buying property to rent out to provide pension pot

dannyboybath

I have a property that I'm thinking of renting out long term as I can no longer afford to live there ( I'll move into my partners place) I am Wondering if long term this would be a good investment as a pension pot? Ie rent out for twenty years, at end of term,sell & clear mortgage and hopefully have a surplus of money to invest as my pension. If I sell the house now , I'll end up even Stevens after paying all the fees etc , and each month could only afford about £60 to invest in a pension fund ,which isn't a lot . Pension advisors reckon I should be putting away at least 4 times that amount! When I ask about the house for a pension pot they don't really want to advise ! I guess that's because they won't get any commission!
Any advice would be great

Browntoa

need permission from your mortgage provider , they may insist on converting to a buy to let mortgage

atush

Need permission to rent, if you can't afford to live there, can you afford all the costs of renting? Incl management fees, income tax, maintenance, mtg, insurance (higher for rentals), void periods, rates, vandalism/damage due to bad tennents.

Not saying you shouldn't so this, but these are problems you need to address (and save for). Moving in with a partner is one time a BTL can make good sense, but you did say you have affordability issues. Which could mean selling up and investing into a pension instead is a good idea.

Why? Because for every 80 you put in, you'll get at least 100 into pension (100 into pension if you pay HRT costs only 60). The money grows tax free in the pension. So property has no tax boost and you pay tax on the income.

Then add in, does your employer have a pension scheme you haven't joined? If they don't now, they soon will. They have to pay in alongside you, which means FREE MONEY you don't get if you don't join. So join.

Then you have benefits and court judgments. Lose your job and need benefits, or get sued by anyone (incl your house's current occupants) and your equity and income of your home it at risk and will stop you getting benefits.

spakkaman

Atush is right - you need to consider the tax allowances and any employer contribution. This can transform the returns of pension contributions. But if youre not HRT and the employer doesnt stump up much then the attraction is diminished.
It may well be that the property is a good bet as you will get income (which I guess will be absorbed by mortagage plus other costs) plus capital appreciation. I suspect you are banking on capital appreciation which in the current market makes sense but you are putting all your eggs in one basket which is never without risk.
You could choose to rent it for a while - a year or two - see how you go (costs/occupancy?) and then decide - ie you dont have to climb totally off the fence just yet.

dannyboybath

I appreciate all the costs involved in renting out the property and permission from mortgage provider etc etc
I know no body can predict the future however is it not better to invest in bricks and mortar or is that old hat?
From my wages as self employed ,the most I could put into a pension ,if I was able at all ,would be £60 a month. So that put into a pension pot for 25 yrs is not going to generate a good return . plus what with all the problems with the banks and no decent interest rates on savings etc , would it not make better financial sense to rent the property out and in time it should generate a good return?

kidmugsy

You could give it a go for 18 months and then, if it's not to your taste, sell. After that you start to become exposed to CGT. Mind you, you could lose a fair bit even in 18 months if you're unlucky with your tenants. Would you have the money to restore the property to sellable/letable condition if it were vandalised?

dannyboybath

I take on board Atush comments but as self employed no one will be topping up my pension! Plus I am confused as to his comments regarding benefits and court judgements?
If I lose work , I won't get benefits , I'm self employed.
If I'm sued ,that's why as self employed I have public liability insurance and also have legal protection insurance ,so I'm actually better prepared than someone who is simply employed by someone else ( PAYE ) against being sued for anything, because most employed people WONT take out any public I liability insurance! Therefore losing my home or its equity due to being sued is very remote , not saying it won't happen but hopefully my insurances should cover it .How many PAYE people can say that? No income due to no work or illness is covered by putting some by for a rainy day ,like any self employed person should do. I would love an insurance for that but I don't earn much as it is !

dunstonh

nd each month could only afford about £60 to invest in a pension fund ,which isn't a lot . Pension advisors reckon I should be putting away at least 4 times that amount!

£60 is almost half the minimum premium most pension providers have. Do you honestly believe that £60 is a sensible amount that could pay you back so much more?

I am Wondering if long term this would be a good investment as a pension pot?

maybe if you get another 5 or 6 properties as well. 1 wont be enough.

Ie rent out for twenty years, at end of term,sell & clear mortgage and hopefully have a surplus of money to invest as my pension.

You are banking on property prices rising. You also will have capital gains tax to pay.

When I ask about the house for a pension pot they don't really want to advise !

Its probably outside the remit of many advisers. It is fine for an IFA or a whole of market restricted but a tied agent/multi-tie or mortgage adviser/broker wont be of much help.

I guess that's because they won't get any commission!

What is this commission you speak of?

I know no body can predict the future however is it not better to invest in bricks and mortar or is that old hat?

The last 40 years had a property boom fuelled by easing restrictions and easy money. Do you think the next 40 years will be the same?

From my wages as self employed ,the most I could put into a pension ,if I was able at all ,would be £60 a month. So that put into a pension pot for 25 yrs is not going to generate a good return .

Nothing is going to generate enough with £60pm.

If you do not have the budget to be able to afford more than £60pm in to a pension then you do not have the budget to rent out a property without taking on significant risk. What if you had 2 months of no rental income? Who is going to pay for the repairs and maintenance? you are not on £60pm budget.

CKhalvashi

It may be worth looking at taking a lodger into your own home.

We had an arrangement with a Russian student for 4 years, that we would rent her a room in our for £250 a month, on the condition of childcare (of which we would provide a vehicle for her use)

It was cheaper than employing someone to do the job (worked out cost-neutral) and she was paying about half the rent that would be paid on the open market.

If you're doing this purely for the income, check sites like spareroom, and only sign with someone that you like the look of. I recently helped someone to get a police officer into one of their rooms, which pays 80% of their mortgage, and after tax, this is £420 a month that really helps when you're on a £1100/month take-home salary.

CK

atush

is it not better to invest in bricks and mortar or is that old hat?

It isn't old hat as much as it just isn't as good as equities over the longer term.

In your case you have issues with affording where you live, and affording a pension. Which as D says, means you don't have enough capital/savings/income to cover should you have problems with your rental. So selling could be best.

But if you do keep it and rent it, and bank the income over your costs, then once you have a slush fund for the property to cover all these items, you could plough the spare income into a pension for yourself, so you could afford more than 60 a month.

p00hsticks

dannyboybath wrote: »

If I lose work , I won't get benefits , I'm self employed.

You may not get JSA but you could be entitled to things like council tax benefit etc - owning a house you rent out would exclude you from such income based benefits, but having a pension wouldn't.

dannyboybath wrote: »

Therefore losing my home or its equity due to being sued is very remote , not saying it won't happen but hopefully my insurances should cover it .How many PAYE people can say that?

If the money is locked away in a pension the chances of anyone suing you or (more probably) just trying to get back any money you owe them being able to get their hands on your pension is much less than them being able to get their hands on your property.

As dunstonh says, in general one property is nowhere near enoguh to provide a pension income and is very risky - you only need to get the neghbours from hell next door, or get flooded and your investment goes down.