passive income from rental property as retirement income

jamels2

i am looking at a way of having a retirement income and retiring as early as possible.

i currently have one property i am thinking of renting out and changing to a buy to let mortgage or consent to let. so that in 25 years it will be paid off and i can take the whole income for myself minus tax.

i want to set the whole idea up now and i need somewhere to live, which i'm planning to get by releasing equity now and buying a second property where i will live, on a residential mortgage.

so i have a few questions for any experts here:
1. can i have two residential mortgages, if one is on consent to let? or does one have to be a proper buy to let and the other residential?
2. i don't like debt and in the last few years got rid of every credit card/overdraft/loan i've had so i am now debt-free apart from a mortgage. is there any way of living without debt totally or do you have to have it, in order to have your own place and a place to rent out?

Lokolo

1) Consent to let will only be given on a short period of time (if at all). Buy to Let would be the appropriate way forward.

2) Are you talking about OD/CC debt or mortgage debt? The former you shouldn't have. The latter you should have as it can be offset against income for tax purposes. You cannot offset against capital, only interest.

And final note - relying on 1 property to retire early and decent income is stupid. You are relying on one asset type (residential property).

You should be spreading the risk and investing in other assets in ISAs or pensions, such as bonds and equities.

dunstonh

Typically you need around 6 properties to make retirement self sufficient without other sources.

atush

It is a good idea to have credit cards (for emergencies, overseas travel, buying goods over 100) but not to carry a balance. Plus you can get free travel, cashback etc.

So, having credit isn't bad, paying interest is.

Property is and can be a good asset to hold (esp the place you Live). But you could end up with all your eggs in the property basket and be wide open to future falls in price and interest rate hikes. Many a BTL landlord lost their shirt in the last crash- what makes yiou think you'll be different?

Have you got 6-12 months cash? Do you fill your S&S isas? Do you have a pension?

With tax relief, you'd have to go pretty far to do better than a pension (esp if your employer adds money as well) for your basic pension provision. BTL on top of that and S&S isas is fine, BTL only not. Too risky, and besides with yields in the 3-7% range you could do better with equities.

Historically they have out performed property over many years.

jamels2

Thanks for your replies! i am trying to re-think the whole thing and make the right decision. I still only have one property and I can only afford one more. I can't see i'll ever have the chance of owning 3 or more! How do people do that? It seems impossible, as well as greedy.

If paying interest is bad (which I agree, usury?) then does it make it right that I will be ok if I use somebody elses money (rent) to cover the payments for me?

I want to make the best decision ethically and morally as well as for myself. I have worked for nearly 15 years with very few breaks and it would be nice to see an end to it one day.

Is it possible in this society/monetary system to do the right things and be a success? It seems like the people who gain are those who have the capital to invest, leaving the rest of us slaving away making profit for shareholders?

My property is not the place I want to live, so should I just sell it and buy somewhere I want to live, and pay down the mortgage? Should I forget about the buy to let idea and look at more traditional investments? I have never felt a pension was for me, so have looked at alternatives. ISAs are more attractive, just put your money in and earn interest, and get it out whenever you want.

Anyway I need a plan to work away at and stop all this questioning I am doing, it is doing my head in! I need to decide on the right path and follow it, whether it's just living in the now and saying 'whatever will be will be' or setting up some diverse investment plan which I don't really understand that well but am told will reward me later on?

atush

Go back and re read the replies.

I didn't say interest (usury) is bad, I said Paying Interest is bad (instead of getting it). Anything that costs you money isn't good for your finances.

So, forget the morals, and go back and think about having all your eggs in one basket. what happens if you drop the basket? Or the Egg Market crashes?

ognum

dunstonh wrote: »

Typically you need around 6 properties to make retirement self sufficient without other sources.

I am interested in this and note you said 'typically'. Does that mean their is a specific amount that six properties would provide, how does this figure come about.

Does it include mortgaged or unmortgaged properties?


I am not making any form of criticism I am just seeking more information.

Thanks

Linton

To give a concrete example of the all eggs in one basket argument...

What happens to your finances if a tenant from hell stops paying rent and when you finally get him evicted he trashes the place? Perhaps you could be without income for 6 months. But the mortgage would still have to be paid. Could you cope?

ognum

Linton wrote: »

To give a concrete example of the all eggs in one basket argument...

What happens to your finances if a tenant from hell stops paying rent and when you finally get him evicted he trashes the place? Perhaps you could be without income for 6 months. But the mortgage would still have to be paid. Could you cope?

I have heard this tenant from hell thing many times, I would be interested to know how many people have them, though if it happened to me it would be fine, just never met anyone it has happened to!

dunstonh

I am interested in this and note you said 'typically'. Does that mean their is a specific amount that six properties would provide, how does this figure come about.

Typical is used because you could be focusing on the bottom end of the market or the top end. Or you could be in an expensive area or a cheap area. Plus, we dont know what income you want.

However, whatever way you look at it, multiple properties will be required if that is all you are going to be relying on.

Does it include mortgaged or unmortgaged properties?

You will likely need more if it is mortgaged as the lender will want their money back at some point and that may involve the sale of some properties (along with capital gains tax).

You also need to cater for refurbishment, decoration, dead periods, destruction and legislative changes.

atush

Perhaps you should go over to the property boards? It can and does happen.

But what if as you age you can't look after the properties. So you have to hire someone to do it for you. Immediate reduction of income.

What if properties are vacant for a period? Need new roof? The capital required to be held back for such issues would be large, and multiplied by each property owned.

Basically, a BTL or even a portfolio of them as part of a series of assets is fine. a % of your porfolio, never 100%

It should never be your only asset and source of income. AS both could go/decrease at once.