Investment Property UK – FAQs

Investors who are new to Investment Property always have a ton of questions for us about the basics. Buying a profitable rental property is challenging, and if YOU are keen to start making lifestyle supporting passive income, here are the 8 top questions we get asked that you want answered…

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1) Should I Buy Outright or Use a Mortgage?

Use a mortgage – this is hands down the most crucial decision factor between whether your investment provides a life changing return or a mediocre one.

If you buy outright you might need to spend £100,000 or more on one rental property, whereas for the same money you could buy up to 4 mortgaged properties in the same area.

In terms of monthly profits, you must pay some mortgage interest, but your revenues are 4 times higher.

In most circumstances, using a mortgage is the obvious choice. The rest of the market is doing it, and this is factored into rental prices.

And who can afford to spend £100k or more on one undiversified asset?

Applying For A Mortgage Can Be Daunting - But Necessary

2) Do I Need a Special Type of Mortgage?

Yes – the best model in our opinion to buy investment property is with an interest-only mortgage.

This is in fact the default mortgage type for buy-to-let property purchases. We invest for cash flow, and this is not achieved if we must repay hundreds of pounds of equity each month under a capital repayment mortgage structure.

By being patient and holding the property for 30 or so years, we expect the equity to build to a high enough amount to make the loan balance negligible. This is achieved when the house value increases.

Be Patient - Play The Long Game With Your Portfolio

3) How Much Money Do I Need to be Able to Invest?

In some areas of the North of the UK, a decent rental property can still be bought for around £100,000. A buy-to-let mortgage will let you put down a deposit of no less than 25%, so that’s £25,000 of capital.

Add to this stamp duty of £3,000 and legal fees, and you’re looking at around £30,000 for the average investment.

Don’t live in the north? No problem! – you should be using a property agent to manage your assets anyway. There’s no need for you to live down the street from your rentals.

You could also go halves with a friend – up to 2 people can be listed on a mortgage. More friends can be involved if you buy through a company structure.

On this note, buying through a company can open the option of 20% deposit mortgages although this is not common– an upfront cash saving of 5% on your deposit!

A Northman Contemplating His Vast Property Portfolio

4) Do Landlords Spend All Their Time Fixing Toilets?

I have never fixed a toilet in my life, and I don’t intend to! The only landlords who would are doing so because they’re “accidental” landlords (i.e. they’ve inherited a house), or they have bought a property based on reasons other than the highest profit margin available. Maybe they thought it looked pretty.

They don’t know what they’re doing finance wise and are forced to cut costs on maintenance. No, pay a plumber to do it for you, and have a management agent arrange it for you.

You Shouldn't Be Doing This As Investor

5) Should I Set Up a Company to Buy Property?

This is up to your preference and circumstances. Note that limited company mortgages carry higher interest rates than personal mortgages.

But companies are a way to protect your wallet from the tax man, and you pay tax at the corporation tax rate, currently 19%, which is cheaper than paying income tax which you’d pay if it was owned in your own name.

But you’d also have to pay dividend tax when you take your profits out of your company.

Whichever method you use, don’t plan to change it later, as you’ll incur stamp duty and legal fees to do so. Make your choice now; and stick with it.

Keep The Taxman Away From Your Dollar

6) What If Interest Rates Go Up?

If interest rates went up, the cost of your mortgage would go up, and your profits would go down.

But the same would be true for every other landlord in the country – will they all just continue taking that hit to their profits?

No, they would all raise their rents at the first opportunity, out of necessity, and so could you.

The Bank of England knows this, and they know that by raising interest rates, most of the additional cost will inevitably be passed on not to the landlords, but to the tenants.

So, they are reluctant to raise interest rates significantly as a result, unless it’s spread over a long enough term to allow rents to rise gradually.

As always, there is a risk that an investment will lose money, and interest rate risk is one of the biggest for property investors – only invest what you can afford to lose.

Put Rents Up With Interest Rates

7) Do Tenants Have All the Power Now?

In June 2019, new laws have come in that mean tenants don’t have to pay agent fees – these costs are likely to be shared now by the agent and the landlord, so factor this extra cost into your profitability calculations before investing.

