Investing v Renting

[Walking Reminis]

Dear All,

My mother is about to move into a care home and will be, as I understand it, a “self-funder”, I believe the home will be worth about £300,000.

Has anyone ever tried looking at all the funding options, e.g. the various investment options available v “renting the house out”, possibly developing it into a house of multiple occupation, (it is in a university city).

I just get the feeling that when one speaks to the specialist financial advisers, because the renting option will not benefit them they do not want you to consider it.

Are there any users who have considered this or been through the options?

Can any one suggest a source of expertise that will consider all the options in the round?

Kind Regards

 

[Moonflower]

We looked at renting, but decided against it. At first it looked appealing - but in our case the house would have needed quite a bit of expensive work to bring it to a lettable standard - updating kitchen, bathroom etc. And there would have needed to be savings as well, or if there was a month when a tenant didn't pay up, or a void period between tenancies there would be no funds to pay the care home fees
But with a savings pot sufficient to pay for any work needed and provide a cushion to cover the fees, I think it could be worth considering

In out case also, the house was a long way away from us and we didn't really want the ongoing maintenance responsibility

 

[Kevinl]

Hi WR, welcome to TP
Many on here do successfully rent houses out then use the income to pay for care but like Moonflower I decided it wasn't for me.
The care home fees are likely (I guess) to be somewhere in the £2,000 to £3,000 a month and you'd need a lot of occupants to cover that.
The upfront costs for converting the house, getting a licence (see link) and all the electric and gas certificates, finding tenants, signing up the landlords' deposit scheme possibly having fire exits installed, the list goes on.
Personally I'd approach a local estate/management company and see what they estimate the costs and returns will be and if they were to manage it for you what the costs might be and take it from there. It may be you be better off renting it as a family home but remember there may well be Capital Gains Tax costs somewhere down the line to take into consideration too.
As a ballpark (in my bit of the world) a £300k house would rent for about £1,200 to £1,500 a month student shared living about £300 a month per person so allowing for you may not rent all the rooms out all of the time you'd probably need to have a minimum of 6 people to be on the safe side.
HMO's and student house usually have to have quite a bit set aside for regular refurbishment plus as the landlord maintaining the "grounds" would be down to you so factor in a gardener too and things like boiler breakdowns the list goes on.
Finally remember subject to her other incomes your mother may have to pay income tax on the income irrespective of the fact it's going to pay for her care.
K

https://www.gov.uk/house-in-multiple-occupation-licence

 

[Raggedrobin]

Hi WR I thought about renting out my own house to fund my mum's care home fees but quickly realised, sadly, that they wouldn't cover her fees, which are £1000 a week. If, by any chance, you could rent out and somehow had the cash to meet the rest of the fees, I think it is a good idea because you are holding on to the house as an asset.

I haven't seen a financial advisor for years but I agree, I think they are more likely to suggest other investments, not necessarily out of bad motivation but just that they think in terms of things like annuities and so on. Which may be an option worth considering depending on your mother's age and so on.

 

[Kevinl]

The issue with annuities and the like are they "die" with the person, selling or renting the house keeps the asset. Even at £1k per week a £300k house would fund 300 weeks of care so nearly 6 years at £750 a week it'd be nearer 10 years. I don't want to sound heartless but those are the sums.
Any "safe" investment is unlikely to pay more than a few percent, let's say you got 5% (very unlikely but imagine) on £300k that's about £15k a year a long way short of the £52k a year care home fees.
Keeping the house as an asset makes sense but it assumes that you and anyone else inheriting a share in the house is both willing and able to pay the difference between the rental income (possibly less income tax and capital gains tax) and the cost of care and on an open ended basis, possibly for many years.
In that time you'd also have to pay any possible expenses relating to the house: broken boiler, roof needs fixing and all the rest it's an open ended commitment.
K

 

[Raggedrobin]

Yes that is a good point a out the annuity, I had forgotten that you lose the money forever doing that, doh!