BTL as a pension fund - why not?
Discussion
My wife and I are pretty secure financially, she is mid 30's, I am early 40's. Our pension provision is a train crash.
We could put a 20 or 30% deposit down on a couple of flats, put tenants in, 20 years time the rent has paid the mortgages and the income becomes part of our pension plan.
Reasons not to?
We could put a 20 or 30% deposit down on a couple of flats, put tenants in, 20 years time the rent has paid the mortgages and the income becomes part of our pension plan.
Reasons not to?
jdw1234 said:
Risk of capital loss.
Yields are extremely low compared to the hassle and risk.
Tenants are a massive pain in the bum.
I personally think BTL is a massive "sitting duck" for increased taxation.
I assume you are exposed to UK property through your principal residence. Why not diversify?
100% this.Yields are extremely low compared to the hassle and risk.
Tenants are a massive pain in the bum.
I personally think BTL is a massive "sitting duck" for increased taxation.
I assume you are exposed to UK property through your principal residence. Why not diversify?
jdw1234 said:
Risk of capital loss.
Yields are extremely low compared to the hassle and risk.
Tenants are a massive pain in the bum.
I personally think BTL is a massive "sitting duck" for increased taxation.
I assume you are exposed to UK property through your principal residence. Why not diversify?
Not sure I understand the capital loss risk?Yields are extremely low compared to the hassle and risk.
Tenants are a massive pain in the bum.
I personally think BTL is a massive "sitting duck" for increased taxation.
I assume you are exposed to UK property through your principal residence. Why not diversify?
Where else are there higher yields with lower risk?
Agree ref taxation, its a risk.
Yes, we have UK property, our home, not mortgaged. A lot of hard work, bit of inheritance and a lot of money made on a couple of classic cars (well this is PH!) finished the mortgage. Diversify? Not sure what you mean.
Axionknight said:
jdw1234 said:
Risk of capital loss.
Yields are extremely low compared to the hassle and risk.
Tenants are a massive pain in the bum.
I personally think BTL is a massive "sitting duck" for increased taxation.
I assume you are exposed to UK property through your principal residence. Why not diversify?
100% this.Yields are extremely low compared to the hassle and risk.
Tenants are a massive pain in the bum.
I personally think BTL is a massive "sitting duck" for increased taxation.
I assume you are exposed to UK property through your principal residence. Why not diversify?
We did it some time ago (about 10 years ago, we're currently the same age as you and your wife) and have around 50% equity now so are insulated against capital shifts and can reduce rents significantly if the market goes that way.
However, there are already mumblings about taxing private landlords and the associated 'demonization' of the sector in order to get public opinion onside to do so. The only block I can see are the number of people who already use a BTL or two as a pension, that might be enough to put a lower limit on the holdings that are taxed (ie. first property free, 2nd at 10% etc.). But really, who knows?
On the upside, you can include BTL properties in a pension and avoid some of the income tax if you qualify.
Axionknight said:
jdw1234 said:
Risk of capital loss.
Yields are extremely low compared to the hassle and risk.
Tenants are a massive pain in the bum.
I personally think BTL is a massive "sitting duck" for increased taxation.
I assume you are exposed to UK property through your principal residence. Why not diversify?
100% this.Yields are extremely low compared to the hassle and risk.
Tenants are a massive pain in the bum.
I personally think BTL is a massive "sitting duck" for increased taxation.
I assume you are exposed to UK property through your principal residence. Why not diversify?
Personally I have 4 as a pension pot.
Gross yields are 6-7%, but thats about 14% based on cash invested. Obviously thats leveraged, so variations in interest rates are magnified both ways on your investment.
From a captal growth perspective the values have gone up about 30% since I bought them (over the past 4 years) so I'm looking at over 100% growth on my cash invested on top of the yield.
I also have an old company pension so this is a diversification for me.
I have had no voids in 4 years, and minimal repairs. I would say I get a call about once every 2 or 3 months, and its normally heating or an appliance dead (cooker etc).
Personally I believe BTL is a great pension investment, as long as you buy a decent property and get good tenants. Treat it as a long term investment by keeping it well maintained, and you will get less hassle from tenants. They like security and a decent home like anyone else.
Huntsman said:
Not sure I understand the capital loss risk?
Where else are there higher yields with lower risk?
Agree ref taxation, its a risk.
Yes, we have UK property, our home, not mortgaged. A lot of hard work, bit of inheritance and a lot of money made on a couple of classic cars (well this is PH!) finished the mortgage. Diversify? Not sure what you mean.
Diversify away from property, invest in stock market, bonds etc rather than have all your eggs in the property market which could crash at some point leaving you with less than you put in (albeit chances are low over a 20 year period).Where else are there higher yields with lower risk?
Agree ref taxation, its a risk.
Yes, we have UK property, our home, not mortgaged. A lot of hard work, bit of inheritance and a lot of money made on a couple of classic cars (well this is PH!) finished the mortgage. Diversify? Not sure what you mean.
Huntsman said:
jdw1234 said:
Risk of capital loss.
