Buy to Let for retirement

Jaco70

I’ve put most of my faith in BTL over the last 15 years and I wondered how others feel this may progress over the next 15 until I retire. The way I’ve looked at it is this, but I’d be grateful for any other opinions.
Pros : The rents pay the mortgage, meaning you don’t have to dedicate a large chunk of other earnings (I run a small unrelated business) to building a pot.
At present demand for houses seems fairly stable.
You don’t spend your pot (the properties) on buying an income, in the way you do with an annuity, so therefore you should in effect leave your pension pot and income to your loved ones.
Cons : You are managing your own pension, in a way that you don’t have to with a standard pension.
Bad tenants, unexpected maintenance costs etc.
If the properties have interest only mortgages, you are relying on capital growth, which hasn’t happened in my area for a decade.
The government and media has decided to make pariahs out of landlords.

Albermarle

You don’t spend your pot (the properties) on buying an income, in the way you do with an annuity, so therefore you should in effect leave your pension pot and income to your loved ones

Most people do not buy an annuity nowadays . They keep the pension pot invested during the retirement/withdrawal period.

If the withdrawals are not at too high a level and/or the investments perform OK , then there is a strong likelihood that there will still be money left in the pot when you die that could go to your family. An added advantage is that pension pots  do not contribute to inheritance tax calculations , where property does.

Personally I would say one disadvantage of BTL as you get older is that some physical effort is often needed, with DIY, moving furniture etc 

p00hsticks

I'd also say another con is that you can't easily access the pot as and when when you need it, especially if you only have one or two properties.

If you get a non-paying tenant or void you're left with no income.

And if you sell you have to find a buyer and face a CGT liability

Marcon

Jaco70 said:

I’ve put most of my faith in BTL over the last 15 years and I wondered how others feel this may progress over the next 15 until I retire. The way I’ve looked at it is this, but I’d be grateful for any other opinions.
Pros : The rents pay the mortgage, meaning you don’t have to dedicate a large chunk of other earnings (I run a small unrelated business) to building a pot.
At present demand for houses seems fairly stable.
You don’t spend your pot (the properties) on buying an income, in the way you do with an annuity, so therefore you should in effect leave your pension pot and income to your loved ones.
Cons : You are managing your own pension, in a way that you don’t have to with a standard pension.
Bad tenants, unexpected maintenance costs etc.
If the properties have interest only mortgages, you are relying on capital growth, which hasn’t happened in my area for a decade.
The government and media has decided to make pariahs out of landlords.

Have you considered the possibility that a lot of office space is going to be redundant now that so many businesses have found that WFH is a viable option for some (even all) staff? Could see a flood of office to residential conversions, with an obvious impact on property/rental prices.

Other than that, investing in only one sector has never been a recommended option. Maybe consider spreading your risk by investing in other asset classes as well?

Stubod

..as per the above, if it was only "one or the other" then I would not go with the property as my first choice. If you have sufficient funds for pensions, savings, Investing then property I probably would?

ratechaser

Marcon said:

Jaco70 said:

I’ve put most of my faith in BTL over the last 15 years and I wondered how others feel this may progress over the next 15 until I retire. The way I’ve looked at it is this, but I’d be grateful for any other opinions.
Pros : The rents pay the mortgage, meaning you don’t have to dedicate a large chunk of other earnings (I run a small unrelated business) to building a pot.
At present demand for houses seems fairly stable.
You don’t spend your pot (the properties) on buying an income, in the way you do with an annuity, so therefore you should in effect leave your pension pot and income to your loved ones.
Cons : You are managing your own pension, in a way that you don’t have to with a standard pension.
Bad tenants, unexpected maintenance costs etc.
If the properties have interest only mortgages, you are relying on capital growth, which hasn’t happened in my area for a decade.
The government and media has decided to make pariahs out of landlords.

Have you considered the possibility that a lot of office space is going to be redundant now that so many businesses have found that WFH is a viable option for some (even all) staff? Could see a flood of office to residential conversions, with an obvious impact on property/rental prices.

Other than that, investing in only one sector has never been a recommended option. Maybe consider spreading your risk by investing in other asset classes as well?

This. I wouldn't want to be going anywhere near commercial property as an investment - there will be a flood onto the market once big businesses - especially the service ones - decide that it's an overhead they no longer need. Some have already made that decision, at least in principle. 

Can imagine parts of the City, and Canary Wharf in particular, being decimated over the next couple of years...

Thrugelmir

ratechaser said:

Marcon said:

Jaco70 said:

I’ve put most of my faith in BTL over the last 15 years and I wondered how others feel this may progress over the next 15 until I retire. The way I’ve looked at it is this, but I’d be grateful for any other opinions.
Pros : The rents pay the mortgage, meaning you don’t have to dedicate a large chunk of other earnings (I run a small unrelated business) to building a pot.
At present demand for houses seems fairly stable.
You don’t spend your pot (the properties) on buying an income, in the way you do with an annuity, so therefore you should in effect leave your pension pot and income to your loved ones.
Cons : You are managing your own pension, in a way that you don’t have to with a standard pension.
Bad tenants, unexpected maintenance costs etc.
If the properties have interest only mortgages, you are relying on capital growth, which hasn’t happened in my area for a decade.
The government and media has decided to make pariahs out of landlords.

