Q I am currently working but expect to lose my job. I’m not holding out much hope of finding another one as I’m almost 60 and not in the best of health.
I have savings of about £120,000 in an account that pays less than 0.5% interest.
I was wondering about using my savings to buy a house to let and living off the rent rather than earnings from a job. Do you think this is a feasible idea? I am going to be looking for a new job if I lose my current one but I just think the odds are stacked against me.
HR
A My first thought was “nice idea but not a feasible one” because I didn’t think that £120,000 would be enough to buy a rental property outright – including stamp duty land tax – and meet the other costs of becoming a landlord, such as arranging safety checks and installing the necessary safety alarms.
However, London-based Vesta Property – which describes itself as “a data-driven marketplace for buying and selling investment property” – proved me wrong, albeit not entirely mistaken.
You can, in fact, pay less than £120,000 for a flat in places such as Cwmaman, Draycott, Hartlepool and Stratford-upon-Avon, with the added bonus that the flats in those places come with a tenant in place, so you would start earning rent as soon as you picked up the keys. And the return on your investment would be a lot healthier than the meagre 0.5% paid on your savings. According to a table published by SDL Property Auctions, even the lowest average rental yield is 3.28%, while the highest is 7.29%.
So, on paper, it looks like a no-brainer.
But there are no guarantees that the yield will be as much as the average – there could be periods when the property is empty and you are getting no returns at all. There are also costs associated with being a landlord: the property needs to be maintained, and you may need to appoint an agent to manage it for you. The rent you receive will need to be declared to HMRC – if you have no other job, it might come within your personal allowance and be tax-free, but if your doubts about your employability prove wrong, you might end up with a bill.
You should also consider the overall state of your finances. If you still have a mortgage on your own home, for example, a better use of your savings might be to pay that off. If you are currently renting yourself, it might make more sense to buy yourself a home (if spending £120,000 would enable you to do that without taking out a mortgage). Whatever you choose to do, you might want to think about how you would manage financially without a cushion of savings to fall back on if you do lose your job.
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