Selling a house and buying two houses to fund a pension

keith2012

We are considering selling our rather large house and buying a smaller property. This will release a lot of money which we could use to buy a second house either for rent or holiday let. As we are getting close to retirement, it would seem a useful way to gain extra income.
What are the pitfalls and benefits of buying a second property?
Would it be better to invest in a rental or holiday let property - what are the advantages/disadvantages?

googler

As far as rental goes - do you really want to start being a professional landlord just as you approach retirement?

Have you read up on your legal obligations and responsibilities as a landlord, and are you ready to comply with them?


As regards holiday let - again, do you really want to be starting a business as you approach retirement?

Are you prepared for the work that goes with a holiday let? Promotion, for one thing. You have to advertise it to generate bookings. You have to service it, perhaps in terms of restocking with clean linens, etc every week in a small window on a Saturday. Do you want to do this every week?

Neither of these would appear to offer a guaranteed return on your investment, which is surely what you need for pension provision....?

Ideally you want the second property to be close by, or else travel expense will eat into your profit. Is there an active rental or holiday let market in your area?

G_M

Bear in mind rental income tax, capital gains tax, and all the costs and obligations of tenancy legislation.

This is a good starting point for finding out what letting will involve.

I cannot advise on holiday letting, but have heard there are considerable management issues.

brit1234

keith2012 wrote: »

What are the pitfalls and benefits of buying a second property?

The main one is your equity will fall at double the rate in 2 houses rather than one in this falling market.

CLAPTON

brit1234 wrote: »

The main one is your equity will fall at double the rate in 2 houses rather than one in this falling market.

why is that?
are smaller houses falling faster than larger house?

keith2012

Living in Cornwall there are lots of opportunities for holiday lets and leaving a large sum in the bank seems a sure way to losr out with inflation running high comnpared to investment. How else would people invest 150-200k?

brit1234

CLAPTON wrote: »

why is that?
are smaller houses falling faster than larger house?

I think certain house types/sizes can fall at different rates. However it is about the total amount of equity is divided by 2 houses then it will fall quicker in a falling market.

In a rising market it is better generally for the equity to be split between more properties. That is how buy to let did so well before the credit crunch and their portfolios got so big so quickly. However we are in a falling market where the opposite is true, just look what happen to the Willsons who were the most geared people in the country, the banks took control of huge slices of their portfolio.

The_J

What about in the real world where house prices are neither falling nor rising by any discernible amount?

CLAPTON

brit1234 wrote: »

I think certain house types/sizes can fall at different rates. However it is about the total amount of equity is divided by 2 houses then it will fall quicker in a falling market.

In a rising market it is better generally for the equity to be split between more properties. That is how buy to let did so well before the credit crunch and their portfolios got so big so quickly. However we are in a falling market where the opposite is true, just look what happen to the Willsons who were the most geared people in the country, the banks took control of huge slices of their portfolio.

your logic makes no sense to me

why exactly would two houses at say 200,000 decrease in total faster than one house at 400,000 in a falling market

i.e. 200,000 goes to 150,000 (300,000 in total) but the 400,000 will only fall to 350,000?

and it a rising market the 400,000 may only go to 450,000 and the 200,000 will go to 250,000 (500,000 in total)?

makes no sense to me

brit1234

keith2012 wrote: »

Living in Cornwall there are lots of opportunities for holiday lets a nd leaving a large sum in the bank seems a sure way to lose out with inflation running high comnpared to investment. How else would people invest 150-200k?

I would spread your money between various investments maxing out all your ISAs and pension. You can split the cash too remembering to keep it under the £85k limit. There are lots of good bank accounts some you can lock your money away for years and the rest you can have easier access to. With this cash you can buy a property when prices have stopped falling.

You might also want to to consider pension AVCs (additional voluntary contributions) to boost your pension further.

Your first step when you sell is to split the cash under the £85k limits and speak to a good independent financial advisor. What ever you do don't put all your eggs in one basket.

keith2012

This sounds like good advice - it will cetainly be worth considering all options. The only thing is at least with bricks and mortar there is a definite object you own rather than the vagaries of the money market which seems to be totally unfathomable to me.