2nd home / Holiday Let as a retirement income

Mick70

has anybody gone down this route as apposed to simply paying more into traditional pensions ?  Couple of colleagues have been doing this and seem to be making a great second income which will significantly boost their pensions when retire , seem to be lots of tax loopholes 

p00hsticks

Not sure what tax loopholes you are talking about, or what countries you are thinking about, but if you are considering England or Wales be aware that there is a lot of pressure being put on government at present from those in overrun tourist locations to close some of those loopholes as locals are getting priced out of the market and the communities are collapsing.

zagfles

The tax loopholes with pensions are better in general. Buying a holiday let or BTL isn't a hands-off investment like buying funds etc in pensions, it's more like running a business. You need to be aware of rules and regulations, you need to deal with issues like tenant phoning you at 8pm saying the toilet won't flush, you need to plan for expenses like repairs, eviction of non-paying tenants, do/arrange cleaning, inspection, dealing with breakages/damage etc for holiday lets.

So yes, if you know what you're doing it can be a viable business. But it's not an "investment" as such which you can just buy and then sit back and relax. It's not something you should do just because you believe the myth that you "can't go wrong with property". You definitely can!

Personally, I don't want to run a business in retirement, I'd prefer to relax.

Mick70

p00hsticks said:

Not sure what tax loopholes you are talking about, or what countries you are thinking about, but if you are considering England or Wales be aware that there is a lot of pressure being put on government at present from those in overrun tourist locations to close some of those loopholes as locals are getting priced out of the market and the communities are collapsing.

UK

You can register holiday lets for business rates and avoid paying any council tax ,  seem to be a few other loopholes that can exploit also

SouthCoastBoy

I have often pondered this, but never done it, something I now regret. Here are my thoughts

On the positives,

• historically It is a great way to get growth on leverage, with a minimum initial investment, and get somebody else to pay for the asset, 
• historically, it is a good asset class to hedge against inflation. For example my company pension has lost 20% of its value in the last 6 mths, houses haven't done the same. In theory with funds you can lose a lot of their value (e.g Woodford,) with houses I think this is less likely and is a tangible asset.
• During a recession people still need to live in homes therefore demand will still exists, but growth funds could perform poorly
• Any rental income should also be a good hedge against inflation as generally rents will go up with inflation 
• Also it appears there is not enough housing stock to fulfil demand, owning an asset class that is in demand is always a good thing. 
• You can get a 20% tax credit based on your mortgage interest payments, https://www.which.co.uk/money/tax/income-tax/tax-on-property-and-rental-income/buy-to-let-mortgage-tax-relief-changes-explained-atnsv0j6j782

On the negative side,

• There may be little future growth, but who knows maybe house prices will keep increasing. 
• There are  additional costs (e.g. new govt regulations on rental properties etc.) and potential periods when the property is empty so you would need to fund those gaps. 
• From a tax perspective you would have to pay CGT if you dispose of the asset. 
• Trouble from tenants, e.g. not looking after the place or not paying their rent
• It is an illiquid asset, it may take a while to dispose of

I'm sure there are more items that can be added to either list, but these are my initial thoughts.

Dazed_and_C0nfused

I suspect that this would be on the negatives list for many people,

You can get a 20% tax credit based on your mortgage interest payments, https://www.which.co.uk/money/tax/income-tax/tax-on-property-and-rental-income/buy-to-let-mortgage-tax-relief-changes-explained-atnsv0j6j782

garyelder

I had 2 sold one, all sounds good but get bad tenant you will know about 
me 2025 will sell the other pay capital gains 18% probably about 26 k but who knows maybe more 
had my landlord gas cert done yesterday he said a lot of landlords are cutting back 
and selling 
I hate the text or phone call to say my washing machine don’t work, the kids through toys down the toilet 
I would not buy in a small block again with no management to much aggro
to be honest I’ve been very lucky

