'I want to buy more houses and retire at 50'

Wealth Check: Each week we give 'Independent on Sunday' readers a financial makeover
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The patient: Nick Greaves, 25, from Leicester

Job: Buys and sells properties for developer Davey & Co, which is based in Nottingham.

Income: Around £45,000.

Savings: £3,000 in a Hinckley & Rugby building society account and a "few hundred" pounds in an HSBC savings account.

Investments: Three buy-to-let properties in the Leicester area, and two Axa with-profits endowment savings plans with a target £15,000 payout. He pays £50 a month into an individual savings account.

Goal: To double the number of properties he owns by the time he is 30 and to retire at 50.

The problem

"I would really like to expand my investment portfolio," says Nick Greaves, "and double the number of properties I own by the time I'm 30 years old."

This doesn't seem unachievable when you consider that, at 25, he has already snapped up three buy-to-let properties - all during the past seven months. He has found tenants for two of the properties - professionals working in Leicester - with the third likely to be rented out in the next few weeks.

The rents cover the home loans on each property. All the buy-to-let mortgages - for £70,000, £73,000 and £95,000 - are from Bristol & West, fixed at 5 per cent for five years. He has spent £5,000 improving each property. Nick also owns a three-bed terraced house in Leicester, where he lives. He paid £66,500 for this in 2001.

The house has since doubled in value, so he remortgaged last September to a £100,000 repayment deal with Alliance & Leicester (A&L). This is fixed at 4.5 per cent for five years, which works out at £450 a month.

Nick's other investments include two Axa with-profits endowments. One started three years ago, the other last year. He hopes they will generate a combined £15,000, although he's not sure when they will mature. He didn't take the endowments out for a specific purpose.

He has £3,000 in a Hinckley & Rugby building society savings account, although this pays little more than 2.5 per cent interest. "I have had this account since I was born and it may provide a windfall if the building society demutualises," he says.

He also has a few hundred pounds in an HSBC savings account, but doesn't know the rate of interest. He has been paying £50 a month for the past 18 months into a stocks and shares individual savings account (ISA), but he has no idea who manages it or where it is invested. He has no credit cards.

For the past year and a half he has been paying 5 per cent of his salary into a Marks & Spencer (M&S) personal pension. He has £150,000 life cover with A&L, which includes critical illness but not income protection.

Interview by Sam Dunn

The cure: Branch out from bricks and mortar

Nick is to be congratulated on the many investment foundations he has laid, but the amount of cash he has tied up in bricks and mortar is cause for some trepidation. "I'm concerned so much of his salary and assets is invested in property," says Julian Griffiths, consultant at independent financial adviser (IFA) Towry Law.

Phil Chapman, partner at IFA Charcol Holden Meehan, agrees: "He is heavily dependent on the fortunes of the residential property market in a limited geographical area."

Both agree he should diversify his investments.

Retirement

Nick should find out where his M&S pension is invested: the company's UK balanced fund is languishing compared with its peers, Mr Chapman warns. He also feels Nick's contributions are not enough if he wants to retire at 50.

A self-invested personal pension (Sipp) might be a more tax-efficient way of investing for retirement, particularly when residential property can be included in such schemes - something the Government is planning on allowing. Until then, Mr Chapman recommends that Nick put a further 5 per cent of his monthly salary into a stakeholder pension for diversification.

Mr Griffiths agrees Nick's priority must be to save more. He calculates that, on current contributions, he can expect an annual pension of just £4,940 if he retires at 50.

"While his pension is only part of his investment strategy, it is by far the most tax efficient. The 40 per cent tax relief and largely tax-free growth are very hard to beat."

Protection

Given his mortgage commitments and small amount of ready cash, Philippa Gee, investments director at IFA Torquil Clark, advises Nick to look at income protection. Monthly premiums start at £42.05 for a policy paying out an annual £22,500, after three months, to the age of 60.

If Nick fell seriously ill and couldn't work, his current life cover would pay out for three years, says Mr Griffiths. Mr Chapman is concerned that Nick's A&L policy is uncompetitive and suggests he check to see if he can buy the same cover more cheaply.

Investments and property

Nick needs to inject an "element of realism", says Ms Gee. He should bear in mind the possibility of property prices cooling and plan what he will do when the fixed-rate mortgages come to an end.

Mr Griffiths warns that Nick will be "badly exposed" if property prices plummet. He suggests that he builds up a portfolio of ISA funds for greater tax efficiency, rather than buying more property.

Over-reliance on the residential market in one area means that if there is a blip - a big employer closes down or relocates, say - it could affect his empire, adds Mr Chapman.

The IFAs have no concerns about Nick's mortgage on his own house. He is on a decent fixed rate and should just seek a good deal when this runs out.

The endowments are an unusual choice, says Ms Gee, who advises he double-check the expected growth rates.

These policies might not be in his best interests if, as is likely, they are qualifying policies with a 10-year term, warns Mr Griffiths. They lack flexibility, and tax has to be paid on the underlying fund.

Savings

Nick should close the HSBC account and switch the money into a higher-paying rival such as ING Direct, which pays 4.5 per cent interest, suggests Mr Chapman.

Ms Gee recommends he become more aggressive with his cash to build up a decent emergency sum. With a mini cash ISA he can invest up to £3,000 tax free: M&S offers 4.5 per cent interest, or Intelligent Finance 4.6 per cent (although you need to apply for the latter by Friday).

He must also unearth details of his existing ISA to ensure he isn't paying into an underperforming fund.

Contacts: Towry Law, 08457 889933; Torquil Clark, 01902 570570; Charcol Holden Meehan, 0800 731 4505.

If you would like a financial makeover, write to Melanie Bien at The Independent on Sunday, Independent House, 191 Marsh Wall, London E14 9RS, or m.bien@independent.co.uk

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