“I’m starting to feel that keeping the flat long term is not how I’m going to increase my net worth. I feel like I’m paying so much towards it with very little, if no, benefit.”
Hazel is 51 and in Survive, clearing consumer debt on a budget with nothing in it for clothes or beauty. Her self-employed work has gone quiet, so she’s taken a second job on top. She lives in her partner’s house – they keep their finances separate because he has children and she doesn’t, so she covers around £350 of bills a month instead of the mortgage. She also rents out a one-bedroom flat at a loss: roughly £250 a month of her own money, before two years of repairs.
“Should I sell my property and put the equity towards getting rid of my debts and the rest into investments?”
What is the flat actually for?
Holly’s gut instinct was to sell it. But before looking at the maths, Hazel needs to answer one question: is the flat an investment, or is it her fallback?
As an investment, it isn’t performing
It costs her £250 a month as a minimum, plus repairs, and hasn’t risen in value in two years. There’s tax on rental profit too, and working out what you actually clear is fiddlier than people expect – there may be even less in this than it looks.
Laura’s point is that the landscape has changed. Leverage is why property worked so well for our mums – £10,000 down on a £100,000 house gets you the growth on the whole £100,000, where £100,000 of investments needs £100,000 up front. But that doesn’t account for risk, and it only pays when the property is going up. Sophisticated investors build systems to make investment property margins work.
As an investment property, it isn’t behaving like one. Either she needs to put up the rent until it does, or it would be fair to consider selling it.
As a fallback, it’s an expensive one
If her partner dies first, the house goes to his children and Hazel needs somewhere to live. The flat is her plan B. As she said herself, she could buy again with the money – and she’s right.
Cash is a fallback. So are investments, because they can be sold. A flat you subsidise by a few grand a year is the most costly safety net going. If you’re happy paying that for peace of mind, no Financielle-jail – but Hazel doesn’t sound happy paying it.
If she does sell a rental property and invest what’s left, the consumer debt perhaps should go first (follow the Playbook). And this fallback money shouldn’t sit anywhere she can’t reach it, so a pension is out – this is more of a stocks and shares ISA or cash ISA conversation. It also shouldn’t be somewhere volatile enough to go down by, for example, 50%, just as she needs to rent or buy a new place. Selling, parking the money and sitting with it is a fine, and she might buy again later.
What she’s already got right
Laura read the first half and braced herself – he owns the house, she pays the bills. But then the flat appeared, which changes things. Hazel has her own asset, she knows what’s in her partner’s will, and they’ve both agreed what happens if he goes first.
Most couples never have that conversation. If you don’t know what would happen to the home you live in, go and find out – so many women hand over their own property to move into someone else’s and put nothing in place to replace it (and unmarried couples don’t have the rights people assume). Co-owning proportionately, remortgaging into joint names, writing it down: there are ways to protect everyone, his children included.
Don’t forget life insurance
There’s a way to ease the house anxiety without touching the flat. Her partner could take out a policy that pays out to Hazel while the house still goes to his children. Everyone’s looked after, and at 51 and in good health the premiums should be reasonable. Have a chat with a broker about what’s right for you – we work with LifeSearch.
What would you do?
Hazel’s asking the right question and she’s thought out most of it. She knows the flat isn’t currently growing her net worth, and she wants her excess going somewhere that will rather than sitting on cash because it feels safer.
If you’ve moved in with a partner and kept your own place – or sold it and wished you hadn’t – tell us in the Financielle app community, or send your dilemma to thevault@financielle.com.
This content is for general information only and does not constitute financial advice. If you need advice tailored to your personal circumstances, please speak to an authorised financial adviser.