Retirement funded by BTL - Reality after 1 year.

[drainbrain]

A year ago, aged 63, I was kinda forced into 'retirement'.

Fortunately I have two pension annuities.

Unfortunately their combined income is just under £800 a year.

Fortunately I invested in property. Apart from the two aforementioned pensions and a couple of waste-of-time endowments, exclusively in property. No other investments at all, except of time in other businesses. Which were anyway in turn initially seeded by profit from the property investment. Being serially 'lucky' with business, some of the profits from these 'other businesses' plus the btl business itself has often been used to invest in even more property. And so on and so forth.

One thing worth mentioning is that saving for retirement in endowments and pensions and ISAs etc etc doesn't really seem to produce any benefit until they mature. Then they produce the retirement income. Whereas a BTL portfolio provides income from day one as well as continuing to provide it in retirement. This is pretty important when you think that the pension-saver is taking an enormous gamble that they'll live long enough to enjoy the fruit. Whereas the property collector's enjoying the fruit along the way which will be just as fruitful on retirement.

This first year of retirement's been perfectly ok. Everything's (bills and luxuries) been paid for, and cash surplus has bought 4 more properties over the year now adding another £1200 a month to the pot. In fact the one problem is of finding anything apart from more property (boring) which is worthwhile investing in. 10% income return's the benchmark. Growth is unimportant.

For a laugh I've started an ISA. One of Ginger's Fiver-a-Day things. The idea is to keep funding it for 10 years. Obviously I don't know if I'll still be here in 10 years (which I suppose makes it a hugely risky shot-in-the-dark) but it'll be interesting to see how it develops. I keep wondering how the hell people can live with these paper investment things. They make you nothing you can spend, and you literally have no idea if you'll ever live to enjoy their fruits. (By the way if the same amount had been invested into my 'lucky' property ventures, after 9 years I'd have taken out about £100k and be generating about £1800 pcm).

So, folks, in conclusion after a year I am one happy 'retired' BTL bunny.

[Cheib]

Interesting post. Are you getting your 10% yield investing in BTL's this year?

My view on retirement has always been diversity is your friend. We have a couple of BTL properties, a SIPP, occupational pension scheme and ISA's. The problem is particularly where tax legislation is concerned you never know what the rules will be like when you retire...so in my view best not to have all your eggs in one basket...that said if you have expertise or an asset class that you understand best that is always a good thing to concentrate on!

[Ozzie Osmond]

drainbrain said:

saving for retirement in endowments and pensions and ISAs etc etc doesn't really seem to produce any benefit until they mature.

Do you understand how an ISA works? Income and capital gains gross up tax free from the outset and anything can be withdrawn at any time. To say there is no benefit until maturity is simply wrong. There is tax free benefit all the time and there is no concept of "maturity" at all.

drainbrain said:

a BTL portfolio provides income from day one as well as continuing to provide it in retirement.

Although there is always the risk the risk of voids and bad tenants. Income tax and capital gains tax regimes apply from Day 1. With enhanced rate CGT acting as a tax on inflation as well as real world growth the assets become increasingly illiquid.

drainbrain said:

the pension-saver is taking an enormous gamble that they'll live long enough to enjoy the fruit. Whereas the property collector's enjoying the fruit along the way which will be just as fruitful on retirement.

There is nothing unique about property in this regard, the same applies to every form of income-producing investment. You have your money "tied up" in property. That appears no different from having money tied up in anything else. See also the illiquidity point above.

drainbrain said:

This first year of retirement's been perfectly ok. Everything's (bills and luxuries) been paid for, and cash surplus has bought 4 more properties over the year now adding another £1200 a month to the pot.

£1,200 a month from 4 properties is a paltry £69.23 per week per property. Doesn't sound much at all.

drainbrain said:

10% income return's the benchmark. Growth is unimportant.

If each of your properties is returning £300 a month that's £3,600 p.a. And if that is a 10% return at the gross level it appears you have been able to buy each property for £36,000.

