Buy to let as a pension booster

steampowered

Terron said:

I have to disagree about the likelyhood of higher returns. I get 8% net returns just from rents (after all costs including full management by an agent) and price rises can boost that considerably.

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BTL allows you to control your level of risk by deciding what LTV you find acceptable and the type of property you buy. I go for higher quality housing that attracts better tenants, and an overall LTV less than 50%.

7-8% is in line with what the stock markets have generated on average over the long term. You could of course boost that higher by taking on leverage (which is more difficult with stocks than it is with BTL, but is possible), though that would mean taking on more risk.

8% net sounds like an incredibly high return for BTL. A quick google search indicates that the average rental yield in the UK is 3.53%.

Is that pre-tax or post-tax? If pre-tax, you need to take adjust for income tax, capital gains tax and higher rate stamp duty (compare that with tax free returns from a S&S ISA). I assume you are paying income tax on the rent you receive?

I also assume you are using quite a bit of leverage to get to 8%? That does magnify your risk. You can't ever go bankrupt from (unleveraged) stocks & shares investments, and you won't ever face your investment going to zero. That is an entirely possible scenario with BTL if you are taking the maximum amount of debt possible on each investment. 

Albermarle

8% net sounds like an incredibly high return for BTL. A quick google search indicates that the average rental yield in the UK is 3.53%.

But to be fair your figures of 7 to 8% returns from global stock markets has to also come with a couple of caveats .

After a good 10 years in the markets , the next 10 could be a bit less lucrative.

The typical UK investor in their 50's is not normally comfortable in a 100% equity fund anyway , so more likely to be in a 60/50/40 % equity fund . Usual forecast for these type of funds over the next few years is a couple of % above inflation .

So currently not much different than the 3.53% you mention for BTL , although a lot less effort needed for sure .

xylophone

What interest rate are you paying on your mortgage?

If your wife  is not currently contributing to a pension, she might consider starting one?

Had you considered increasing your contributions to your pension?

A personal view but after the experience of a cousin of mine with letting out a property (inherited, not buy to let), I think I'd almost rather be nibbled to death by ducks than take on a BTL business!

Steve182

If I was really keen to invest in property but wanted to avoid the hassle and tax issues associated with BTL I might consider investing some money in a REIT within a SIPP or S/S ISA.  I'd still put the bulk of my investments in global equities though.

Ceme3000

I'm 54, not working (retired),  living off savings. 

I had a BTL for 8 years and sold 2 years ago.  If I had my time again I would have funnelled as much as I could into pensions and ISA instead of BTL.  I didn't have any bad tenants but I was never lucky enough to find anyone long term so every year or so there would be a void that dented the income and thenmore agency fees to find a new tenant.  I also wanted to keep the house in first class condition so it became a chore feeling obliged to decorate and do DIY and repair fences etc in between tenancies.  Then you have to spend time doing a tax return, one year HMRC decided to do a detailed audit of my return.  All was in order but it was still a huge pain.
 
In the 8 years I had the property it increased in value from 193k to 293k and I had the rental income as well, so yes I made money but with the all hassle,  the way house prices are and the increasing legislation there is no way I would consider it now.

Mick70

seems to be a rapidly growing trend for people to invest in BTL and more so holiday letting , rather than paying more into traditional pensions.
It will be interesting IF sunik does come after pension in the tax rises likely for 2021 whether he will also go for those with holiday lets and close some of the tax loopholes

NottinghamKnight

BTL is already being made less lucrative, holiday lets may well follow.

Mick70

NottinghamKnight said:

BTL is already being made less lucrative, holiday lets may well follow.

few of my friends have bought holiday lets recently as a means of a pension 

NottinghamKnight

Mick70 said:

NottinghamKnight said:

BTL is already being made less lucrative, holiday lets may well follow.

few of my friends have bought holiday lets recently as a means of a pension 

I'm sure they have, but they have no guarantee that the tax regime won't change over the coming years, hope they enjoy them.

Sterlingtimes

I originally bought a city centre apartment in Yorkshire funded by a mortgage. I left the flat many years ago and rented it out with a small annual loss. More recently, I have retired and repaid the mortgage from pension capital. The net taxable profit falls annually within the band of 3.6% to 4.9%. This year with Covid-19 difficulties, I have reduced the rent and expect an annual profit of 3.6%. All-in-all, I have seen very little in the way of capital appreciation on the property but it is a good-renter.

For comparison, an annuity which pays to my wife 100% of income on my death and 3% annual escalation will payout at 1.55%. Alternatively, I might dare to draw 2.5% year on year on a drawdown. Pure savings in a bank is about the same as "money under a mattress".

The property seems to deliver but I would not go down this route if I were to start again