Investing In Your Family's Future

Crea tin g

a

e t s g e g n

AS

parents, we are often concerned about how we

can best nurture and support our children to give them the best possible foundation for the future.

Whilst much of our focus might be on education and extra-curricular activities, socialisation and developing life skills as they grow up, we might not always think about how we can give them the best financial footing for the years ahead.

for y o u

amily rf

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Whether your aim is to be in a

With a growing family and future

position to pay for your child’s

plans in mind, you might also wish

higher education costs, perhaps

to invest in property in order to

even buy a property that serves as

boost your savings pot and

a buy to let now that you intend

generate additional income for

to give to your child when they

your family to enjoy for many

leave home or are simply seeking

years to come.

to hold investments in trust as a gradually increasing savings pot

Whatever your motive for creating

until your child reaches a certain

a nest egg for your family, there

age – property investment could

are several ways to structure the

be the perfect way to accrue

purchase.

wealth for your child.

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AMILY IN THE EF

investment portfolio at any time.

If you’re seeking to improve your

R E.

can choose to begin your property

TU FU

means, you

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the right

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WITH

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AN IN VE ST

HAT BENE T T FIT N E S M

family’s regular income, grow wealth and create a legacy, the sooner you take action on your intentions the better – on an upward trajectory, the property market historically favours those who ‘get in early’.

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Whether you choose to buy

earn additional income

an investment property in

than people believe.

your own name or within a company structure, it’s

Find an example including

prudent to take

figures to demonstrate

appropriate tax advice to

how you can get started

ensure how you buy an

and then how you might

investment property works

grow your portfolio

for your long term plans.

organically on page 35.

It’s often the case that it is more possible to buy an investment property and

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plans

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you’re planning on investing

IF

benefit your family within the

complications and additional costs

have young children this simply

on your child’s behalf for

nearer future.

that likely mean this is not the

isn’t an option.

15 years plus then your strategy

Some might assume that you can

and the structure of your portfolio

simply buy a property and put it in

It’s more straightforward to gift

property in trust is the best way

should be slightly different to

their child’s name. Whilst this is

your child money and for them to

to invest for your child.

that of an investment that will

perfectly plausible there are

buy the property, of course, if you

best way to invest for your child.

them to see the benefit in 10 or

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It is often the case that buying a

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U

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N I GA Y U B

CHILD 14

T ST FOR YO RU

O R

T Y R E IN P

....

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MANY

parents

basic trusts which give everything

might wonder

to the beneficiary upon them

if they can buy a house for their

reaching a certain age to specific

child or if they can buy the

non-resident trusts where the

property and then put it in their

trustees are residents abroad,this

child’s name. The best way to buy

type of trust can provide some tax

a property for your child is usually

advantages.

to buy it in a trust.

A trust can be an excellent way to A trust presents a legitimate way

reduce the tax due to be paid on

to avoid both inheritance tax and

your inheritance – it’s important

capital gains tax, ideal for those

that a trust is set up in the most

who want to invest in their

beneficial way to you and your

child’s future.

family and taking professional advice is strongly recommended in

There are several different types

order to get it right.

of trusts to be considered from

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rty

?

is a trust w se o H

pe

buy p o t p ro u t

A

professional advisor can guide you through the process of setting up a

trust to ensure it is arranged in the best possible way for your personal circumstances, we can provide an idea of how a trust is set up to buy property.

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• Either one or both of the parents would be the trustees • Instead of the parents buying the property with their money they would gift the deposit money to the trust • The trust would then buy the property using a mortgage • In most cases, the parents/trustee

The beneficiary for whom the trust is

will be asked to be a guarantor for

set up is usually too young and unable

the funds

to manage the trust assets themselves. Assets are held in trust for the benefit of the beneficiary.

A trustee has a legal duty to manage and oversee the assets held in trust on the behalf of the person who will benefit from the trust in the end.

It’s important to note that when you are setting up the trust you can set out the rules as to how the trust is managed to meet your preferences. It might be that you want your children to only gain access to their trust at 25 years old.