If that 10% return is at the net level then it looks as though you have been buying properties at, say, £25,000 each.

drainbrain said:

In fact the one problem is of finding anything apart from more property which is worthwhile investing in.

Stock markets are up 15% since April and deliver in income of, say, 3% a year on top. All tax free and accessible if it's in an ISA. All tax free and heavily discounted (tax relief on contributions) if it's in pension.

drainbrain said:

For a laugh I've started an ISA. One of Ginger's Fiver-a-Day things. I keep wondering how the hell people can live with these paper investment things. They make you nothing you can spend, and you literally have no idea if you'll ever live to enjoy their fruits.

That's simply not correct.

drainbrain said:

So, folks, in conclusion after a year I am one happy 'retired' BTL bunny.

It's refreshing to hear a satisfied BTLer who's not complaining about increased taxes on buying, financing and selling their properties.

You mention that you are already 63 years old. What arrangements do you have in mind for long term management of your property portfolio? Family to help out or take over? Managing agent?

Have you given consideration to Inheritance Tax planning? You will be aware that CGT is payable at 28% on sale of properties and IHT is payable at 40% on a significant estate upon death. If you become a seller of properties to release cash or reduce hassle as the years pass you could end up paying 28% CGT plus 40% IHT and will be warmly thanked by the Treasury. Upon death no CGT is payable.

You say you are not interested in growth but you would be well advised to keep it under review because the long term tax implications for someone in your situation are likely to be significant.

All good stuff when it works out.

[Ozzie Osmond]

Cheib said:

My view on retirement has always been diversity is your friend. We have a couple of BTL properties, a SIPP, occupational pension scheme and ISA's. The problem is particularly where tax legislation is concerned you never know what the rules will be like when you retire...so in my view best not to have all your eggs in one basket...

I think a number of people on here are running very similar strategies.

Cheib said:

...that said if you have expertise or an asset class that you understand best that is always a good thing to concentrate on!

Very true. Although if you need to get something done that you don't know how to do yourself, pay a competent person to do it for you!

[drainbrain]

Cheib said:

Interesting post. Are you getting your 10% yield investing in BTL's this year?

My view on retirement has always been diversity is your friend. We have a couple of BTL properties, a SIPP, occupational pension scheme and ISA's. The problem is particularly where tax legislation is concerned you never know what the rules will be like when you retire...so in my view best not to have all your eggs in one basket...that said if you have expertise or an asset class that you understand best that is always a good thing to concentrate on!

Yes the income return on this year's meets the "10% rule". I've just had a look at the 'real figures' and found: 406 and 408 Bellshill Rd. Paid £25.5k for each and am accepting the rents of £350 for each (which is generous of me) from the existing tenants. 20 Hillfoot St G31 is a shop whose tenants have been my neighbours for some years. Cost £32k rent £300pcm. 22 Hamilton Rd G73 is also a shop. Was owned by my lifelong friend for 20 years. The next door neighbour (actually his sister) is the tenant. Cost £20k rent £275pcm. So £103k out for £1275pcm

I can see some argument for diversity but an equally strong one for specialisation. As to tax concerns, sorry. Disagree. I remember years ago my then accountant listened to me ranting and raving about tax and said to me: "I'll pay your tax". Really!! "Yes, if you give me your profits". Touche! I employ a decent tax accountant and to be fair sometimes run pretty close to the edge with strategies. But I've always found the best answer to paying too much tax is to make even more money! Honest to goodness I'm never that bothered about whopping tax bills for one very very good and obvious reason. I'm also so used to tax inspections and investigations including some pretty serious ones that I've no fear of them. Sometimes you win and sometimes you lose. And if you feel you're right then there's always the Tribunal to run to who in my opinion are pretty fair.

The thing with your investments into SIPP pension and ISA is that they don't produce any running income, do they? Yes we all know you can withdraw from an ISA but that defeats its point as an investment doesn't it? I'll find out with my Fiver a Day Parmenion thing, but I doubt very much that many folk are investing in an ISA and drawing an income from it. And if you ain't withdrawing any income from these investments how do you know you're going to live long enough to enjoy them?

