Pension vs property

lisyloo · 15 February 2019 at 9:02AM

Terron wrote: »

Property is working perfectly well for me.

I have made over 7% net each year from rents, 8% last year.

Terron, are these figures based on properties bought in previous years I.e.not at today’s prices.

I agree that property did stack up well, very well in fact but I don’t think it does at today’s prices.

Also note that this person needs to pay tax to get a lump sum out of their pension as it’s treated as taxable income and therefore large sums will attract high rates.
This is punitive because a pension is intended to provide an income for life.

I can’t see how it would stack up in this case if you lose a large % before you start.

Terron - can you tell us please if you think property stacks up at today’s prices? Thansk

Terron · 15 February 2019 at 12:47PM

lisyloo wrote: »

Terron, are these figures based on properties bought in previous years I.e.not at today’s prices.

I agree that property did stack up well, very well in fact but I don’t think it does at today’s prices.

Also note that this person needs to pay tax to get a lump sum out of their pension as it’s treated as taxable income and therefore large sums will attract high rates.
This is punitive because a pension is intended to provide an income for life.

I can’t see how it would stack up in this case if you lose a large % before you start.

Terron - can you tell us please if you think property stacks up at today’s prices? Thansk

I use the most recent valuation I have plus the cost of refurbishment etc. minus the mortgage of course. So for my former home I paid £80k for in 1996 I use the valuation I got in 2014 of £210k when I got a LTB mortgage on it. I know that potentially prices should be higher, but whilst it would reduce the rental yields to include them it would boost the total yields. For example, I was told a couple of days ago that a house I bought for £127.5k in 2016 is now worth at least £180k. So the rental yield might be lower but the capital growth would far exceed that. Of course individual share holdings might go up that fast, but I think I have a better chance of choosing a property likely to grow fast that a share likely to do the same.

BTW around where live property prices only recovered to the 2007 peak in 2017. I chose to invest where I grew up in the NW rather than in the South where I was living.

I certainly think property can still stack up. Where I am investing is doing better than I expected whan I started. I invested for income, but have got capital growth as a bonus.

I did note that tax as a reason that the OP's plan is bad, but other people had mentioned that so I did not see any need to repeat that. I was just disagreeing with some of the other objections.

lisyloo · 15 February 2019 at 4:41PM

Thanks for the info.

When faced with a choice a few years ago I chose to put money into my SIPP instead of property.
I got 20% tax relief, 12.2% NI and 13.8% employers NI, which means a 45.8% uplift on my contributions.

I did a more detailed analysis but I think that demostrates it depends on The opportunities available and not just a straight investment choice.

Terron · 15 February 2019 at 6:23PM

lisyloo wrote: »

Thanks for the info.

When faced with a choice a few years ago I chose to put money into my SIPP instead of property.
I got 20% tax relief, 12.2% NI and 13.8% employers NI, which means a 45.8% uplift on my contributions.

I did a more detailed analysis but I think that demostrates it depends on The opportunities available and not just a straight investment choice.

Property income is not liable to NI. Not as good as reducing NICs on other income but it helps.

When I chose to go with property pensions were not much of an option. Property allowed me to invest most of my available savings and inheritance. I could only have put a small aount into my pension whilst getting the relief..

I was lucky that I knew an area where yields were relatively high.

lisyloo · 16 February 2019 at 11:58AM

I think you’ve done very well, partly because of the timing but also because of having good contacts (agents, workmen) and it appears good tenants.

That’s doesn’t of course mean your experience is repoducible for everyone in difference localities and times.

I’ve read and heard about various issues with tenants.
Many times on these forums the advise is for people not to make themselves intentionally homeless and force the landlord to evict them. Local landlord friends tell me local court hearing times are about 4 months where I live.
Friends tell me they’ve had to employ pest control and totally renovate. They are still making profits as they have a portfolio but with one property then it would obvious be a major issue.
Others have experienced damage, sometimes even by the police.

I’m not saying these things are common but the risks shouldn’t be overlooked and I’m sure you’d agree with me that the risks are higher with a single property, but for people who don’t have any tolerance or time in their lives the. Perhaps a SIPP that they do nothing with (mine is managed for me for 0.5%) is a better option.

We’ve had a lot of responsibilities recently with elderly parents - care at home, hospital, sorting residential care, POA, COP, clearing a property, selling a property, organising a funeral etc. And don’t live locally to parents/family. Just an example, others may have children, grandchildren or maybe single working parents.
I think you have been lucky if you have excellent agents as for many this is an active investment and if for example a tenant has a leak or no heating/hot water then it needs to be attended to and can’t wait until it’s convenient.

