Buy to let as a pension booster

noitsnotme

Ceme3000 said:

 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.

Out of interest, have you ever worked out what you could have made if you had invested it in a pension instead?  I realise this may be a complicated calculation but would be interesting to compare.

Albermarle

Sterlingtimes said:

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  

Interesting figures but 2.5% is excessively conservative for a drawdown unless you wanted to end up with the capital the same or bigger than when you started . Also cash savings rates are not zero . A 3 year fix can pay around 1.3% .

NottinghamKnight

Sterlingtimes said:

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  

Well it sounds as though you don't have to worry about cgt much anyway. A pension with a high equity content may well have returned 8-10% per annum over the last decade, may well be much less going forward. Annuity rates are very low, sustainable drawdown would generally be around 3-3.5% but obviously has risks and may require flexibility. 

Sterlingtimes

Albermarle said:

Interesting figures but 2.5% is excessively conservative for a drawdown unless you wanted to end up with the capital the same or bigger than when you started . Also cash savings rates are not zero . A 3 year fix can pay around 1.3% .

Thank you. I am 64 and my wife is 12 years younger than me so I thought that 4% on drawdown could be excessive. I will have another look at savings rates.

Mick70

Keep hearing about how the chancellor will come after pensions when he needs to claw back much needed tax from furlough etc , be interesting to see if the increasing numbers of folk using holiday lets / buy to let also come under the same scrutiny as becoming increasing trend to use these as pensions

Thrugelmir

Mick70 said:

Keep hearing about how the chancellor will come after pensions when he needs to claw back much needed tax from furlough etc , be interesting to see if the increasing numbers of folk using holiday lets / buy to let also come under the same scrutiny as becoming increasing trend to use these as pensions

No evictions at the moment. The after effects of Covid are going to rumble on for some while. The banks have already made sizable provisions with no doubt more to come. To raise tax revenues there'll be increases across the board above a given threshold. 

Malthusian

Sterlingtimes said:

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".

Being risk-seeking enough to borrow money to invest in a single property, yet risk-averse enough to consider an extremely conservative withdrawal rate of 2.5%pa off-puttingly daring, is a perfect example of how people compartmentalise risk.

This is an example of a rubber band risk profile, pinging from one extreme of the risk spectrum to the other until you feel sick. Living in the middle of the spectrum is much more comfortable.

In the context here, that would translate into investing in a non-geared globally diversified portfolio where the only risk of permanent loss is either cashing in early or the entire global economy collapsing. And in drawdown withdrawing 3% - 4% initially, preferably with some room to reduce if the market crashes, but also with scope for increases or discretionary spending if growth exceeds the withdrawals.