[768]

drainbrain said:

Paid £25.5k for each and am accepting the rents of £350 for each

Bloody hell, a property round here that would sell for 10x that value rents at less than 3x what you're getting.

[Robbo66]

Ozzie Osmond said:

drainbrain said:

saving for retirement in endowments and pensions and ISAs etc etc doesn't really seem to produce any benefit until they mature.

Do you understand how an ISA works? Income and capital gains gross up tax free from the outset and anything can be withdrawn at any time. To say there is no benefit until maturity is simply wrong. There is tax free benefit all the time and there is no concept of "maturity" at all.

drainbrain said:

a BTL portfolio provides income from day one as well as continuing to provide it in retirement.

Although there is always the risk the risk of voids and bad tenants. Income tax and capital gains tax regimes apply from Day 1. With enhanced rate CGT acting as a tax on inflation as well as real world growth the assets become increasingly illiquid.

drainbrain said:

the pension-saver is taking an enormous gamble that they'll live long enough to enjoy the fruit. Whereas the property collector's enjoying the fruit along the way which will be just as fruitful on retirement.

There is nothing unique about property in this regard, the same applies to every form of income-producing investment. You have your money "tied up" in property. That appears no different from having money tied up in anything else. See also the illiquidity point above.

drainbrain said:

This first year of retirement's been perfectly ok. Everything's (bills and luxuries) been paid for, and cash surplus has bought 4 more properties over the year now adding another £1200 a month to the pot.

£1,200 a month from 4 properties is a paltry £69.23 per week per property. Doesn't sound much at all.

drainbrain said:

10% income return's the benchmark. Growth is unimportant.

If each of your properties is returning £300 a month that's £3,600 p.a. And if that is a 10% return at the gross level it appears you have been able to buy each property for £36,000.

If that 10% return is at the net level then it looks as though you have been buying properties at, say, £25,000 each.

drainbrain said:

In fact the one problem is of finding anything apart from more property which is worthwhile investing in.

Stock markets are up 15% since April and deliver in income of, say, 3% a year on top. All tax free and accessible if it's in an ISA. All tax free and heavily discounted (tax relief on contributions) if it's in pension.

drainbrain said:

For a laugh I've started an ISA. One of Ginger's Fiver-a-Day things. I keep wondering how the hell people can live with these paper investment things. They make you nothing you can spend, and you literally have no idea if you'll ever live to enjoy their fruits.

That's simply not correct.

drainbrain said:

So, folks, in conclusion after a year I am one happy 'retired' BTL bunny.

It's refreshing to hear a satisfied BTLer who's not complaining about increased taxes on buying, financing and selling their properties.

You mention that you are already 63 years old. What arrangements do you have in mind for long term management of your property portfolio? Family to help out or take over? Managing agent?

Have you given consideration to Inheritance Tax planning? You will be aware that CGT is payable at 28% on sale of properties and IHT is payable at 40% on a significant estate upon death. If you become a seller of properties to release cash or reduce hassle as the years pass you could end up paying 28% CGT plus 40% IHT and will be warmly thanked by the Treasury. Upon death no CGT is payable.

You say you are not interested in growth but you would be well advised to keep it under review because the long term tax implications for someone in your situation are likely to be significant.

All good stuff when it works out.

Superb.

[drainbrain]

768 said:

Bloody hell, a property round here that would sell for 10x that value rents at less than 3x what you're getting.

Yeah well maybe they aren't really great BTL properties. Great BTL properties make the most income for the least expenditure. They aren't necessarily the same properties you'd buy-to-sell. But then the hint's in the name. bt….L. Many an ignoramus wants to bring growth into the picture. But btl portfolios are for income not growth.

[drainbrain]

Robbo66 said:

Ozzie Osmond said:

drainbrain said:

saving for retirement in endowments and pensions and ISAs etc etc doesn't really seem to produce any benefit until they mature.