It is the latest in a string of new laws that give tenants more rights. What this really means is you need to be aware of the rules now more than ever, and extra careful not to fall into any traps by accident.

A good management agent will hold your hand regarding the rules; they’ll make sure that new tenants have a good credit history, will chase up late payments, and help with any evictions.

Avoid taking on problem tenants in the first place using proper referencing, and take out legal cover insurance for evictions, just to be extra safe.

Avoid The Landlord Traps Set Up By Parliament - Stay Knowledgable

8) What Are the Scary New Tax Changes

We always get asked about the tax changes to mortgage interest – it’s something that seems to strike fear into the hearts of wannabe investors.

But you may not need to worry about this one – if you are a basic rate taxpayer, the impact is negligible.

The main effect being that your taxable income is increased by the amount of the interest, which could push you up into the higher tax bracket by a small amount.

If you are a higher rate taxpayer, you will be stung by this if you own your properties in your own name. Two solutions are to either buy in the name of a spouse who is a basic rate taxpayer, or to buy using a company.

What other questions do you have us about property investing? Let us know in the comments below.

Side Hustle Ideas UK

Do you want to start a side hustle, but need some ideas to get started? Millennials are turning in their droves to the gig economy and side hustles, with 1 in 4 people now taking on multiple money-making activities at the same time. Gone are the days of a high paying job for life.

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Beyond the necessity to supplement stagnant wages, young people now demand the flexibility of a work life balance on THEIR terms.

Having a side hustle business outside of your normal job is a fantastic way to have fun doing a hobby you enjoy; and get paid to support your lifestyle at the same time.

So what makes a good side hustle? And what are some good side hustle ideas?

woman thinking
Time To Think Of An Idea

Thinking of an idea is challenging, but before that we need to be thinking of the right type of side hustle.

What Makes a Good Side Hustle?

We say that there are 3 types of side hustle. These are:

1) Pay By The Hour/Event

This is the “Trade Time for Money” type of side hustle, and the most common. It is also what most people think of when they think about side hustles.

Here’s some ideas for this type of side hustle:

  • Host murder mystery evenings at your home
  • Manage social media accounts for small businesses
  • Mystery shopping
  • Grow and sell plants
  • eBay clear-out
  • Dog walking / babysitting
  • Private tutor / music lessons
  • Londoner? Offer free tours – tourists expect to pay a decent tip each of £10 – £20

What’s good about the Pay-by-Event type of side hustle is that they are often simple to set up, you know roughly how much extra cash you’ll get each month, and there are plenty of ideas out there.

Whatever you are good at, you can spend your spare time doing it and getting paid for it.

planting seeds
Your Hustle May Take Time To Grow

The downside to this type of side hustle is that there is limited room for growth. You only have so much time in the day, especially if you are working alongside a full-time job.

2)100% passive side hustle

We’re not sure that these technically fit the definition of side hustle, but they are a way of making money outside of work – so we include them here.

Examples of 100% passive side hustles include:

  • Rent out a room to a lodger / become an Airbnb provider
  • Let a commuter park on your drive or garden
  • Rent your garage out for storage
  • Hire out the use of another asset you own e.g. a classic car or an expensive camera

These are much better types of side hustle as they take the time element out of it – if you can, set up one of these moneytrees first, and once they are ticking along without your input, you can turn your attention to a side hustle that requires your time.

This type of side hustle requires you to own assets, and to make them work hard for you while you do nothing.

lodger
Lodgers Can Bring In Hundreds A Month - Each!

Obviously not everyone can do this, but if you are lucky enough to have a foot on the housing ladder, getting a lodger is a simple and significant step you can take to make hundreds of extra pounds each month, tax free.

3) Business with Growth Potential

Finally, this type of side hustle is a true business start-up – you might expect to have an initial cash outlay, no profits for the first year or two, but thereafter could have unlimited growth – to the point where it’s making enough money for you that you can quit your day job.

This type of side hustle differs from something like a dog walking business, in that it has scalability in terms of the number of people it can reach.

dog walking option 2
Dog Walking Pays Only So Much - Where's The Scalability?

A dog-walker can only walk so many dogs; a tour guide can only put on so many tours.

