Pension vs property

Brynsam

David_watts wrote: »

Hello.
I am thinking of taking all the money out of my 200k pension pot and buying two houses to rent out, the income from the two houses per year is double what the predicted income from the pot is as it stands at the moment and the original 200k is safe in bricks and mortar.
What do you think

Either this is a wind up (likely) or you're so naive as to be untrue.

Terron

MEM62 wrote: »

I am sure they do, as I assume from your post that you are not only an experienced landlord but also one with a reasonable portfolio. In addition, you state that these are not your only retirement provision as you have mainstream pension products.

That puts you in a completely different situation to the one that the OP is suggesting he would put himself into.

Moderately experienced, enough to know that property can be a lot better than some people on this thread have been suggesting. But I still said I did not agree with the OP's plan. Even if he could withdraw the money without payign a lot of tax, 2 properties just would not be enough.



My guess is that the OP is nearing retirement and hasjust realized that he doesn't really have enough pension. for the lifestyle he wantsto live.. I think he needs proper financial advice.

MEM62

Terron wrote: »

Moderately experienced, enough to know that property can be a lot better than some people on this thread have been suggesting. But I still said I did not agree with the OP's plan. Even if he could withdraw the money without payign a lot of tax, 2 properties just would not be enough.



My guess is that the OP is nearing retirement and hasjust realized that he doesn't really have enough pension. for the lifestyle he wantsto live.. I think he needs proper financial advice.

Property is not the worst return but many still see it as the holy grail of making money. It isn't. It is something that you have to get into only having done proper research but most people only seem to put rose tinted spectacles on and think that the easy money is going to come rolling in. The tax inefficiencies dictate that it will never be able to beat conventional pension when looking at investing for retirement.

I have a property in West London that I rent out. In my case it was not bought as a BTL, it was my home for 29 years and I kept it when my girlfriend and I bought a house three years ago. My reasons for keeping it were not purely financial but I am happy to let it sit there.

As a 40% tax payer the net return after costs is around 1.7%. (Based on an investment value of £320K, a net profit of £9K-ish per annum taxed at 40%) The stock market in the long term would do better.

Having said that next year will be better as I have dropped myself out of the 40% tax bracket by giving up my company car and increasing my pension contributions. Thus I have halved my tax liability on the rental income.

I am not so sure that I still want to be running a business when I retire. We will see what legislative changes come in over the coming years as I suspect that these will make being a landlord more onerous. So, when retirement looms I'll decide what to do with it. Perhaps we will move back up this way and live in it or I might sell it and invest the money in travelling, beer and motorcycles :-)

dunstonh

Dont forget that the OP is not talking about new money to invest in property but actually taking the money out of the pension, losing nearly half of it in tax (losing their personal allowance and could take them through the additional rate band). Then paying stamp duty etc

The property would start at a massive disadvantage that it would not be expected to make up over the pension.

Terron

MEM62 wrote: »

Property is not the worst return but many still see it as the holy grail of making money. It isn't. It is something that you have to get into only having done proper research but most people only seem to put rose tinted spectacles on and think that the easy money is going to come rolling in.

I agree.

The tax inefficiencies dictate that it will never be able to beat conventional pension when looking at investing for retirement.

I do not agree.

I have a property in West London that I rent out. In my case it was not bought as a BTL, it was my home for 29 years and I kept it when my girlfriend and I bought a house three years ago. My reasons for keeping it were not purely financial but I am happy to let it sit there.

As a 40% tax payer the net return after costs is around 1.7%. (Based on an investment value of £320K, a net profit of £9K-ish per annum taxed at 40%) The stock market in the long term would do better.



Having said that next year will be better as I have dropped myself out of the 40% tax bracket by giving up my company car and increasing my pension contributions. Thus I have halved my tax liability on the rental income.

I am not so sure that I still want to be running a business when I retire. We will see what legislative changes come in over the coming years as I suspect that these will make being a landlord more onerous. So, when retirement looms I'll decide what to do with it. Perhaps we will move back up this way and live in it or I might sell it and invest the money in travelling, beer and motorcycles :-)

Not all property investments are as bad as yours. I got over 8% net from rents on average last year, paid about 10% in tax and increased my equity by ~10% I am certain that I have beaten the stock market over the five years I have been investing in property. I could have gone for higher returns, but I have been cautious Note that since I have been ionvesting to create an income to live on assuming that everything is reinvested would be incorrect, and the compunding effect that makes the stock market wourk so well normally would not apply..



