Income from capital whilst sailing

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truantagain

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Hi all

Looking at heading off for a year or two and was wondering if the best thing to do with some capital is to buy a property somewhere and receive the rent as some income? Probably will have around £150k - so do I buy a property for £150k and have nor mortgage or buy something a bit more than £200k and have a small mortgage - my feeling is that is a good way to grow the capital. The balance needs to be right though as if the mortgage is too big then we won't receive enough rental income.

Perhaps some of you who have done it could provide some points and lessons learnt through experience.

One last question - do you think that £150k to £200k can be enough to provide some kind of cruising budget?

Thanks for the help and advice.

Cheers

Truantagain
 
There are a few things you need to think about. How are you going to manage the property and pay for repairs etc while you are away travelling? A management company is going to ask something like 15% of rental costs, and you'll still need to have a budget for annual gas inspection, repairs, redecoration etc etc.
If you don't employ a management company, then you'll have to be prepared to fly back to UK at drop of a hat to sort out issues that may arise, or spend condisderable time on phone sorting things.

Stingo can probably add further comment, as he's been through this
 
If you read the Sunday Times Money pages then the recommendation would be not to do what you're suggesting. Property prices are overall slowely decreasing so capital growth is unlikely and the market is flooded with rental properties so you are unlikely to get a sensible return. I have the same instincts as you (well, we've all been brought up with it haven't we) but the data proves against us.
I don't have the knowledge to advise but some building socs are giving 5% and you probably won't be paying tax while you're away
 
Thanks for the comments. It does sound like putting it in a bank or with an investment manager might be the way to go. Looking at the return on capital once you deduct agent management fees and allow for all the other unforseen incidents it will probably be about the same. At least the money in the bank will provide a less stressful solution.

5% on £150k would give around £600 per month, which would be tight - but from what I have read could be do-able.

Thanks for the comments and I will keep you updated on the progress.

Cheers
 
In these circumstances I would say that Premium Bonds are a massive risk in that the odds are that there will be no income at all for months on end. Of course, you won't lose any money, other that the value depreciating at the rate of inflation.

I suggest the purchase of a selection of UK government Gilts. The "Running yield" (The rate of interest you receive each half year) is higher than that available from any deposit account that I am aware of. /forums/images/graemlins/smile.gif

Interest can be paid gross (No tax taken out before payment)

Gilts are freely tradeable on the market. If you have need of capital for major repairs or whatever, part of your holding can be sold. (I've not heard of part of a house being sold.)

There are no on-going running costs but there will be brokerage at purchase and sale. Gilts can be bought directly from the UK Debt Management Office or through a broker (Your bank perhaps)

DO NOT buy units (Shares) in Bonds based OEIC. There are management charges and you will lose some of your level of security as the fund will trade in other debt securities.

You will know the worst-case-scenario for your Gilt purchase as this is shown in the papers etc as the Gross Redemption Yield and is currently just over 4% This is why you don't want to hold the Gilt to maturity and should buy medium to long term securities.

Hope this helps.
 
Premium Bonds used to be a good investment with good returns plus a small chance of hitting the big one. However abt 3-4 years ago they changed things so that the number of small wins was drastically reduced in favour of a relatively higher chance of hitting the big one. IMHO this has much reduced the viability of premium bonds as an investment in favour of a number of alternatives unless you want to retain easy access to the capital. Perhaps the new one being touted on TV where they promise a return above the rate of inflation might be worth a look.
 
I did most of my cruising (10 years on and off) on income from rented property - managed them myself with the aid of a nephew - if a new washing machine was needed I got it via the internet delivered to the tenant - if a flat needed a new tenant I parked the boat and got on a jet plane and did the business myself - a chance to see the flat - do running repairs - painting and find a tenant I liked and trusted...
BUT BUT BUT....
I had several flats and if one went bad it was not a disaster.... And there were problems - one tenant, after 2 years of perfect payment, lost her job - stopped paying the rent and by the time I got a court order to get her out she was 7 months behind with the rent and trashed the flat - a perfectly nice flat near tower bridge earned me a total of £350 for that year!!!!!!!

If you only have enough money for one rental property and are totally dependant on it then you will have major financial problems - eventually - renting property is a wonderful way to gain capital growth and get a very high return BUT it can and will go wrong sometimes....
Sorry to be negative but one rental property is not enough...
 
I would invest the capital directly in high yielding shares. This would give an income plus growth, without any of the major problems that is attached to property rental. Also dividends from shares are tax free for basic rate tax payers. More information on this strategy can be found on the motley fool website www.fool.co.uk just search on HYP or High Yield Portfolio.

My partner however favours Premium Bonds and High Yielding deposit accounts. The return on Premium Bonds has not been great, the cheques roll in but the end result is less income than a deposit account. Also you need someone to bank the cheques for you if you are off sailing..... That said you always have the possibility of the big win with the premium bonds. Although I have seen it mathematical proven that you are better off investing your 30k maximum premium bond stake in a high yielding deposit account and using a percentage of the interest to purchase lottery tickets. Apparently the odds of winning the big prizes are the same.
 
I personally can't stand the stress of things like rented property whilst wanting a trouble-free cruising life. My 120K savings is going into SWMBOs tax-free savings account and should give us 350 a month or so. The rest comes from my pension.

Maybe not the best yield but I will sleep at night.

pops
 
BrendanS,

Who said anything about high risk ? The High Yield Portfolio as described on the fool website is low risk. As for Premium bonds these are zero risk as you can not lose your money.
 
there's a £30k limit on how much you can put into premium bonds. A while back you were almost g'teed to get summink each month with say£20k in each month, great fun on 15th of each month cos yeehah open up some envelopes with cheques innem! But this may have changed with fewer (but larger amount) wins.
 
Very interesting thread and thanks for all the good advice in an area with which we really struggle. Particularly interesting to note the comment on one rental property, as we have been considering buy to let (possibly in accession countries or Turkey) with some of the capital we have. (About 100K).

At the moment it is in premium bonds, ISAs and three different high interest accounts. We are very risk averse. So far this year, the bonds are about equal with the deposit accounts, and there has been a steady trickle of £50-£100. Last year, not quite so good, but only about $100 in it. You do have to take the tax issues into account of course in this comparison.
 
high yield shares are by definition high risk. If you have a particular portfolio in mind, then maybe less high yield, and lower risk. Any shares which are high yield carry a risk with them.

Premium bonds also can not be considered zero risk, as you stand the chance they may not pay out winnings on any you buy, and therefore get less back than well considered savings account with same amount. Simple innit?
 
BrendanS

Using your definition of risk and high yield, Dixons with a yield of 5.35% is more of a risk than William Hill at 2.8%, Why do you think so ? What extra risk does Dixons have that William Hill hasn't ?
 
You can get over 5% in a simple savings account, so any share paying less are a risk, as shares rise and fall? cannot see what this discussion is about. High yield to me is something paying over double savings account rate, so eg well over 10%
 
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