Examples of side hustle businesses that have scalability are:

  • Start a YouTube channel, website or blog that offers value and helps people
  • Write a book
  • Graphic designer / Photographer / Music Samples creator – sell on sites such as AudioJungle
  • Produce and sell an online course e.g. website development, car mechanic, cookery – whatever you’re good at, make a course to show others how to do it, and charge big bucks
  • Investment Property business

Note that most of these are internet based. The reason so many people are able to make a living from the internet is that it is the purest and simplest tool to achieve scale.

global network
The Internet Means We're All Connected

We’re All Interconnected

Everyone in the world is connected the internet, meaning that your product or service has the potential to reach over 6 billion people.

Come up with a product that helps people or that entertains them, and a way of making sales passive, and you are onto a winner.

The web-based tutorials site Udemy is a place where you can upload a series of videos that you have filmed and packaged together as a course, which people can download and buy.

You create the course ONCE, then forget about it – an unlimited volume of the product can be downloaded without any further input from you, and a worldwide audience can see your product.

You have scalability of production and of audience reach.

What We’re Doing

This website is another example of a side hustle that can reach an unlimited number of people, and crucially we believe provides value.

In our YouTube videos, we aim to provide as much information on investment and finance topics as we can in as short a space of time, to educate, entertain, and help you become financially free.

In return, we hope our channel and website will grow over the years to reach a global audience, and act as another source of cash flow for us alongside our investment portfolios.

The key is that we are first and foremost doing something we enjoy and doing it for the right reasons – to help people. If you can genuinely help the masses, your business will grow.

monopoly
Building A Property Portfolio In Your Spare Time Can Make You Rich

Investment Property as a Side Hustle?

We include in that final list an Investment Property business.This lacks the scalability of an internet business but can grow from a handful of rental properties into a portfolio 50 strong, by reinvesting all profits.

We include it because it doesn’t require your time to manage (you should be using a property agent to manage your portfolio for you). Unlike an internet business however, it costs a lot more to set up.

Consider Your Schedule and Flexibility

When choosing a side hustle, you should ask yourself how much time do you have available, and what is your time worth to you? Are you willing/able to give more time as your side hustle grows?

time
How Much Time Can You Really Commit?

Setting up a business will take a lot of time and commitment before you start to make serious money, while a Time-For-Money side hustle might be better suited for someone who needs an extra income now.

Conclusion

As you know, at MU we both love and crave passive income, but if we must give up some of our time, it should be for scalable income.

Therefore, we would always go for the second and third types of side hustle.

The 100% passive such as lodgers and renting out assets and setting up Businesses with Scalability, like what we’re doing with Money Unshackled.

We hope we’ve opened your mind to what a side hustle can be – it needn’t be just another time-for-money trade off like your day job. If done right, it could set you free.

What’s your side hustle idea? Let us know in the comments below.

Investing For Beginners UK – FAQs

Investing for beginners can seem very daunting but it doesn’t need to be this way. In fact, investing is incredibly easy if you spend a bit of time learning the ropes. Just a few minutes here and there could shave decades off your working life and set you financially free.

Let’s Look At Five Frequently Asked Questions

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1) Where To Put My Emergency Fund?

We regularly get asked this as if we have got a secret investment opportunity that somehow gives safe and yet enormous investment returns with instant liquidity. Liquidity refers to how easily assets can be converted into cash at its intrinsic value.

This means the value determined through fundamental analysis without reference to its market value. Or more simply what it should be worth even if the actual price is different.

So, property is very illiquid, as it can take several months to sell, and you may have to sell below its “real” value. And with stocks and shares you might be able to sell quickly but you may be forced to sell below its intrinsic value.

Property Is Illiquid - Your Money Is Locked Away

An emergency fund must be accessible and not prone to sudden value declines. This means the only place to store an emergency fund is in cash, whether that be in physical cash or a bank.

All is not lost as you can take advantage of some savings accounts and even higher interest regular savers on the proviso that you have instant penalty free access.

Unfortunately, an emergency fund is just one of those things we must all have despite inflation destroying its value.

In time your other assets will dwarf it, so the fact your emergency fund is doing nothing won’t be such a big problem.

2) What Is The Minimum Money Needed To Invest?

