Hi, fellow investors,

I'm thinking of buying a one bedroom flat next year as an BTL investment. I've done the maths and it goes a little something like this:

£100,000 property price
£25,000 deposit
£75000, over 25 years = (about) £450 each month mortgage
£750 grounds service charge each year
Rent will be between £550-£600 a month

I'm not sure about tax, but I'm an expat so I don't pay any UK tax at the moment. Other costs may include a letting agency taking care of it, insurances, and any other unpredictable problems e.g. boiler.

My question: Would I be better putting my deposit in an investment trust and leaving it for 25 years and seeing what happens?

"be better" means: Which one would make the most return? I understand that we only have past experience to go on in regards to the future, but I'm really in two minds here.

I feel the stress of owning property and renting it our also needs to factored into this investment decision. I don't mind more stress for a greater return, but how great, I'm still unsure.

Any help would be gratefully received.

Thanks

Steve

BTL could be a good move as property prices are in the doldrums. You can use your personal allowance to cover any tax implications. If you live abroad you will need a good agent to look after the property. Full service is likely to cost 15% of the rent +VAT ie. 18%. It sounds a lot but without that you're likely to have at least 18% voids not to mention the headaches from sorting out problems.

You should now be able to calculate what return you will get plus there is the possibility of an increase in the capital value of the property. You can compare that with the historical performance of investment trusts - presumably you wouldn't stick it all in one trust.

Hi Stephen

I was using BTL as an investment vehicle for some 8 years (when there was good capital growth). Looking over your figures there will be probably little or no income to worry about taxation with the figures you have given here.

The void periods, maintenance, gas & electric safety checks, etc etc will most likely eat up anything left after the letting agent has had his share. Then as an Expat you have to think about how much you are being charged for repairs unless you have plumbers and a general handyman you can trust.

My excuse for selling up my equities and going into BTL was that I thought stock indices were looking toppy and house prices were beginning to climb. It was a good call but even then there was not much rental income profit to be had due to higher interest rates. It was Capital growth that paid off and IMO I seriously cannot see much of that for the rest of this decade, maybe around couple of percent a year in line with general inflation. But that is only my opinion, being right before obviously doesn't mean it is going to be right this time so the choice is down to you at the end of the day.

As regards Investment Trusts, they are some fairly low cost ones out there but if investing for longer term try to spread your money about, maybe a mixture of income, growth, generalist trusts could be suitable. Since end of 2008 I have been making regular contributions into a UK Income and also a Generalist trust (spreads money into different gegraphical regions). I feel happier with doing that than being an Expat LL and can sleep better at night.

Expat LL's will have rental income taxed in the same way as a UK resident LL. Rental income minus Mortgage Interest, Letting Agent Fees, safety certs, repair expenses will be taxed by HMRC as it is UK Income. UK Citizens continue to have a tax-free personal allowance. One other thing to beware of is the country you now reside in and how they treat income and capital gains (when you sell rental property) from other countries. So you need to check on the Double Tax Treaty (if one exists between UK and your host country) on HMRC site

A lot to think about so don't rush in to making a decision on something major like this. Best of luck with whichever route you take

While I was an expat I had a couple of rental properties for a while, one ended with squatters after a weeks void & the other with damges considerably over the deposit. Main problem I experienced was with the agents, used 3 & all were totally useless. I found their only interst was in taking the 15%, they used poor maintainers & never checked on their work, also ignored requests from tenants & never proactive.
My daughter/son in law have a couple, similar experience with agents but they live reasonably close to their places & have their own maintainers.

I recommend IT's, risk level depending on length of time 'till you'll need to cash in. Easily controlled from a distance. Also much simpler to raise half of the stake if cash needed, which is tricky with a property.

I considered investing in a 2-bed flat some 15 years ago. If I had, my £55,000 investment would have turned into perhaps £165,000 now (although a flat in same block is still unsold at that price after 3 months..). I thought I would be better off in funds / ITs, and so it proved as I invested the money in European funds and Asian ITs. I avoided all the hassles of tenants etc so well spelled out by others (owning the house I live in is quite enough hassle for me, and it took ages to recover from the problems that arose from renting it out for less than a year – the agent never did pass on all the income). By phased sales of funds, I avoided any liability to CGT. I retained the flexibility of assets that could be sold piecemeal, and I really have no regrets other than that I would now have a nice flat that I might be willing to move into myself. Being better informed about ITs now, I fancy my chances of continuing to do better with a portfolio of good ITs than with BTL, and with all the advantages of flexibility. I think for an expat the advantages of ITs over BTL are considerable.