Is buying a second property better than a pension?

AndyAdams

I have £300k sitting in S&S ISAs, what are the thoughts on buying a house as an investment or keep it in ISAs or maybe overtime put it into a pension? I'm currently putting 20k per annum into a pension and in my early 50s.

dunstonh

I have £300k sitting in S&S ISAs, what are the thoughts on buying a house as an investment or keep it in ISAs or maybe overtime put it into a pension?

are you an experienced landlord?
are you a higher rate taxpayer or would be once the income starts?
Have you costed the commitments required as a landlord?

The right property can make good money just as the right investment fund can.

As for S&S ISA or pension, both have the same investments available at the same cost. So, the main differences are tax and maturity/withdrawal process. Which best fits your objectives and situation?

AndyAdams

I'm not an experienced landlord but with the runaway house prices over the last 20 years and lack of supply I can't help thinking the returns over the next 20 years will be better in housing. If I can rent it out at 4 or 5% yield and get capital growth at the same time it is very attractive. Appreciate there are some maintenance costs and bit of admin and potential tenants issues, however by decent screening the tenant issue should be managed.

atush

you can put your entire income into a pension, up to 40K.

Pensions are better fro retirement due to taxation. BTL is now more highly taxed than before, and all income and gains (ov er your CGT allowance) are taxed.

BTL also has many pitfalls fro void periods to maintenance, to vandalism/bad tennents.

With 300K you could consider a small btl somewhere near universities/major hospitals where rentals are in demand, and put more into your pension for the next 5-10 years plus keep at least 100K in S&S isas ( I assume the isas are of this type and not cash).

dunstonh

I'm not an experienced landlord but with the runaway house prices over the last 20 years and lack of supply I can't help thinking the returns over the next 20 years will be better in housing.

Those 20 years also had a sustained credit loosening until 2008/9. So, the growth was partly fuelled by a credit boom. Something that is no longer the case.

Also going forward, will there be the same demand? I was reading the other day that landlords are starting to dispose of hosing stock more than they are buying.

If I can rent it out at 4 or 5% yield and get capital growth at the same time it is very attractive

Is that attractive? That is not much different to the net return on investments. Except the investment will be tax free. With property, the income will be subject to income tax and the growth will be subject to capital gains tax. You will typically have higher ongoing costs too.

15 years ago, it didnt matter if you bought a good or bad property. You could make easy money with it. That is no longer the case. There are still some hot spots and experienced landlords (particularly those with building/decoration skills) can still do a good job. A first time landlord in todays market should not be looking at what it was like in the past.

kidmugsy

The inexpert investor probably finds it easier to gear an investment in property (i.e. by using a mortgage loan). Gearing works both on the way up and the way down.

In terms of tax, non-owner-occupied housing is much less attractive than equity, and also in terms of liquidity, diversification, and divisibility.

If you don't have any relevant legal or trade skills, and don't have access to a stream of good tenants, I'd steer clear of BTL, at least until the new tax laws are fully effective in a few years time.

MEM62

AndyAdams wrote: »

I'm not an experienced landlord but with the runaway house prices over the last 20 years and lack of supply I can't help thinking the returns over the next 20 years will be better in housing. That's a big assumption to make. I would not be convinced. If I can rent it out at 4 or 5% yield and get capital growth at the same time it is very attractive. Attractive? Really? You should be able to better that return on shares without the associated costs and commitment of being a landlord. Appreciate there are some maintenance costs and bit of admin and potential tenants issues, however by decent screening the tenant issue should be managed. The off the cuff way your last statement is worded suggests that you consider these to be minor issues or commitments - they are not.

I am an accidental landlord and therefore have some experience. I think that you are under-estimating what it takes to be a landlord if you want to do it properly. Also, it is not the cash-cow that it once was. Other investment forms can easily perform better with less hassle.

woolly_wombat

kidmugsy wrote: »

If you don't have any relevant legal or trade skills, and don't have access to a stream of good tenants, I'd steer clear of BTL, at least until the new tax laws are fully effective in a few years time.

I agree with that.

A family member has a BTL property bought a few years ago with an inheritance. It was a good choice for her, being married to someone in the building trade. They have worked their socks off and spent many weekends working solidly on it, now reaping the rewards.

It wouldn't have been the right choice for me.

SpeedSouth

I'll bite as accidental landlord.

We have a property left over from moving in with the missus, The yield on the invested money (100% increase in 11 years on original deposit) is around 9% (on the property value it would be around 4%). If you had 300k and geared it on several properties I'd expect you could make a decent yield on the 300k.

My experience, is all positive as are others I know who have 1 or 2 properties from similar circumstances, that being said I'm not jumping into buy another one at the moment even though I likely could do.

kidmugsy

adam81 wrote: »

If you had 300k and geared it on several properties I'd expect you could make a decent yield on the 300k.

I'm not jumping into buy another one at the moment even though I likely could do.

Hm. Which?

ThinkingOutLoud_2

So the money in your ISAs has already seen tax deducted. It won't be taxed as it grows and can be put into similar funds / investments as a pension. But you get a 25% tax free lump sum with your pension.

There is no tax on taking money out of your isa. Your pension drawdown tax depends on the sums you draw.

This explains quite well. http://www.telegraph.co.uk/investing/online-investments/sipp-or-isa-for-retirement-income/

BTL is as stated tougher than before with new levels of stamp duty and the political focus on landlords may not be so welcome or make life so easy as it was.

Will the returns of the last 20 years repeat in property. Many say not quite ...