You can generally start as low as £25.  But often it’s not the forced minimum you need to be concerned about- It’s the minimum required to have a diversified portfolio that you need to be aware of.

If investing just in stocks, we traditionally would have said £6k in order to get basic diversification but with new “free” platforms, you can practically start with nothing.Of course, we never encourage beginners to start with a purely stocks-based portfolio due to the risks.

If you go down the fund route, which we always encourage, most traditional investment platforms have a minimum monthly investment of £25 and a monthly trade cost of about £1. But it’s better to do more than £25 if you can to reduce the impact of the regular trading fee.

You might be thinking“I’ll go with the free platforms”; but be aware they are limited in the service they offer and the investment choice.

Your Assets Will Soon Dwarf Your Emergency Fund

3) Which Is The Best Investment Platform?

This must be the most frequent question along with “what platform do we use?” The truth is there is no single best platform and what we use is probably not right for you, as there are so many different variables. It also depends on what account you are using such as ISA, SIPP and so on.

Perhaps we can summarise the platforms into categories and you can choose the one best suited to you:

  • “Free” but no frills
    • Try Freetrade or Trading212.com – The investing part, not CFDs
  • Low Cost Percentage Based Fee with decent service offering – For small pots
    • AJ Bell
  • Low Cost Fixed Fee with decent service offering – For Bigger pots
    • Interactive Investor
  • Dirt Cheap Vanguard Funds Only
    • Vanguard
  • Cheap Robo Investing Platform i.e. do it all for me
    • Nutmeg

Some people mention trading sites such as Plus500 or etoro but these are not investment platforms.These are trading platforms where you trade CFDs. We don’t currently gamble in CFDs and something like 80% of those who do, lose money.

The UK is a Great Economy

4) What Will Happen After Brexit?

Long term we will probably flourish and that is whether we are in the EU or Out. We’ve never understood all the negativity. The best approach is to just decide and get on with it. Indecisiveness is the only problem.

Personally, we both think we will be better off out long term but Britain is a great country and has been for thousands of years- This will continue either way.Leaving without a deal would probably see short term issues as we need to arrange so many things that we as a nation haven’t been responsible for, for decades.

And of course, some companies would want to adjust their operations. Perhaps to get better access to Europe and perhaps better access to the UK.Whatever you do, make sure you have a global diversified portfolio and laugh at everyone else worrying over nothing.

5) Should I Invest in Vanguard LifeStrategy and another Vanguard fund?

We have regularly promoted the Vanguard LifeStrategy fund as a great fund for beginners because it is dirt cheap, and has enormous world diversification but with a UK focus.

But we often get asked whether they should buy this fund or that fund to go with it. This could be the Vanguard S&P500 as an example.One of the main reasons to buy the LifeStrategy fund is because it’s a one stop shop. You don’t need anything else.

In our opinion the only reason to buy another fund is if you wanted to adjust the allocation. For instance, if you thought the LifeStrategy fund was too UK focused you could indeed buy some more S&P500 to alter this.

Just be careful that you are not altering it with the intention of increasing diversification, as in reality, you could be lowering it.

What other money or investing questions need answering? Let us know in the comments section!

Will Property Prices Fall in UK After Brexit?

Will property prices fall in the UK after Brexit? It’s the question that’s on the lips of buy-to-let investors and first time buyers up and down the country.

Brexit uncertainty, tax changes and new laws to protect tenants are shaking up the housing market in a way not seen since the 2008 recession.

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As investors, low property prices can be both a blessing and a curse – low prices mean we can buy more cash flow generating freedom assets, but also mean more competition with other investors; and ultimately, if prices fall too low, negative equity and dried-up credit lines.

So where is the UK property market heading, and will the post Brexit world (if we ever get there!) continue to be a land of opportunity for property buyers?

Bank of England

Where is the UK Property Market Now?

The expert advice is all over the place on this one. The Halifax have house prices surging 5.2% in the year to May, a fantastic rate of return for property investors, if true.

But the industry considers Halifax to be an outlier. The more consensus view is that house prices rose between 0.6% according to Nationwide and 1.4% according to Official Government figures. Either way you look at it, prices have risen over the last year.

The recent relative stability of the housing market is due in our opinion to wider economic factors outside of the Brexit debate.