Do you understand how an ISA works? Income and capital gains gross up tax free from the outset and anything can be withdrawn at any time. To say there is no benefit until maturity is simply wrong. There is tax free benefit all the time and there is no concept of "maturity" at all.

drainbrain said:

a BTL portfolio provides income from day one as well as continuing to provide it in retirement.

Although there is always the risk the risk of voids and bad tenants. Income tax and capital gains tax regimes apply from Day 1. With enhanced rate CGT acting as a tax on inflation as well as real world growth the assets become increasingly illiquid.

drainbrain said:

the pension-saver is taking an enormous gamble that they'll live long enough to enjoy the fruit. Whereas the property collector's enjoying the fruit along the way which will be just as fruitful on retirement.

There is nothing unique about property in this regard, the same applies to every form of income-producing investment. You have your money "tied up" in property. That appears no different from having money tied up in anything else. See also the illiquidity point above.

drainbrain said:

This first year of retirement's been perfectly ok. Everything's (bills and luxuries) been paid for, and cash surplus has bought 4 more properties over the year now adding another £1200 a month to the pot.

£1,200 a month from 4 properties is a paltry £69.23 per week per property. Doesn't sound much at all.

drainbrain said:

10% income return's the benchmark. Growth is unimportant.

If each of your properties is returning £300 a month that's £3,600 p.a. And if that is a 10% return at the gross level it appears you have been able to buy each property for £36,000.

If that 10% return is at the net level then it looks as though you have been buying properties at, say, £25,000 each.

drainbrain said:

In fact the one problem is of finding anything apart from more property which is worthwhile investing in.

Stock markets are up 15% since April and deliver in income of, say, 3% a year on top. All tax free and accessible if it's in an ISA. All tax free and heavily discounted (tax relief on contributions) if it's in pension.

drainbrain said:

For a laugh I've started an ISA. One of Ginger's Fiver-a-Day things. I keep wondering how the hell people can live with these paper investment things. They make you nothing you can spend, and you literally have no idea if you'll ever live to enjoy their fruits.

That's simply not correct.

drainbrain said:

So, folks, in conclusion after a year I am one happy 'retired' BTL bunny.

It's refreshing to hear a satisfied BTLer who's not complaining about increased taxes on buying, financing and selling their properties.

You mention that you are already 63 years old. What arrangements do you have in mind for long term management of your property portfolio? Family to help out or take over? Managing agent?

Have you given consideration to Inheritance Tax planning? You will be aware that CGT is payable at 28% on sale of properties and IHT is payable at 40% on a significant estate upon death. If you become a seller of properties to release cash or reduce hassle as the years pass you could end up paying 28% CGT plus 40% IHT and will be warmly thanked by the Treasury. Upon death no CGT is payable.

You say you are not interested in growth but you would be well advised to keep it under review because the long term tax implications for someone in your situation are likely to be significant.

All good stuff when it works out.

Superb.

Y'see this is the thing. It isn't "superb". It's nonsense. Raving nonsense about "tax" and "growth" and "IHT planning". Take the latter for example. IHT. How much do you guess my wife will pay if I die before her? And how much will the charity pay which will cop the lot on second death? As to "growth", are you in the right thread? This thread is about retirement funded by BTL. Who gives a monkeys about funding growth in retirement? As it happens its surplus has actually created a bit of growth. About £14k a year's worth. And while it ain't a king's ransom, it's what a an annuity of about £250k would produce. And it wasn't even sought. How many pensioners do YOU know whose annuity income has gone up by £14k this year? And very likely to do the same or better next year too.

And mate, this is the real world. 'voids and 'bad tenants' aren't 'risks'. They're certainties. No one in the world operates a portfolio of even dozen properties without encountering a bad tenant or a void at some time. Amateurs should expect to pocket 60% of the full occupancy rent pre-tax. Experienced pros closer to 85-90%. Commercial, 95-100%.