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Step GET YOUR FINANCES IN ORDER An obvious step but one that

allow you to solely focus on

needs to be taken no matter

considering the available

whether you’re planning on buying

opportunities without the

the property and owning it in your

distraction of arranging mortgages

own name, setting up a company or

and providing documentation to

buying it in trust. Being organised

create a trust or company

before you begin looking for a

structure.

suitable investment property will 25

Step

CREATE A PLAN Once you’ve established how much money you’d like to invest, whether you’re taking a mortgage or buying in cash, if mortgage then the numbers a property must achieve to meet the terms of that mortgage, it’s prudent to devise a plan.

What do you hope to achieve in 5-10 years’ time? Are you hoping to grow your portfolio and acquire further properties or would do you plan to sell the property after making a certain amount of money?

Having a plan allows you to more clearly devise where and what you should buy and also track the success of your purchase.

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Step CONSIDER THE AVAILABLE OPPORTUNITIES Only once you’ve gotten your

Not just about location, the

finances in order and have put

property you buy will also

together a plan should you then

dictate your level of success.

begin to consider the options

Finding a property that is being

available at that time.

built by a reputable developer with a strong track record will

At this stage, you’ll need to dive

provide you with the necessary

into some research in order to

assurance. Especially if you’re

understand where truly offers the

buying off plan. Buying off plan

best potential at that time and

will often open up the

not just potential but as you’re

opportunity to grow the largest

investing to create future security

amount of wealth possible so

– an area needs to also be

should be seriously considered.

established.

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Step PROPERTY OWNERSHIP Depending on the stage at

your investment hands off

which you invest it might be

– at this stage you’ll want to

that once you’ve invested in a

work with a managing agent.

property it might be that the first year or so is during the

A managing agent will oversee

build period. Once the

the property on your behalf,

property is completed it’ll be

ensure you’re meeting all the

time to find tenants. If you’re

landlord requirements and

time poor and want to keep

find and vet new tenants.

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SCALE YOUR PORTFOLIO

Step

After several years it’s likely your

£100,000 property is now worth

initial investment will be worth

£120,000 meaning the investor who

considerably more than it was when

purchased in cash would pocket the

you bought it. At this point, you have

entire £20,000 profit themselves,

the opportunity to release some of the

making profit from both their cash

equity in order to buy another

and the loan amount – making money

property and grow your portfolio.

from the bank loan. The investor who purchased in cash will also make

By leveraging on a purchase, making

£20,000 profit, but the difference is

use of a mortgage, an investor can

the mortgage investor only invested

make considerably more money than

£25,000 to make a £20,000 profit

one who buys a property with cash. A

whereas the cash investor invested

property that is purchased for

£100,000 in order to make a £20,000

£100,000 using £25,000 cash and the

profit. This is the reason why

remaining £75,000 in the form of a

leveraging is so popular amongst

loan/mortgage might experience 20%

investors, especially when interest

growth over several years. Should they

rates are so low.

decide to sell at this stage, the 33

Growing a po rt

o i l org o f anic ally F

or ease, here we’re going to provide a rough idea of how

you can get started in property investment including the funds you’ll need to buy a property and the associated costs. We’ll then set out how you can organically grow your portfolio in order to create further wealth and maximise your nest egg.

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n i g y u the B

r o p p e t s r r t i y f

T

he figures on the following pages are intended to provide

potential investors with an idea of the total sum of money they’ll need to buy an investment property in 2021.

For the sake of this demonstration, we’re proposing an investor buys a city centre property off plan for a purchase price of £150,000 that achieves a rental yield of 8% per annum.

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O ng

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u p t

To demonstrate: ITEM

ITEM

APPROXIMATE COST

APPROXIMATE AMOUNT £1,000

25% Deposit (due on exchange)

£37,500

Rental income

Stamp Duty Land Tax

£5,000

Mortgage payment (3.5% Interest Rate)

£328

Legal Fees

£1,000

Management Fees

£80

Furnishing

£3,600

Service Charges

£48.50

Mortgage Broker and Valuation Fees

£1,000

Ground Rent

£12.50

TOTAL REQUIRED TO BUY PROPERTY

£48,100

BALANCE AT MONTH END

£531

This monthly NET income of

Total cash invested £48,100

£531 will equate to £6,372 a

Total Annual NET Income: £6,331

year…

Annual Return on investment: 13.16% plus

SUMMARY: 38

any growth in the value of the property 39

Scaling your portfolio

W

ith a 5, 10 or even 15 year plan, with targets set from

the outset an investor can track their success and better evaluate their position to reach their goals at the ideal time.

