Investing in Property

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czardasz
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Basically, my parents have been putting money away for my savings for most of my life, i want reveal how much, however I’m 17 right now and I dont want that money sitting in low interest bank accounts. Hence I’ve convinced my parents to let me use this money to invest in Property, obviously with a mortgage as well as i don’t have enough to buy an apartment outright. However, my question is should i buy an apartment in Liverpool city centre, using up my entire savings, with a huge mortgage for a 7-8% yield, or buy 2 apartments in warsaw for around 80-90% my savings with a yield of around 11% however with a less stable economy, and lower amount of renters, as around 75% of Poles are home owners? Btw i am Polish, hence would be there generally often and would employ a property manager regardless of where i buy
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czardasz
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ch0c0h01ic
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(Original post by Mikolaj1109)
Basically, my parents have been putting money away for my savings for most of my life, i want reveal how much, however I’m 17 right now and I dont want that money sitting in low interest bank accounts. Hence I’ve convinced my parents to let me use this money to invest in Property, obviously with a mortgage as well as i don’t have enough to buy an apartment outright. However, my question is should i buy an apartment in Liverpool city centre, using up my entire savings, with a huge mortgage for a 7-8% yield, or buy 2 apartments in warsaw for around 80-90% my savings with a yield of around 11% however with a less stable economy, and lower amount of renters, as around 75% of Poles are home owners? Btw i am Polish, hence would be there generally often and would employ a property manager regardless of where i buy
I looked into investing in buy-to-let property relatively recently and was put off by the high fees (stamp duty, conveyancing, mortgage fees and interest, maintenance, management fees, income tax +/- capital gains, etc). I couldn't justify the extra time, hassle and complexity when I could get a similar (or better) return investing in equities.

Over the long term you can expect a 7-10% return investing in global equities (with dividends reinvested), tax free if you use a S&S ISA, and with fees of 0.5% (or less) investing through a cheap platform like Vanguard.

The main 'benefit' of B2L is leverage, by taking out a mortgage you have the opportunity to amplify your returns in the long term (ie; 20+ years). However, bear in mind that this can also amplify your losses! Countless B2L landlords went bankrupt following the last economic crisis when the housing market collapsed and they struggled with occupancy.

Of the couple of successful B2L landlords I know, the majority focus on cheaper housing 'up North' where the yields are higher. They also have access to cheap or even free labour (ie; friends and family are tradesmen) to reduce the costs of maintenance and refurbishment, and have access to alternative income streams (ie; high paying unrelated job) for extra resistance to economic downturns.
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czardasz
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(Original post by ch0c0h01ic)
I looked into investing in buy-to-let property relatively recently and was put off by the high fees (stamp duty, conveyancing, mortgage fees and interest, maintenance, management fees, income tax +/- capital gains, etc). I couldn't justify the extra time, hassle and complexity when I could get a similar (or better) return investing in equities.

Over the long term you can expect a 7-10% return investing in global equities (with dividends reinvested), tax free if you use a S&S ISA, and with fees of 0.5% (or less) investing through a cheap platform like Vanguard.

The main 'benefit' of B2L is leverage, by taking out a mortgage you have the opportunity to amplify your returns in the long term (ie; 20+ years). However, bear in mind that this can also amplify your losses! Countless B2L landlords went bankrupt following the last economic crisis when the housing market collapsed and they struggled with occupancy.

Of the couple of successful B2L landlords I know, the majority focus on cheaper housing 'up North' where the yields are higher. They also have access to cheap or even free labour (ie; friends and family are tradesmen) to reduce the costs of maintenance and refurbishment, and have access to alternative income streams (ie; high paying unrelated job) for extra resistance to economic downturns.
Thanks for the advice, I have looked into equities, stock and share before but never fully considered them as my parents consider them too risky, to actively invest in. They would rather i invest in an index fund if I decided against property.

how would you recommend educating myself more about global equities, in order to make a uniformed decision that would hopefully be a good investment.

I hope to study physics at Uni, and then progress into a career in finance in the City
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ch0c0h01ic
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(Original post by Mikolaj1109)
Thanks for the advice, I have looked into equities, stock and share before but never fully considered them as my parents consider them too risky, to actively invest in. They would rather i invest in an index fund if I decided against property.

how would you recommend educating myself more about global equities, in order to make a uniformed decision that would hopefully be a good investment.

I hope to study physics at Uni, and then progress into a career in finance in the City
A broadly diversified porfolio of cheap index trackers is much lower risk than B2L.

In you/your parents situation, you're very exposed to the local economy and the UK housing market, and this is amplified by leverage via a mortgage. With low cost index trackers you're investing in the collective wins and losses of 100s if not 1000s of companies, rather than just your parent's earning potential and the local housing market.