Yields are extremely low compared to the hassle and risk.
Tenants are a massive pain in the bum.
I personally think BTL is a massive "sitting duck" for increased taxation.
I assume you are exposed to UK property through your principal residence. Why not diversify?
Not sure I understand the capital loss risk?Yields are extremely low compared to the hassle and risk.
Tenants are a massive pain in the bum.
I personally think BTL is a massive "sitting duck" for increased taxation.
I assume you are exposed to UK property through your principal residence. Why not diversify?
Where else are there higher yields with lower risk?
Agree ref taxation, its a risk.
Yes, we have UK property, our home, not mortgaged. A lot of hard work, bit of inheritance and a lot of money made on a couple of classic cars (well this is PH!) finished the mortgage. Diversify? Not sure what you mean.
Capital loss - I think UK property will materially correct. Not everyone agrees though.
Higher yields/lower risk - at the moment yields are rubbish across the board. My personal strategy is to stay liquid at the moment. Again, this is my personal opinion.
Diversify - Given I think UK property might correct (personal opinion), my principal residence is enough exposure.
Spend an hour reading housepricecrashwebsite and if still keen consider some of the following:
You would need a repayment mortgage to ensure that it is paid off within your timescale which makes the rental income very important, lose a tenant or rents drop and you might have to subsidise the rent.
You will need to maintain the property.
You will need to manage the property.
You will be liable to CGT at some point.
Some tenants are t
ts who will wreck the house and/or fail to pay rent - least worse is late rent and you spending time negotiating a plan to bring back on track.
I'm not against BTL as an investment but believe that it's been viewed as a goldmine in the recent past and those days might be over.
Wish I had done a stack in the 90s and sold up in 2006.
You would need a repayment mortgage to ensure that it is paid off within your timescale which makes the rental income very important, lose a tenant or rents drop and you might have to subsidise the rent.
You will need to maintain the property.
You will need to manage the property.
You will be liable to CGT at some point.
Some tenants are t
ts who will wreck the house and/or fail to pay rent - least worse is late rent and you spending time negotiating a plan to bring back on track.I'm not against BTL as an investment but believe that it's been viewed as a goldmine in the recent past and those days might be over.
Wish I had done a stack in the 90s and sold up in 2006.
98elise said:
Axionknight said:
jdw1234 said:
Risk of capital loss.
Yields are extremely low compared to the hassle and risk.
Tenants are a massive pain in the bum.
I personally think BTL is a massive "sitting duck" for increased taxation.
I assume you are exposed to UK property through your principal residence. Why not diversify?
100% this.Yields are extremely low compared to the hassle and risk.
Tenants are a massive pain in the bum.
I personally think BTL is a massive "sitting duck" for increased taxation.
I assume you are exposed to UK property through your principal residence. Why not diversify?
Not much you can do r.e. avoidance.
Public opinion is moving against private landlords making it more politically acceptable.
I have no crystal ball, just my gut feel.
I do think that the very generous tax breaks available to those who invest in land and property are going to be cut back. Indeed, I have a strong views that the unfair generosity to investment in land and property has been one of the biggest factors in our decline as an industrial nation.
I think it is a whole area ripe for governments that are desperately short of cash and struggling to keep government borrowing under control.
I think it is a whole area ripe for governments that are desperately short of cash and struggling to keep government borrowing under control.
Eric Mc said:
I do think that the very generous tax breaks available to those who invest in land and property are going to be cut back. Indeed, I have a strong views that the unfair generosity to investment in land and property has been one of the biggest factors in our decline as an industrial nation.
I think it is a whole area ripe for governments that are desperately short of cash and struggling to keep government borrowing under control.
Maybe, however should Government increase taxation this will have a negative impact on values and the dreaded S.D. S.D. is bringing in a healthy tax so risk of loosing on tax revenue stream to start a new one?I think it is a whole area ripe for governments that are desperately short of cash and struggling to keep government borrowing under control.
jdw1234 said:
Risk of capital loss.
Yields are extremely low compared to the hassle and risk.
Tenants are a massive pain in the bum.
I personally think BTL is a massive "sitting duck" for increased taxation.
I assume you are exposed to UK property through your principal residence. Why not diversify?
Even if values took a tumble you only loose money if you sell the property at the wrong time, hang on.Yields are extremely low compared to the hassle and risk.
Tenants are a massive pain in the bum.
I personally think BTL is a massive "sitting duck" for increased taxation.
I assume you are exposed to UK property through your principal residence. Why not diversify?
Yields are fine if you are at 5% or more, what hassle, use an agent with expenses against tax.
Tenants are only a pain if your not selective.
B.T.L. could be a tax risk, but then it will increase rents to cover extra tax.
All investments carry risk as we know, sure don't put all eggs in one basket.
crankedup said:
Maybe, however should Government increase taxation this will have a negative impact on values and the dreaded S.D. S.D. is bringing in a healthy tax so risk of loosing on tax revenue stream to start a new one?