Employment remains high and interest rates remain low, keeping mortgages affordable and house prices steady.

However, an economic upheaval such as a recession due to a mishandling of Brexit, or by a Corbyn government keen on shaking up the economy, could change all of this.

RPI Measure of Inflation

The RPI measure of inflation differs from the more commonly used CPI in that it includes house prices.

It is somewhat correlated to house prices as a result, and useful for tracking prices in the whole economy.

Above, we see how RPI has moved over the last 5 years. What is interesting is the period from 2016 to 2019 – despite the uncertainty caused by the Brexit shambles in Parliament, prices across the economy have continued to rise at a traditional rate of inflation, around 2-3% – led by a strong jobs market and affordable interest rates.

Brexit - Will Something Finally Happen Soon?

Brexit

Coming onto Brexit – what this now represents for economists is uncertainty.

Prolonged uncertainty is the death of an economy, and in our opinion the protracted feet dragging in Parliament is causing a much more severe economic impact than either Leaving or Remaining in the EU would bring.

No matter your position on Brexit, you should at least agree that something needs to be done quickly.

There are 2 realistic options for Brexit now in our view – a No Deal Brexit, or Leaving with a Deal.

Remaining is of course possible too, but doesn’t look likely in the short term, and certainly is not expected by the markets – and property prices are driven by market expectation.

Why Does Nobody Have Faith In The UK?

No Deal

Rightly or wrongly, the market is terrified of No Deal, and the latest line from the Bank of England is that they would lower interest rates in the event of No Deal to stimulate the market – possibly even down to 0%!

Under normal circumstances, we might expect lower interest rates to lead to higher house prices, as people can more easily afford mortgages and have more disposable income, creating more demand – more people competing for the same limited housing stock.

However, these are not normal circumstances, and if a No Deal Brexit is delivered incompetently, there could be an economic shock akin to the last recession.

We expect this would drive house prices down as buyers pull out of the market, over and above the effect of an interest rates fall.

Our expectation in a No Deal Brexit scenario would be that property prices hold steady at the least, or fall in the short term.

"Accidental" Landlords Will Drop Out

Leaving with a Deal

The Bank of England have said that if we Leave with a Deal, they would put interest rates up.

Raising interest rates would likely slow the economy as spending becomes more expensive, decreasing demand.

At the same time, accidental landlords would drop out of the market as their mortgages become too expensive to make a profit, increasing supply. When demand is decreased and supply increased, prices fall.

Other than the impact of interest rates, we expect that Leaving with a Deal would be business as usual.

Some investment cash may be released into the economy that had been held back, raising prices, but we think the impact of interest rates would be more significant.

The reason we think that interest rates will have a greater impact than Brexit itself is because we expect the Bank of England to over-correct the interest rates adjustment in response to Brexit, as they are so terrified by it.

We believe that the UK will carry on regardless of membership of the EU, or lack of it.

3. Mini Crash
The Property Cycle - Mini Crash

The 18 Year Property Cycle

Another tool in our arsenal is Property Cycle Theory. We’ve looked before at how the property market broadly moves in 18 year cycles.

As a refresher, the 4 phases are: Recession; Recovery; Mini-Crash; and Boom.

We are currently in an extended Recovery phase, teetering on the start of the Mini-Crash.

We think that the Brexit uncertainty of the last 3 years has held the market in paralysis, and is delaying the inevitable.

Once Brexit is resolved, we expect the market to return to form and see falling prices for a couple of years during a Mini-Crash, followed by rising prices during a Boom Phase – akin to what happened during the 90s.

4. Boom Phase
The Property Cycle - Boom Phase

Conclusion

We expect property prices to hold steady in the short term, then fall naturally for a year or 2 in line with the Property Cycle once the pressure valve of a political decision over Brexit is taken, possibly in October 2019.

Finger in the air, we would then expect property prices to return to strong growth during a Boom phase for several years more – but looking more than a year ahead really is guesswork.

Low prices mean investors can buy more houses – price rises mean we’re making a better return on our existing portfolio, and can take advantage of equity release to improve cash flow.

High or low, a good investor will take advantage of property prices as they stand.

Do you think UK property prices will fall? Let us know in the comments below.