After 5 years, an investment bought for £150,000 in a prime location with annual growth of 4%, we would expect to see a value of around £182,500.

On this basis, using the same example property investment as before we can demonstrate how an investor can organically grow their portfolio over time.

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Property 1 Value at purchase

£150,000

Loan

£112,500

Cash input

£48,100

Property value at year 5

£182,500

Equity released

£24,375

Property 2

Applying this method of buying investment property might be a route you feel most comfortable with. Of course, those who wish Value at purchase

£125,000

to make use of a bigger cash pot from the outset might buy three

Loan

£93,750

properties and be able to significantly grow their portfolio

Cash input

£40,500*

from the amassed equity.

Equally, after several years, an investor might wish to inject additional cash input into the portfolio and perhaps purchase further assets using a combination

*Only £16,125 additional funds required after the remortgage of property

of equity release and their

number 1

own funds.

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y

r ou portfo l i o

r t o f o p l i o r u o

i s f y r i e ng v i D

W

e continue to recommend

onward investments is to find a

that our investors diversify

similar opportunity, ideally in

ersifying Div y

their portfolio as they grow the

another location.

numbers of properties they hold.

Diversifying a portfolio reduces an Whilst you may have had success

investors exposure to risk from

with property 1 in that location,

having ‘all their eggs in one

that opportunity was present at

basket’.

the time when you initially purchased – the key to any

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REASONS NOT TO INVEST IN PROPERTY

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I don’t have the time

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We’ve heard it many times, “I

professional management

don’t have the time to look for a

company that can oversee

property let alone manage

everything on your behalf to

property or find tenants.” We

ensure the property is looked

strive to make the information we

after and vet new tenants.

share as simple as possible so that

Maintenance might be another

it’s easy to digest and helps you

concern - the beauty of buying a

make a decisive and well-informed

newly built property is that it will

decision. When it comes to the

usually come with a building work

management of the property we

warranty and typically will be in

strongly recommend using a

good condition for several years.

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It’s too risky Every type of investment comes

off-plan, look into the developer.

with a certain level of risk and

And when growing your portfolio

with property investment there

and therefore exposure –

are a number of ways to mitigate

diversify, spread the risk by

exposure. Firstly, due diligence

buying in different locations.

and thorough research into where and what you’re buying. If it’s

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I don’t have enough money

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Investors are often surprised at

Start small – grow organically.

how little the initial costs to get

Furthermore, an investment

started as a property investor

property should be self-sufficient

might be – we’re not suggesting

and pay for itself, with the right

your first investment is a

planning and investment it’s very

penthouse in Central London.

possible.

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It’s too complicated “ I don’t know what I’m doing”

direction of other sources of

All too often fear prevents people

information that might help ease

from taking action. We arm you

your mind and of course trusted

with all the information to help

advisors who are specialists in

you make well-informed decisions

their field that might help you.

and happily point you in the

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w Thirl o H

can hel p ?

W

n

m

Deac e r o e

e understand you’re busy and adding another item to your mental load, let

alone your actual day to day is something quite unappealing and perhaps even impossible.

Creating a nest egg for your family and your children’s future is something that is worth making the time to do.

We’re here to help you find a way to support your children and better their lives.

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Thirlmere Deacon London info@thirlmeredeacon.com + 44 (0) 2039507939 Lansdowne House, Berkeley Square, Mayfair, London, W1J 6ER

Thirlmere Deacon Dubai dubai@thirlmeredeacon.com +971 (0) 4 818 7277 Floor 30, Oberoi Business Centre, Business Bay, Dubai, United Arab Emirates