That's the type of dilemma they have to square. What is becoming more obvious to a lot of policy makers is the social impact the over reliance on land and property as a wealth generator has had on the UK. Tax revenue is only one aspect. The other is a skewing of an entire economy away from genuine productive activity - and the effect this has on all sorts of areas, such as education, employment, cultural attitudes etc.
I even think that reliance on construction has had a massive impact on immigration - making the UK a popular target for unskilled and poorly educated labourers from all across Europe.
Does not really matter what happens to house prices if you are not going to sell them. Except massive fall in house prices may mean rents come down. ( Or rents could go up as more people will want to rent rather than buy into a depreciating asset.
Only sensible possible tax would be to remove tax relief on mortgage interest, then rents would go up. Why, because less people will become landlords so there will be less property to rent. Plus of course landlords will pass on increased cost to them.
Capitol gains tax - not if you are not going to sell!
Late paying tenants/ tenants trashing the place - just not a problem if they are referenced properly AND you take out rent guard insurance.
The bit the papers fail to mention properly in comparisons is appreciation.
So real life example flat bought in 2000 for £30000 rented out back then for £300 per month, rent now £475 a month. ( flat value £80000 but irrelevant as never going to be sold.)
Only sensible possible tax would be to remove tax relief on mortgage interest, then rents would go up. Why, because less people will become landlords so there will be less property to rent. Plus of course landlords will pass on increased cost to them.
Capitol gains tax - not if you are not going to sell!
Late paying tenants/ tenants trashing the place - just not a problem if they are referenced properly AND you take out rent guard insurance.
The bit the papers fail to mention properly in comparisons is appreciation.
So real life example flat bought in 2000 for £30000 rented out back then for £300 per month, rent now £475 a month. ( flat value £80000 but irrelevant as never going to be sold.)
jdw1234 said:
98elise said:
Axionknight said:
jdw1234 said:
Risk of capital loss.
Yields are extremely low compared to the hassle and risk.
Tenants are a massive pain in the bum.
I personally think BTL is a massive "sitting duck" for increased taxation.
I assume you are exposed to UK property through your principal residence. Why not diversify?
100% this.Yields are extremely low compared to the hassle and risk.
Tenants are a massive pain in the bum.
I personally think BTL is a massive "sitting duck" for increased taxation.
I assume you are exposed to UK property through your principal residence. Why not diversify?
Not much you can do r.e. avoidance.
Public opinion is moving against private landlords making it more politically acceptable.
I have no crystal ball, just my gut feel.
Mine are all properly accounted for in my self assessment so would have to up my rent to cover the extra costs, or exit from the rental market as it would probably not make sense from an investment perspective.
Are you sure that in the area you live (or where you plan to buy your BTLs) you can charge enough to pay off the mortgage?
As an example (pretty off-the-cuff figures, but broadly sensible), in my area a 2 bed terrace is about £180,000 to buy.
25% deposit from you leaves mortgage of £135,000 + arrangement fee £1,000 + other costs (solicitors, mortgage completition fee etc) estimated at £1500.
Total mortgage is £137,500
On a repayment mortgage of 5% interest, that is a monthly repayment of £810 per month.
Plus you need to allow at least 10% of your rent to cover repairs, void periods, etc
So you would need to rent out a two-bed property at around £900 per month.
Current rental value in the area for a two-bed house is about £600-£650, so nowhere near covering the mortgage.
As an example (pretty off-the-cuff figures, but broadly sensible), in my area a 2 bed terrace is about £180,000 to buy.
25% deposit from you leaves mortgage of £135,000 + arrangement fee £1,000 + other costs (solicitors, mortgage completition fee etc) estimated at £1500.
Total mortgage is £137,500
On a repayment mortgage of 5% interest, that is a monthly repayment of £810 per month.
Plus you need to allow at least 10% of your rent to cover repairs, void periods, etc
So you would need to rent out a two-bed property at around £900 per month.
Current rental value in the area for a two-bed house is about £600-£650, so nowhere near covering the mortgage.
Stevemr said:
D
Capitol gains tax - not if you are not going to sell!
If a prospective landlord is considering an investment property as an alternative to a "normal" pension fund - then the Capital Gains Tax treatment on the disposal of the property is an absolutely CRUCIAL factor that must be taken into account.Capitol gains tax - not if you are not going to sell!
The regular rents from a property (which are fully taxed at your highest personal tax rate) will NOT give you a brilliant regular return. The "clincher" for people regarding property is the expected big profit they hope to make when the property is eventually disposed of. This profit most definitely will be taxed under CGT rules. At the moment, these rules are fairly generous and can be managed in such a way as to mitigate their impact.
My hunch is that, over the next few years, many of these options will be closed or severely reduced.
Only last year we saw the 36 Month "free gratis" period for second properties that had been the owner's main residence reduced to 18 months. I would not be surprised if this 18 month period is further reduced or even abolished in the Chancellor's Autumn Statement in a couple of weeks.
The writing is on the wall.
Gassing Station | News, Politics & Economics | Top of Page | What's New | My Stuff