If you're interested in passive investing Monevator is a good, free source of information on passive investing. If you have a bit of spare cash or access to a well stocked library Investing Demystified, The DIY Investor, The Boglehead's Guide to Investing and Millionaire Teacher are all great reads. The last two are USA/Canada centric so some of the dicussion regarding tax efficiency and retirement accounts are irrelevant.
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NX172
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I'm a portfolio landlord. Here's some quick advice.
- B2L isn't as lucrative as it was before. Bear in mind:
- You will soon no longer be able to claim mortgage interest relief, which will hurt your profits greatly
- You will have to pay the higher rate surcharge of 3% when paying stamp duty
- Interest rates are on the rise
- You will have to pay income tax on your earnings
- Unless you want to be one of those uncaring and neglectful landlords, you will need to be quite hands-on with managing property:
- You should have some basic DIY skills or else have to rely on expensive tradespeople to do simple tasks which eat into profitability.
- You will need to be available in case you need to visit the property (unless you want to pay an agent who'll do that for you. Management fees are typically 7-10% of your gross rental income.)
- Estate agents won't fix your problems. They just act as a middleman and pass the problems back onto you or call an expensive tradesperson to deal with it
- You WILL deal with problem tenants. While on the whole I've had mostly reliable tenants. I've had my share of people seemingly trustworthy/creditworthy but they suddenly step out of or violate contractual agreements. They can run into financial difficulty, their job/family situation changes or they just want to disappear from the country without notice. Tentants will often be breaking things by mistake or neglect. Cause quarrels with other tenants, have poor cleaning habits, etc.

To summarise, being a landlord can be a headache a lot of the time. Profitability has been severely hampered as of late. To keep profitability:
- You may want to choose somewhere local where you can manage the property yourself instead of relying on an agent
- Improve your DIY skills. Much of the profitability depends on the price you pay for the property. It's far more profitable to buy a property that needs some minor work and do it up.
- Due to the high taxation, minimize your leverage. Being highly leveraged will result in more mortgage interest which you won't be able to claim as an expense. Personally I would aim for 60% LTV.
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Simonthegreat
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(Original post by NX172)
I'm a portfolio landlord. Here's some quick advice.
- B2L isn't as lucrative as it was before. Bear in mind:
- You will soon no longer be able to claim mortgage interest relief, which will hurt your profits greatly
- You will have to pay the higher rate surcharge of 3% when paying stamp duty
- Interest rates are on the rise
- You will have to pay income tax on your earnings
- Unless you want to be one of those uncaring and neglectful landlords, you will need to be quite hands-on with managing property:
- You should have some basic DIY skills or else have to rely on expensive tradespeople to do simple tasks which eat into profitability.
- You will need to be available in case you need to visit the property (unless you want to pay an agent who'll do that for you. Management fees are typically 7-10% of your gross rental income.)
- Estate agents won't fix your problems. They just act as a middleman and pass the problems back onto you or call an expensive tradesperson to deal with it
- You WILL deal with problem tenants. While on the whole I've had mostly reliable tenants. I've had my share of people seemingly trustworthy/creditworthy but they suddenly step out of or violate contractual agreements. They can run into financial difficulty, their job/family situation changes or they just want to disappear from the country without notice. Tentants will often be breaking things by mistake or neglect. Cause quarrels with other tenants, have poor cleaning habits, etc.

To summarise, being a landlord can be a headache a lot of the time. Profitability has been severely hampered as of late. To keep profitability:
- You may want to choose somewhere local where you can manage the property yourself instead of relying on an agent
- Improve your DIY skills. Much of the profitability depends on the price you pay for the property. It's far more profitable to buy a property that needs some minor work and do it up.
- Due to the high taxation, minimize your leverage. Being highly leveraged will result in more mortgage interest which you won't be able to claim as an expense. Personally I would aim for 60% LTV.
What do you mean by leveraged?
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ch0c0h01ic
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(Original post by Simonthegreat)
What do you mean by leveraged?
In investment terms it means borrowing money in an attempt to increase profit.

As NX172 has pointed out, the government is steadily decreasing the amount of tax relief you can claim on mortgage interest payments. Over the next couple of years (excluding interest rate rises) this is going to significantly reduce potential B2L profits, especially if you have a large mortgage.
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LostAccount
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Inform yourself about the tax system in Poland regarding renting before bothering to put money in it - my parents quickly found out when they bought an apartment to do up (cash, no mortgage). Turned out to be easier to just transfer the property to my grandmother and let her collect the rent, whenever the place was even occupied in the first place because Poland is a perpetual buyers' market as the number of people renting is so low because ownership is so high and because there's much less of a societal pressure to move out of your parental home. Also remember that property rights in Poland for non-commercial uses are not very strong and renters' rights are closer to Germany (longer notice periods, tenant contracts) than Britain. Non-payment of rent can extend for up to three months before the landlord can begin the process of eviction, and the courts may be involved for another six, after which its up to the police to decide when to intervene on behalf of court orders. None of this will be compensated in lost rent.

Additionally, no bank will provide you a loan to buy apartments in Warsaw if you live abroad and don't have solid income history - banks in Poland are far more conservative in lending requirements. Lest you mean 80-90% of your total money being used in cash in which case my bad for misinterpreting.

Either way inform yourself about the real estate market before committing funds. Current market features are not permanent. Housing supply is growing at a far faster rate in Poland, especially Warsaw, than the UK. This means the prices are likely to fall or just stagnate in the future as they pretty much have done over the last 25 or so years, similar to Germany. There has been a very strong period of growth since 2016 coinciding with the economic boom, but a boom is a boom and booms don't last.
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