Buy to let as a pension?
Discussion
Last year when I started my new job, I got a pension for the first time. A pretty good one by all accounts, as our parent company were a pensions specialist.
9 months on we’ve been bought by a different company, and I have the option to get back all my contributions and start from scratch.
One of the options that I’ve always thought about is getting a buy to let place. By the time the mortgage is paid on it, that will essentially be free money coming in every month (provided I can rent it out of course). If we had a couple of places, that would bring in enough to live on comfortably into our old age.
As I’m turning 30 this year, I need to get cracking with this plan, but I don’t really know very much about it. We have a small mortgage on our current place (about 20% of the value of the house) so is it possible to borrow against this equity to buy a flat?
Would appreciate any advice from anyone who has done something similar.
9 months on we’ve been bought by a different company, and I have the option to get back all my contributions and start from scratch.
One of the options that I’ve always thought about is getting a buy to let place. By the time the mortgage is paid on it, that will essentially be free money coming in every month (provided I can rent it out of course). If we had a couple of places, that would bring in enough to live on comfortably into our old age.
As I’m turning 30 this year, I need to get cracking with this plan, but I don’t really know very much about it. We have a small mortgage on our current place (about 20% of the value of the house) so is it possible to borrow against this equity to buy a flat?
Would appreciate any advice from anyone who has done something similar.
The true benefit of a BTL is when the value of the property appreciates over time - not the monthly rental amounts coming in.
As long as you are repaying the mortgage on the property, it is highly likely that it will operate on an annual deficit, not a profit.
Also, even if the mortgage is finished and no more interest is being charged, rental properties are never "free" in that a property is an asset that degrades over time and needs care and maintenance in order to preserve its integrity. You must factor in those costs.
You also need to factor in the fact that there may be periods where the property is empty and generating no income at all.
Finally, if and when the property is disposed of, if it has (hopefully) appreciated in value, you need to factor in the Capital Gains Tax that will more than likely arise on the disposal (unless you get some savvy tax advice, of course, to mitigate the CGT).
Assuming that a property can replace as pension is not a certainty.
As long as you are repaying the mortgage on the property, it is highly likely that it will operate on an annual deficit, not a profit.
Also, even if the mortgage is finished and no more interest is being charged, rental properties are never "free" in that a property is an asset that degrades over time and needs care and maintenance in order to preserve its integrity. You must factor in those costs.
You also need to factor in the fact that there may be periods where the property is empty and generating no income at all.
Finally, if and when the property is disposed of, if it has (hopefully) appreciated in value, you need to factor in the Capital Gains Tax that will more than likely arise on the disposal (unless you get some savvy tax advice, of course, to mitigate the CGT).
Assuming that a property can replace as pension is not a certainty.
HereBeMonsters said:
Last year when I started my new job, I got a pension for the first time. A pretty good one by all accounts, as our parent company were a pensions specialist.
9 months on we’ve been bought by a different company, and I have the option to get back all my contributions and start from scratch.
One of the options that I’ve always thought about is getting a buy to let place. By the time the mortgage is paid on it, that will essentially be free money coming in every month (provided I can rent it out of course). If we had a couple of places, that would bring in enough to live on comfortably into our old age.
As I’m turning 30 this year, I need to get cracking with this plan, but I don’t really know very much about it. We have a small mortgage on our current place (about 20% of the value of the house) so is it possible to borrow against this equity to buy a flat?
Would appreciate any advice from anyone who has done something similar.
You need to spread the risk around, I think anyone who relies on any single income stream for future plans is a fool e.g. solely relying on BTL or solely on a pension.9 months on we’ve been bought by a different company, and I have the option to get back all my contributions and start from scratch.
One of the options that I’ve always thought about is getting a buy to let place. By the time the mortgage is paid on it, that will essentially be free money coming in every month (provided I can rent it out of course). If we had a couple of places, that would bring in enough to live on comfortably into our old age.
As I’m turning 30 this year, I need to get cracking with this plan, but I don’t really know very much about it. We have a small mortgage on our current place (about 20% of the value of the house) so is it possible to borrow against this equity to buy a flat?
Would appreciate any advice from anyone who has done something similar.
I'm similar ish to you. I'm 35, got a half decent pension via an employer (I pay 5% salary, they pay 10%). If they were paying nothing, would I contribute? No, but that's a different story.
I've branched out and have a few BTL's with a view to hopefully being able to retire somewhat earlier and hopefully have a decent income from them. I'm planning on having somewhere in the region of 50-100 properties within the next 5 yrs, as where I live they are cheap (Belfast) but currently have good rental income. Will they increase in value in 5 yrs? No, but over 20 I'd hope they do. From what I currently own, I do make a "profit" on a monthly basis, but this is getting ploughed back into buying more (after relevant tax has been paid).
Be picky about what you buy, don't just jump in. For me, I'm playing at the low end of the market - £40 to 50k terrace houses that I can add a bit of value to e.g. new kitchen etc and perhaps sell on if needbe and make a quick £10k profit.
