan 10, 2020

THE QUESTION

John will be inheriting £250,000 shortly and wants to be able to generate an income of £30k per year from property.

He doesn’t have an income or anywhere to live, so will need to plan out the best way to leverage this nest egg.  Ideally, he wants to get a steady return and pay for a place to live. With some BTL experience previously, what would you advise?

THE ANSWER

There are three different options depending on what John wants to do and his attitude to risk.

  1. He could opt for a relatively easy life and just lend out the £250k
    1. directly to investors/developers
    2. through investing via crowd funding sites, which would diversify the risk a lot further.

That would just about hit the £30k pa mark but that would be about it. If he wanted to escalate to more than that over time this wouldn’t really be the way to do it.

  1. He could buy a number of low-priced properties in the types of areas mentioned already and get a 10-15% yield, which would give him the target income of £30k (because he’ll have no borrowing debt). But there’s no real way to escalate that unless he was prepared to leverage the properties he now owned.

By leverage, I mean putting some/all of them up as collateral for new projects, which would need to be 'add value' projects that they would either sell or refinance to pay back the borrowing.  These could be ‘doer-upper’ type projects or commercial to resi conversions or whatever he fancies having a crack at.

With no income currently, that is going to significantly reduce the options to get mortgages, but If he owns a portfolio outright, as above, the rental income from that makes him more attractive to commercial lenders, if he want to refinance his projects.  BTL lenders still won’t like him overmuch because they don’t like lending to full time landlords.

  1. How could use the £250k to get straight into larger projects. This sum would be sufficient to get him into £1m+ projects, if he has the appetite for it.  His presumed lack of experience would be a barrier to getting funding for such projects, so he would most likely have to JV with others who have experience, at least initially.

If he wants a place to live, and wants a mortgage on it, main residence borrowing is inextricably linked to the taxable income you can prove you earn.

 

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