There is probably more rubbish written about btl on PH (and elsewhere) than any other subject or topic. This is good in some ways because it discourages people who would become competitors from getting into it or encourages people who shouldn't go near it to go for it. But believe me, properly executed there are few investments and certainly none on offer in this forum which come anywhere even close to property as a long term performer.

If I told that, say, 50% of my portfolio cost me NOTHING you wouldn't believe it, would you? Because then you'd have to accept that half of this very comfortable retirement income cost not 1 penny to obtain. Not a penny. Set that beside the taxman's theoretical tax bonus in a pension plan and ask yourself which you'd prefer?

[technodup]

768 said:

drainbrain said:

Paid £25.5k for each and am accepting the rents of £350 for each

Bloody hell, a property round here that would sell for 10x that value rents at less than 3x what you're getting.

I've said this before. Glasgow has some very cheap property with relatively large yields.

You can buy outright for the cost of a deposit elsewhere. Which makes BTL a very different proposition. Even more different if you can secure government guaranteed rent, as is (or was) possible for 20 months at a time.

[richardxjr]

Groak, is this you?

[drainbrain]

technodup said:

've said this before. Glasgow has some very cheap property with relatively large yields.

You can buy outright for the cost of a deposit elsewhere. Which makes BTL a very different proposition. Even more different if you can secure government guaranteed rent, as is (or was) possible for 20 months at a time.

You're exemplifying part of the well-known Location Myth.

Three of the 4 properties I mentioned above aren't in Glasgow. EVERYWHERE has some very cheap property as a look round even good ole' Rightmove or a few auction sites can tell you. And HB is payable all over UK for an indeterminate period.

But property investment for income isn't really about cheap or expensive property. It's about what it costs YOU. Some people have very expensive property they got for nothing. It rents for Xpcm. Other people paid an expensive price for the expensive property next door to it which also rents at Xpcm.

I'm only adding unburdened property because I've no passive income alternative. In fact it'll probably take more than 10 years before I even have my cost prices back. If you think that's good then stick with the day job or save in a pension. Some pensionistas won't be seeing a penny back for decades. In fact the earlier they started the longer it'll be. And some won't see a penny back at all!! Oh dear!

[randlemarcus]

What happens if they put a hard cap on HB? You either accept the lower yield, thus ruining the point, or you kick them out, and find new tenants, with the associated voids etc.
I can see there being a bit of a backlash about people exactly like you "exploiting the hardworking classes".

[drainbrain]

randlemarcus said:

What happens if they put a hard cap on HB? You either accept the lower yield, thus ruining the point, or you kick them out, and find new tenants, with the associated voids etc.
I can see there being a bit of a backlash about people exactly like you "exploiting the hardworking classes".

"What happens if…..". Aha! This is from the well known Risk Myth school of thought. "What happens if….." hmmm. How many things could I finish that sentence with. What do you reckon? A thousand? A million? Unfortunately in business you have to work with what IS rather than what might be. You anticipate change with adaptation. Which prevents you having to really care about "what if" style imaginary risks. As the Wise One said, "sufficient unto the day is the evil thereof". Deal with today's problems rather than stressing about what MIGHT happen tomorrow.

And just so you know, apart from a colossal minefield of legislation to prevent it, "exploiting the hardworking classes" isn't how successful BTL (or anything else) operates for anything other than the shortest measure. In reality it's the opposite. Providing the hardworking person with a decent facility or service at a decent price is how to keep the tills ringing and the referrals coming in. The day there's a backlash against that is a long long long way off.

[NickCQ]

drainbrain said:

Unfortunately in business you have to work with what IS rather than what might be.

That is simply untrue.

[DonkeyApple]

All I would add is that it's prudent to spread your exposure over more than one asset class even if it means a lower income. Especially if at the age when sourcing an alternate income is difficult. I would certainly look to plough excess income into something else as a prudent hedge rather than increasing exposure in the one class. You don't want to be 75 and dealing with margin calls and sitting tennants should there be a downturn or a significant change in taxation or laws etc.