To answer your question, would I cash in my pension and put into BTL? No. I'll fund these via my current salary and dividends I receive elsewhere.
I'm only thinking of cashing it in as it's so little, will be worth f
k all in the long run. I've only been contributing for 9 months!
There are options to take out a pension with the new parent company, but I thought something like this would be better, especially as I don't plan on being here until I retire.
We do have experience in the family of running buy to let properties, but they've always been bought with cash.
Would you really not turn a profit on a mortgaged place?
k all in the long run. I've only been contributing for 9 months!There are options to take out a pension with the new parent company, but I thought something like this would be better, especially as I don't plan on being here until I retire.
We do have experience in the family of running buy to let properties, but they've always been bought with cash.
Would you really not turn a profit on a mortgaged place?
Before people get suckered into buying properties, they should be completely up to speed on how income from such properties is taxed - both on an ongoing basis and when they are disposed of.
There are lots of complicated rules revolving around properties and from my experience, not many people really give them much thought before embarking on the BTL merry go round.
There are lots of complicated rules revolving around properties and from my experience, not many people really give them much thought before embarking on the BTL merry go round.
HereBeMonsters said:
Kudos said:
ISA's, Stocks & Shares etc are also ways to make money for retirement...
But can I borrow money against the equity of my house to invest? At a rate that would make sense?Personaly I'm buying property for my pension, as i perfer to have something tangable, and in my control. Its also something I can leave my kids.
I put away a large % chunk of my salary into a pension fund for years, its worth very little now. I wish I'd put it onto property.
Interest can be offset against rental income PROVIDED the interest is on a loan to buy or improve that rented property.
If you use the property as a mortgaged asset in order to borrow more, but the extra loan is for some other purpose, like buying a car or going on holiday - then the interest on that additional borrowing CANNOT be offset against the rental income of that property.
If you use the property as a mortgaged asset in order to borrow more, but the extra loan is for some other purpose, like buying a car or going on holiday - then the interest on that additional borrowing CANNOT be offset against the rental income of that property.
HereBeMonsters said:
Would you really not turn a profit on a mortgaged place?
Obviously that depends on the mortgage, the price of the flat, and the rent you could get on it. But I'd say no. After allowing for voids, repairs, Non paying tennants your unlikely to make a yearly profit on a fully mortgaged property. But I could be wrong. You need to look at this http://www.drcalculator.com/mortgage/uk/ Study it. Look into the rents you could get for certain properties then look at what the mortgage looks like. You can easily work out how much equity in a property you need before it starts to pay.
Unfortunately theres no crystal ball in terms of future interest rates. High rates are great for pensions and disasterous for BTL. And vicer-versa.
Personaly In my area. I wouldn't go into btl with less than 50% equity. That way I can make a monthly income so if prices slide a little, my invested money is still working for me.
One more thing is that imho flats make poor investments. They are nearly always leasehold which puts you in a potentialy vulnerable position with future costs. And flats are historicly more vulnerable to price drops. This is because they're very ofetn used as investment tools. Like any investment tool they suffer in bad economic climates. not everyone will agree with this and I've known people do very well on flats.
Actually one more point. There are much much easyer ways to secure a pension. Your work related pension wont ring you up on a saturday night as you sit down with the lady at your favourite restaurant, crying because the fridge has stopped working.
Eric Mc said:
Interest can be offset against rental income PROVIDED the interest is on a loan to buy or improve that rented property.
If you use the property as a mortgaged asset in order to borrow more, but the extra loan is for some other purpose, like buying a car or going on holiday - then the interest on that additional borrowing CANNOT be offset against the rental income of that property.
So if you take equity out of your own home, to pay for a BTL you can off-set the mortgage payments against rent received? If you use the property as a mortgaged asset in order to borrow more, but the extra loan is for some other purpose, like buying a car or going on holiday - then the interest on that additional borrowing CANNOT be offset against the rental income of that property.
The IFA I spoke to said it was ok, but you need to make sure you have the paper trail to prove thats what you did with the cash.
He is correct.
Loan interest is an allowable deduction against rental profits (or business profits) if you can show that the purpose of the loan was to invest in the rental property or to inject money into a business.
Interest allowablility centres on the purpose of the loan, not on the manner in which the loan is secured.
Loan interest is an allowable deduction against rental profits (or business profits) if you can show that the purpose of the loan was to invest in the rental property or to inject money into a business.
Interest allowablility centres on the purpose of the loan, not on the manner in which the loan is secured.
the IFA speaks sense,
it is a safe assumption to rely on the income of BTL as a pension, after paying off the mortgage, and is something that many people do..
i.e.
Mr and Mrs Apple have a million quid house in Devon, they have worked hard and paid off the mortgage but buying 20 years ago meant they got in at 200k.
They retire, downsize to a 400k house and spend the 600k on some BTL's with a bit of leverage to act as a tax shield.
they could be raking in a nice EBT of say 80,000 pa. which isn't too bad as a pension.
it is a safe assumption to rely on the income of BTL as a pension, after paying off the mortgage, and is something that many people do..
i.e.