MallyGirl

We have thought that, in retirement, we might set up our 'granny annexe' as an AirBnB. It is currently my office so very much a future thing for a bit of extra income.
We considered a holiday home for ourselves that we would have let out when we didn't need it but OH had very expensive taste in locations so it never happened.
I would never think of normal property as a safe investment. I bought my first flat as a repo in the 80s - previous owner had bought at £66k and I got it for £44k after just a few years. I moved in with OH a few years later and let it for a bit - through an agency at first so they dealt with everything but kept a nice slice, then less formally to a friend of a friend where there were various issues with the tenant eventually doing a bunk owing rent and bills. I sold it for £34k and was glad to be rid. Back then there was MIRAS and I didn't have any capital gains but I still don't look back at the experience fondly.

SouthCoastBoy

MallyGirl said:I bought my first flat as a repo in the 80s - previous owner had bought at £66k and I got it for £44k after just a few years. ... I sold it for £34k and was glad to be rid. Back then there was MIRAS and I didn't have any capital gains but I still don't look back at the experience fondly.

I was in my 20s in the late 80s and have been scarred by the housing bubble ever since, I have always expected house prices to crash in a similar vein when they have reached, IMO, ridiculous values, which they never have. This in turn has meant I live in a far smaller house than I can afford. Interesting how experiences in live shape decision making.

p00hsticks

Mick70 said:

p00hsticks said:

Not sure what tax loopholes you are talking about, or what countries you are thinking about, but if you are considering England or Wales be aware that there is a lot of pressure being put on government at present from those in overrun tourist locations to close some of those loopholes as locals are getting priced out of the market and the communities are collapsing.

UK

You can register holiday lets for business rates and avoid paying any council tax ,  seem to be a few other loopholes that can exploit also

That's one of the loopholes I thought you might be thinking of, and one of the ones that local councils in areas with high proportions of holiday lets are putting a lot of pressure on central Government to change the rules on - they've already been tightened to stop second home owners claiming that their properties are actually holiday lets.
Gove closes tax loophole on second homes - GOV.UK (www.gov.uk).
And bear in mind that there are certain services you automatically get when paying council tax that you'll have to arrange / pay for yourself if you are classed a small business - refuse collection being the main one.
I very much doubt the savings from these loopholes will significantly affect the bottom line when considering whether it's a good investment or pension income provider. 
There is a growing backlash against second home owners and holiday lets in a number of the popular tourist areas. 
e.g (yes I know it's the daily mail and so totally OTT reporting, but there is some truth in it)
Now 'second home hotspots' gear up for their own fight against 'outsiders' snapping up holiday lets | Daily Mail Online

zagfles

SouthCoastBoy said:

I have often pondered this, but never done it, something I now regret. Here are my thoughts

On the positives,

• historically It is a great way to get growth on leverage, with a minimum initial investment, and get somebody else to pay for the asset, 
• historically, it is a good asset class to hedge against inflation. For example my company pension has lost 20% of its value in the last 6 mths, houses haven't done the same. In theory with funds you can lose a lot of their value (e.g Woodford,) with houses I think this is less likely and is a tangible asset.
  

Leverage multiplies the risk as well as rewards. So your pension has 20% of its value. If your house(s) were 80% mortgaged, and it lost 20% of value (similar to 2007), then you've lost 100% of your investment! Not just 20%!

And much larger falls are possible, look at Ireland for example (including NI), which could mean you've not only lost your entire investment but you owe the bank as well!

Also the idea that "someone else is paying for your asset" is no more true for housing than owning shares in a company (whether directly or via funds). You own something. That something provides income (rent/dividends). That income could be considered as contributing towards the cost of the asset. But it only seems to be thought of that way in relation to housing investment, probably because there's usually a loan to pay off with housing.

• During a recession people still need to live in homes therefore demand will still exists, but growth funds could perform poorly
  

Demand will still exist, but house prices are generally driven by affordability. What do you think happens to affordability when there's a recession? Look at 2007, mid 1990's etc. Do you think affordability is rising or falling at the moment? Do you think interest rates will rise or fall?