[jeff m2]

I don't quite see the point of your post, but I'll bite.
I hope you realise you have started a business at a time when most others would be selling off a property portfolio.
No harm, in your case it is a necessary evil.
I think your decision to buy four small properties is sound, one unit of anything can be precarious.
You are however quoting projected gross figures, that is something usually done by people who have not yet started a business, not those already operating.

I don't quite see how you have a cash surplus sufficient to buy four more properties after only one year.
I hope you are remembering to eat.

You do however appear to have a rather twisted view of people who invest.
I'm not going to start giving figures.
But....There is no magic switch that one throws at retirement, something that appears to be widely misunderstood, if you invest, you invest. Choice of investment may be moderated later in life.

So, I suggest you keep very good books, be careful of rushing into expansion, run realistic cash flows to ensure you are not taking too much cash. (sxxt happens)
Good luck.

Edited by jeff m2 on Thursday 27th October 11:29

[drainbrain]

NickCQ said:

drainbrain said:

Unfortunately in business you have to work with what IS rather than what might be.

That is simply untrue.

Arguable possibly for some (clairvoyants for example). But for the most part what'll happen tomorrow, never mind in 10 years time, is a guess and capable of endless potential permutation and outcome. All you can really know is the now. A poster above asks "what if there's a hard cap on HB"? Why would that possibility affect someone's decision to accept an HB tenancy today? Or affect their ability to adapt to it if it happened? Change is endless. It's not a risk it's a certainty. In fact change is as certain as death. Surviving change requires adaptation. But adapting to possible change which has yet to come is a bit silly rather than getting on with dealing with the changes that are currently in effect.

[technodup]

drainbrain said:

You're exemplifying part of the well-known Location Myth.

Three of the 4 properties I mentioned above aren't in Glasgow. EVERYWHERE has some very cheap property as a look round even good ole' Rightmove or a few auction sites can tell you. And HB is payable all over UK for an indeterminate period.

No, you're splitting hairs, for all intents and purposes for most on this forum they are all Glasgow or thereabouts.

And it's just not true that property is that cheap everywhere. Try finding anything anywhere near London for less than £50k that isn't a garage, some sort of shared ownership or whatever.

But hey, what do I know, you're clearly the expert.

[drainbrain]

DonkeyApple said:

All I would add is that it's prudent to spread your exposure over more than one asset class even if it means a lower income. Especially if at the age when sourcing an alternate income is difficult. I would certainly look to plough excess income into something else as a prudent hedge rather than increasing exposure in the one class. You don't want to be 75 and dealing with margin calls and sitting tennants should there be a downturn or a significant change in taxation or laws etc.

There's only a certain "prudence" in risk spreading as general slumps/recessions teach. The same lesson's learned by betting every horse in a race or buying a thousand lottery tickets instead of one or putting money on every number or both colours on the wheel. But there are so many 'species' of property and options within it that a truly massive spread can be achieved within this single asset class. And I don't see age as a barrier to sourcing alternate income. Incapacity, maybe depending what it is. And inability certainly, because no-one my age is likely to be playing professional football for example. But age in itself is no barrier to earning. That's a pension-salesman's fallacy. Loads of us old duffers work. Many of us even enjoy it. Some even do quite well out of it. I certainly enjoyed it and may even go back to it if The Real Boss permits. Margin call is about dealing with the wrong type of lender in the wrong type of agreement and sitting tenants are an old school 'risk' that I didn't know in the AST age even existed any more. Even significant negative tax change or law is highly unlikely. Turkeys- even pretty stupid ones- don't vote for Xmas. And anyway, once again, being any particular age isn't of any significance. st happens. Like I said, it ain't a risk, it's a certainty. Brings three options. Adapt, exit, or fail.

But…spreading risk and thereby deliberately lowering income on the CHANCE of some future negative event…..don't think we'd make very good business partners. To me that's a bit like saying serious road accidents happen every day so I won't go to work today and earn any money in case I'm knocked down and killed. Yeah well, maybe.