Buy to Let for retirement

scaredofdebt

Interesting thread, I am looking at this as a possible pension vehicle myself.

I hope to retire at 55, annuity rates are around 4% if you are lucky, my pension pot isn't big enough for me to retire at 55 on that rate, so BTL is an option I am considering.

Around here I can easily achieve over 10% yield from a BTL, assuming it is occupied (by a paying tenant!) and doesn't cost a fortune in maintenance, so there are risks of course.  My pension pot should allow me to buy 3-4 properties outright, depending on stock market performance and I could probably double that if I take on small interest only mortgages.

My step-father did this when he retired, he had about a dozen low-end properties with small interest only mortgages.  All was well for about a decade and the mortgage companies then wanted their money back, he ended up selling at a loss.  Most of the time his properties were occupied and he didn't have too many bad tenants, despite them mainly being on Housing Benefit.  But he did have the odd bad tenant and one bad tenant causes as much work as ten good ones.

Currently I am looking at holiday homes vs residential property and weighing up the pros and cons of that.

steampowered

scaredofdebt said:

Around here I can easily achieve over 10% yield from a BTL

You can rent out a £150k property for £1.25k per month? Sounds unlikely to me.

AlanP_2

scaredofdebt said:

  My pension pot should allow me to buy 3-4 properties outright, depending on stock market performance and I could probably double that if I take on small interest only mortgages.

Is that after you have paid tax to get the money out of the pension pot?

scaredofdebt

steampowered said:

scaredofdebt said:

Around here I can easily achieve over 10% yield from a BTL

You can rent out a £150k property for £1.25k per month? Sounds unlikely to me.

No but you can rent out a £30-40k property for up to £400 a month.  I live in the north-east, cheap property prices.

scaredofdebt

AlanP_2 said:

scaredofdebt said:

  My pension pot should allow me to buy 3-4 properties outright, depending on stock market performance and I could probably double that if I take on small interest only mortgages.

Is that after you have paid tax to get the money out of the pension pot?

According to this yes:

https://www.which.co.uk/money/pensions-and-retirement/pensions-retirement-calculators/pension-tax-calculator-af1sc5u1y9mc

Hopefully that's accurate and tax on pensions doesn't change for the worse.

Jaco70

scaredofdebt said:

steampowered said:

scaredofdebt said:

Around here I can easily achieve over 10% yield from a BTL

You can rent out a £150k property for £1.25k per month? Sounds unlikely to me.

No but you can rent out a £30-40k property for up to £400 a month.  I live in the north-east, cheap property prices.

You have to feel that properties won't always be at that level and will climb. The North East doesn't have to become the new Shoreditch, just get prices up to 80k and you've doubled your money. With average wages at 26k or so (maybe a bit less in places), 80k for a house is affordable for most first time buyer couples, and that's what will drive house prices. Prices not quite that low where I am and not heading up very much. Not sure why you'd need to sell once the interest only term ends, I've been told you can re-mortgage on IO for BTL up to 100 yo.

atush

"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."

This is a con.  Because if it was earned income (or you have other earned income you culd replace with excess rentals) you could be getting tax relief on this income. Building a pot, if you have BTL or not is a Good thing.
Increased taxes on BTL plus no tax relief means nowadays, BTL is worse than a pension (esp if you have an employers pension)

"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 dont have to buy an annuity

"Cons : You are managing your own pension, in a way that you don’t have to with a standard pension."

You dont have to manage your own pension if you dont want to.  use trackers. PPs with funds or hire an IFA.  As for bad tenants and void periods, this is another risk of BTLs.

shinytop

scaredofdebt said:

Interesting thread, I am looking at this as a possible pension vehicle myself.

I hope to retire at 55, annuity rates are around 4% if you are lucky, my pension pot isn't big enough for me to retire at 55 on that rate, so BTL is an option I am considering.

Around here I can easily achieve over 10% yield from a BTL, assuming it is occupied (by a paying tenant!) and doesn't cost a fortune in maintenance, so there are risks of course.  My pension pot should allow me to buy 3-4 properties outright, depending on stock market performance and I could probably double that if I take on small interest only mortgages.

My step-father did this when he retired, he had about a dozen low-end properties with small interest only mortgages.  All was well for about a decade and the mortgage companies then wanted their money back, he ended up selling at a loss.  Most of the time his properties were occupied and he didn't have too many bad tenants, despite them mainly being on Housing Benefit.  But he did have the odd bad tenant and one bad tenant causes as much work as ten good ones.

Currently I am looking at holiday homes vs residential property and weighing up the pros and cons of that.

Finances aside, with 4 BTLs you're not really retired, you're self-employed running a lettings business.  Fair enough if that's what you want;  it might be part time but it's not quite being retired.    

Jaco70

shinytop said:

scaredofdebt said:

Interesting thread, I am looking at this as a possible pension vehicle myself.

I hope to retire at 55, annuity rates are around 4% if you are lucky, my pension pot isn't big enough for me to retire at 55 on that rate, so BTL is an option I am considering.

Around here I can easily achieve over 10% yield from a BTL, assuming it is occupied (by a paying tenant!) and doesn't cost a fortune in maintenance, so there are risks of course.  My pension pot should allow me to buy 3-4 properties outright, depending on stock market performance and I could probably double that if I take on small interest only mortgages.

My step-father did this when he retired, he had about a dozen low-end properties with small interest only mortgages.  All was well for about a decade and the mortgage companies then wanted their money back, he ended up selling at a loss.  Most of the time his properties were occupied and he didn't have too many bad tenants, despite them mainly being on Housing Benefit.  But he did have the odd bad tenant and one bad tenant causes as much work as ten good ones.

Currently I am looking at holiday homes vs residential property and weighing up the pros and cons of that.

Finances aside, with 4 BTLs you're not really retired, you're self-employed running a lettings business.  Fair enough if that's what you want;  it might be part time but it's not quite being retired.    

I would agree that you're not fully retired if you have a few BTL's but being 'fully retired' seems a bit old fashioned these days, but that's only an opinion. The people I see who retire at 60 or 65 from employers with very good pension schemes, tend to be the ones with the cleanest cars and neatest hanging baskets. If that's for you, crack on, but from watching others I know I'm a firm believer that 'keeping your hand in' is a good thing. My dad is 77, still works at the business he founded part time and is mentally alert. His next door neighbour who's younger and retired years ago does his hanging baskets.

steampowered

scaredofdebt said:

steampowered said:

scaredofdebt said:

Around here I can easily achieve over 10% yield from a BTL

You can rent out a £150k property for £1.25k per month? Sounds unlikely to me.

No but you can rent out a £30-40k property for up to £400 a month.  I live in the north-east, cheap property prices.

I see, and I can see the business case for that. Quite a lot of work managing lots of cheap properties though. I imagine you'd have more than your fair share of bad tenants. I doubt you'd still be looking at a 10% yield after taking costs into account.