People who are usually very logical about money in their life, can often make mistakes when it comes to an inheritance as they are worried about making a mistake with a legacy. But taking excessive caution with it increases the risk of its value falling.
According to research by Hargreaves Lansdown (an investment platform) almost half of people who have received or are expecting an inheritance leave it in a current or savings account. Financially, this isn’t the best option as bank accounts pay little or no interest. Huddersfield-based mortgage advisor, Kate Burns, explains…
Investing the lump sum in property could prove to be more fruitful instead, especially over the long term. Often when people inherit a large sum, say £100K, they will buy a house in cash for this amount. But even better than that, investing the lump sum over several properties with a £20K deposit for each, leaving some for additional costs, will help to split the risk.
Buy to let is the most popular and traditional property investment strategy, which is where you buy a property with the aim of letting it out to tenants, hence reaping the benefits of investing in rental properties by generating an income over a long-term period.
This is one of the best property investment strategies for those who are just starting out, and for those that have the funds to put down a deposit from a lump sum such as inheritance.
Why should you invest in multiple properties over one?
- Cashflow – Investing in just one property won’t make you a full-time property developer and let you quit your day job. Investing in more than one means you can use the income from the rent to pay down the mortgages and live off any spare cash flow if needed. Over time, the properties should increase in value, and you can reap the increase in equity.
- Diversification – Often a property can come to the end of its life cycle, and you could find it hard to rent out or sell. Having multiple properties in different areas will mean that you will get growth out of at least one property at any one time. By diversifying your portfolio, you can grow wealth across the different properties.
- Spreading the risk – Some properties sit empty for a prolonged period of time, and this might not be an option for you to be able to finance this. If this worst-case scenario hits, however, having multiple properties means you spread the risk and won’t feel the financial impact of the empty one as much as if you had other properties to fall back on.
- Paying off debt – If you invest in multiple properties and then sell them to pay down the debt, it means that when you come to retirement you will have a small and concentrated portfolio of properties that you own with no debt.
- Financial security – The good thing about investing in multiple properties is that if one outperforms the others, then you can use that income as a financial buffer for the others.
One important thing to note and be aware of, is the costs involved in being a landlord. There are bare bone mandatory expenses, including an EPC (Energy Performance Certificate) an electrical safety inspection report, gas safety certificate, landlord insurance and the income tax you will need to pay on your rental income. Landlords will also need to pay additional stamp duty costs of 3% of the purchase price if they have any interest on another property. You will also have additional costs depending on your specific situation. You may have letting agent management fees, tenant acquisition costs and will need to save enough money to cover any maintenance and repairs.
At KB Mortgage Services, we can help find you the best deal and save you money over the term of your mortgage.
How KB Mortgage Services can help:
- Buy to let mortgages for investors
- Reviewing your current buy to let mortgages with remortgaging
- Mortgage protection insurance
Note: Your home may be repossessed if you do not keep up repayments on your mortgage. You may have to pay an early repayment to your existing lender if you remortgage. Second charge mortgage are arranged by introduction only.
Not all Buy to Lets are regulated by the financial conduct authority & we are unable to provide Inheritance or tax advice
Approval no: Sol10841