Mr and Mrs Apple have a million quid house in Devon, they have worked hard and paid off the mortgage but buying 20 years ago meant they got in at 200k.
They retire, downsize to a 400k house and spend the 600k on some BTL's with a bit of leverage to act as a tax shield.
they could be raking in a nice EBT of say 80,000 pa. which isn't too bad as a pension.
Eric Mc said:
He is correct.
Loan interest is an allowable deduction against rental profits (or business profits) if you can show that the purpose of the loan was to invest in the rental property or to inject money into a business.
Interest allowablility centres on the purpose of the loan, not on the manner in which the loan is secured.
Thanks, it makes sense that you can do that. Its still a loan used to buy the house, its just secured against a different property.Loan interest is an allowable deduction against rental profits (or business profits) if you can show that the purpose of the loan was to invest in the rental property or to inject money into a business.
Interest allowablility centres on the purpose of the loan, not on the manner in which the loan is secured.
Employer based pension plans often are not great now, charges are too high and you have minimal control. I now invest in a SIPP for my pension where I have full control and buy shares myself. You do have to do homework though and keep on top of it all.
BTL or shares? Which is better in the long run? Who knows. Good shares are less stressful and don't moan for silly things. They pay dividends for the whole year, generally appreciate more than property and don't have void periods, unless you invest in a rubbish company! But likewise shares are higher risk and are more volatile.
BTL have the advantages of leveraging, tax relief on costs, a feeling of owning something tangible. A lot of people use interest only mortgages and instead of paying down the capital use the extra funds towards another deposit. You don't get tax relief on the capital repayments. Watch out for new builds/flats, the gross yield is often low (esp in the SE) and you will be in a cash deficit for the first few years. As has been said, flats are the first properties to fall in value.
Like most things in investing you should diversify, I wouldn't own just property (home + BTLs). At first I feel it is best to be in property via your house and in shares via your ISAs/SIPP, then as you get older move more into BTLs as your free / spare monthly cash builds up. My view is that the extra cash used for BTLs should after making use of the annual ISA allowance (£10k each now) and CTF allowance for all your children (£3k each now) plus SIPP contributions if you want. As with all things, everyone has their own views/preferences and different approaches work for different people.
If you get into BTL - remember EVERYONE will be trying to sell you their services, you have to deal with lots of different types of people/services and they all want your cash.
BTL or shares? Which is better in the long run? Who knows. Good shares are less stressful and don't moan for silly things. They pay dividends for the whole year, generally appreciate more than property and don't have void periods, unless you invest in a rubbish company! But likewise shares are higher risk and are more volatile.
BTL have the advantages of leveraging, tax relief on costs, a feeling of owning something tangible. A lot of people use interest only mortgages and instead of paying down the capital use the extra funds towards another deposit. You don't get tax relief on the capital repayments. Watch out for new builds/flats, the gross yield is often low (esp in the SE) and you will be in a cash deficit for the first few years. As has been said, flats are the first properties to fall in value.
Like most things in investing you should diversify, I wouldn't own just property (home + BTLs). At first I feel it is best to be in property via your house and in shares via your ISAs/SIPP, then as you get older move more into BTLs as your free / spare monthly cash builds up. My view is that the extra cash used for BTLs should after making use of the annual ISA allowance (£10k each now) and CTF allowance for all your children (£3k each now) plus SIPP contributions if you want. As with all things, everyone has their own views/preferences and different approaches work for different people.
If you get into BTL - remember EVERYONE will be trying to sell you their services, you have to deal with lots of different types of people/services and they all want your cash.
I know of 2 people who own a property they live in, and an "investment" flat. they dont do a tax return for the flat, have no intention of doing so, and neither of them have a buy to let mortgage or landlords insurance on them.
and chances are they will get away with it. for every one person who is doing things properly and paying their dues, there are plenty who are doing it on the cheap....
and chances are they will get away with it. for every one person who is doing things properly and paying their dues, there are plenty who are doing it on the cheap....
z4chris99 said:
the IFA speaks sense,
it is a safe assumption to rely on the income of BTL as a pension, after paying off the mortgage, and is something that many people do..
i.e.
Mr and Mrs Apple have a million quid house in Devon, they have worked hard and paid off the mortgage but buying 20 years ago meant they got in at 200k.
They retire, downsize to a 400k house and spend the 600k on some BTL's with a bit of leverage to act as a tax shield.
they could be raking in a nice EBT of say 80,000 pa. which isn't too bad as a pension.
£80k on £600k of property?!?! In their dreams! it is a safe assumption to rely on the income of BTL as a pension, after paying off the mortgage, and is something that many people do..
i.e.
Mr and Mrs Apple have a million quid house in Devon, they have worked hard and paid off the mortgage but buying 20 years ago meant they got in at 200k.
They retire, downsize to a 400k house and spend the 600k on some BTL's with a bit of leverage to act as a tax shield.
they could be raking in a nice EBT of say 80,000 pa. which isn't too bad as a pension.
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