When I was a higher rate taxoayer I paid a lot into my pension, beyind what my employer matched. Since I lost my job I haven't paid anything into my oensions,. Instead I have been investing in property to provide myself with an income. This worked well for me because I grew up in a suitable area (low prices/high yields) and still had contacts there. I was also lucky enough to start just before a signidicant infrastructure improvment (tram line opening).. Rcently I have been lucky in that the area has bad some of the fastest price growth in the country.


Certainly property is not for everyone. Some people might prefer to fully retire. I find working a amll amount on my own business feels good, If like me you don't want to do much work on it then you need to find trustworthy people to do the work for you.



I don't think a pension can be beaten where an employer is matching your contributions. When you area HRT payer it would be difficult without significant effort which would probably be better spent on your main job.


As a basic rate taxpayer who is his own emploter pensions don't have the same edge. Still I am likely to start paying into mine again. To avoid becoming a HRT payer due to the reduction in mortgage tax relief I started buying through a company. When I stop expending that and try to take money out then paying a director's pension would be a tax efficient way.

tigerspill

I had three BTLs. In preparation for retirement, I have sold one in 2018 and will be selling another in the next month or two.
Haven't decided about the third.

For me BTL and retirement are not compatible - way too high risk for me.

Terron

tigerspill wrote: »

I had three BTLs. In preparation for retirement, I have sold one in 2018 and will be selling another in the next month or two.
Haven't decided about the third.

For me BTL and retirement are not compatible - way too high risk for me.

I am selling one property- a former home so no CGT..
I consider my actual BTLs to be pretty low risk. I own enough that the temporary loss of income from one or two is not a significant problem.

One is a commercial property where the main tenant has been there over 20 years.. Otherwise I have stuck to basic residential properties from 2 bed terraces to 3 bed semis. Apart from the firts one each has enough going for it to attract tenants not looking for the cheapest properties.

I have a low LTV for the the properties in my own name which I intend to reduce using the proceeds from my former home. Those properties provide most of my income.

I also have a few properties I own through a company.. They are similar types of property but I have a higher LTV for them . I regard them as higher risk, but don't depend on them. These properties I bought with more of an eye on capital growth, and the first seems to have outperformed my expectations.


f course BTL is not the lowest risk option,, but I have such options in addition.

1. A near maximum state pension (which I will top up soon).
2. Two pensions with GARs of 10.6% that I plan to take this year.
3. A final salary pension that will probably not increase in line with inflation.
4. A final salary under pin that will likely increase in line with inflation/

With those as a base I can take a few risks with my other investments, but I do not consider the BTLs in my own name to be high risk, especially not the ones I fully own.

atush

David_watts wrote: »

Hello.
I am thinking of taking all the money out of my 200k pension pot and buying two houses to rent out, the income from the two houses per year is double what the predicted income from the pot is as it stands at the moment and the original 200k is safe in bricks and mortar.
What do you think

You wont get 200K, you'll get 50K and the rest will depend on how much you earn. you could be lucky to get 100K of the 200.

Ignore the income projections. State your pot size here for expected income but I would say 3.5-4% but it all depends on what you invest in, which you havent bothered to say. Could be less if you are conservative.

A pension is tax free on income and growth. A BTL is highly taxed on both income and captial growth.

Bonkers.

atush

I pay vasic rate income tax

How much is that?

and don't intent to pay much tax on the income from them.

What does HMRC say about that?

I pan to pay most of the profits into my pension.

Whatever you 'pan' doenst matter. You cant pay unearned income into a pension.

I have made over 7% net each year from rents, 8% last year. This money is the income I live off, so the extra stability of property is important. Capital growth is less important to me, but I have seeen it.

have you done any extra 'panning' re the new tax treatment of BTL coming in?

bostonerimus

Cashing a pension in to buy a property is a very tax inefficient move. Pensions and ISAs are fantastic because of all the tax you can legally avoid; never give that up.

I do like property as part of a portfolio, but in addition to the pension, not as a replacement. So the question should not be "pension vs property" it should "pension and property".