I would agree that I am biased against the work involved

but I think your experiences with tenants and agents sound like they are at the very good end of the scale. Good for you I say but not to be take as representative of the average.

bostonerimus · 16 February 2019 at 4:50PM

I just did my taxes in the US and the numbers for my rental property were as follows

Rental Income $20k
Depreciation $7k
Expenses for up keep $6k (I had to replace some doors and also cut down a big tree)
Other costs $3k (taxes and utilities)

Net taxable income $4k...actual income I could spend around $11k
Of course I'll have to pay capital gains when I sell it as all the depreciation isn't free.

The flat was worth $100k when I bought it 20 years ago and it's current value is $330k. So capital gain is around 6% per year before tax, about 5.5% after tax. If I use the most recent value for the flat then the spendable income of $11k is a return of 3%. That's a bit low this year because of the high repair costs and I also don't charge as much as I could in rent as my tenants are good and I don't like to increase rent. Without those expenses the income would have been 5%. This points out how variable rental income can be and that the costs of owing the property can be significant if you want to be a good landlord.

I'm glad I own property, but I'm also glad I have my pensions and fund investments. One is not better than the other; they are different and so they compliment each other and it's good to have both. When I'm older I will probably sell so I don't have to bother with maintaining property and just rent a flat myself.

Terron · 16 February 2019 at 11:21PM

I have two things to protect me from bad tenants - an experienced agent and I try to buy properties with something going for them that will attract the better tenants (and allow me to charge a higher rent). I have never increased the rent for an existing tenant.

However I have had a bad tenant. He was fine for the first couple of years but went downhill after his partner left him. I got rid of him last month after nearly 6 months without rent. On the other hand I paid £127.5k for the property in 2016 and I have been told it is now worth at least £180k. The fixed term of the mortgage is about to end so I am looking at remortgaging at a higher value and using the extra money to buy another property. This property was the first I bought through a company so the new tax does not affect it.

I agree with having pensions and other investments in addition.

bluenose1 · 16 February 2019 at 11:54PM

Terron wrote: »

I have two things to protect me from bad tenants - an experienced agent and I try to buy properties with something going for them that will attract the better tenants (and allow me to charge a higher rent). I have never increased the rent for an existing tenant.

However I have had a bad tenant. He was fine for the first couple of years but went downhill after his partner left him. I got rid of him last month after nearly 6 months without rent. On the other hand I paid £127.5k for the property in 2016 and I have been told it is now worth at least £180k. The fixed term of the mortgage is about to end so I am looking at remortgaging at a higher value and using the extra money to buy another property. This property was the first I bought through a company so the new tax does not affect it.
I agree with having pensions and other investments in addition.

Agree with you.
We have three decent, well maintained easy to rent properties in Liverpool not far from where we live. We meet all potential tenants and it has worked out well.
I am already putting the maximum allowed into my DC pension so thought investing in properties was the best way to make use of our savings.
I appreciate things could go wrong with tenants etc but so could my DC pension pot.
My husband and I also have the security of DB pensions.

jim8888 · 17 February 2019 at 9:25PM

In the Sunday Times Money section every week, they have a "20 Questions" quiz on money, where they ask a minor celebrity questions about their financial situation and attitude. It's always the same questions every week. When it comes to the question about what is the better investment, property or pension, I'd say about 8 out of 10 opt for property. Some say both, but very few go for only the pension option.
But I think that a pension is the better investment if done over the long term, especially if it's a company one where the company contributes too.

Paul_Herring · 17 February 2019 at 10:13PM

Didn't they mention that they were going to address that property/pensions question last Sunday?

:rummage:

Ah, here we go:

I am fed up with Fame and Fortune interviewees saying property is better than a pension for retirement (“Sorry, 007. I’m gunning for real men now”, last week). This is often followed by them describing the purchase of shares as being akin to gambling. Perhaps your question should be phrased: “What is your preference for saving for retirement — property or equities?”

For most people, long-term regular saving in a sensible portfolio of equity funds in a pension or Isa is a more profitable and less stressful method of securing a comfortable retirement than relying on the value of one’s house or a rental property.
RB, Whalley Range, Manchester

Editor’s note: It’s a fair point about the question. We’ve changed the wording this week.

Pension vs property

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