Have you considered the possibility that a lot of office space is going to be redundant now that so many businesses have found that WFH is a viable option for some (even all) staff? Could see a flood of office to residential conversions, with an obvious impact on property/rental prices.

Other than that, investing in only one sector has never been a recommended option. Maybe consider spreading your risk by investing in other asset classes as well?

This. I wouldn't want to be going anywhere near commercial property as an investment - there will be a flood onto the market once big businesses - especially the service ones - decide that it's an overhead they no longer need. Some have already made that decision, at least in principle. 

Can imagine parts of the City, and Canary Wharf in particular, being decimated over the next couple of years...

Around 20-25% of the London commercial office space market was already short term rental before Covid struck. 

Thrugelmir

Albermarle said:

You don’t spend your pot (the properties) on buying an income, in the way you do with an annuity, so therefore you should in effect leave your pension pot and income to your loved ones

Most people do not buy an annuity nowadays . They keep the pension pot invested during the retirement/withdrawal period.

Drawdown might lose it's appeal rapidly over the next few years. Fads are cyclical. 

Jaco70

Marcon said:

Jaco70 said:

I’ve put most of my faith in BTL over the last 15 years and I wondered how others feel this may progress over the next 15 until I retire. The way I’ve looked at it is this, but I’d be grateful for any other opinions.
Pros : The rents pay the mortgage, meaning you don’t have to dedicate a large chunk of other earnings (I run a small unrelated business) to building a pot.
At present demand for houses seems fairly stable.
You don’t spend your pot (the properties) on buying an income, in the way you do with an annuity, so therefore you should in effect leave your pension pot and income to your loved ones.
Cons : You are managing your own pension, in a way that you don’t have to with a standard pension.
Bad tenants, unexpected maintenance costs etc.
If the properties have interest only mortgages, you are relying on capital growth, which hasn’t happened in my area for a decade.
The government and media has decided to make pariahs out of landlords.

Have you considered the possibility that a lot of office space is going to be redundant now that so many businesses have found that WFH is a viable option for some (even all) staff? Could see a flood of office to residential conversions, with an obvious impact on property/rental prices.

Other than that, investing in only one sector has never been a recommended option. Maybe consider spreading your risk by investing in other asset classes as well?

Thanks for the replies. I’ve looked at commercial property in the past but have been put off by simply not knowing enough about it. My BTL portfolio is made up of nine low-value freehold properties (actually one is a flat, so eight freehold), which means nine boilers, nine tenants etc, but conversely also means I’ve never had more than perhaps two empty at one time. I understand completely when people say you should do both, property and pension, but I’ve simply never had the spare money to invest heavily in a pension, at least not when enjoying a reasonable lifestyle. I have a small pension and I did put a one off 10k into it last year, from my business, but that hasn’t happened before and isn’t likely to happen very often in the future. A 25 to 50% uplift in property prices would change my situation dramatically and it’s not so long ago that these sorts of increases every 5 to 10 years were commonplace. I think that the virus is likely to lead to yet another decade of poor performance but who knows. Thanks again.

dunstonh

Pros : The rents pay the mortgage, meaning you don’t have to dedicate a large chunk of other earnings (I run a small unrelated business) to building a pot.

And what happens in retirement when you want an income?  Will the excess income above the mortgage payment be sufficient to live on or is the plan to sell up and utilise the capital (after tax)?

You don’t spend your pot (the properties) on buying an income, in the way you do with an annuity, so therefore you should in effect leave your pension pot and income to your loved ones.

You do not spend your pot using drawdown either (unless by choice).   Annuities make up a very small level of the retirement income provision nowadays.  Leaving your pension to your loved ones is actually quite tax efficient as there is no inheritance tax.

Properties are illiquid but they are viable investment option as long as there is other capital to fall back on and you sell properties that are not longer viable (low rental yield for example).

A 25 to 50% uplift in property prices would change my situation dramatically and it’s not so long ago that these sorts of increases every 5 to 10 years were commonplace.

The UK went through a 30 year credit boom due to deregulation on lending and irresponsible borrowing.   That created the house price boom. That ended a decade ago.  However, shortage in supply still exists.    It would be unwise to rely on a new house price boom of a similar style in the decades ahead.

I think that the virus is likely to lead to yet another decade of poor performance but who knows.

Nobody really knows but the expectation in the housing trade is that properties with larger gardens or land will become more desirable (so they could rise whilst those with little or no garden will fall).  However, first time buyer properties will still be popular due to demand.   As time goes on, companies are expected to use technology for home working or move away from big centralised call centres and move to smaller multiple location offices (less staff in a single location).  So, commuting changes may impact on commuter towns.  Demand for rural properties is expected to increase and rural properties are constantly in decline as developments make some villages less desirable or even swallows them up into smaller towns.   So, the old "location, location, location" will still play its part.    However, within 5-10 years, this will all be forgotten at a consumer level.

enthusiasticsaver

I have never been a fan of BTL in view of the fact that it is  not easily liquidated, requires maintenance and is very dependant on good reliable tenants. 
Pensions and stocks and shares ISAs with a good cash buffer was our choice for funding retirement. 
I also do think that companies will start to move away from traditional offices once they see the benefit of virtual working as most people have been able to do over the last 6 weeks. There will be opportunities for them to save money and if lots of commercial properties come up for sale that will  push prices down.