Buying somewhere to retire to...
Discussion
I could do with a bit of independent thought.
We recently cleared the mortgage
which means we should shortly that amount of cash available every month to invest (~£1500). Both of us have work pensions that we're contributing to in order to get the maximum match, there's some ISAs kicking around, and a small handful of shares. The gap in a 'diversified portfolio'
appears to be property.
We like the idea of retiring in about 15-20 years time to somewhere South-Westish, with a sea view. Is it completely nuts to look at buying something that fits that bill as a buy-to-let with a view to essentially swapping houses in a decade or so's time? We'd be able to throw whatever the rent is after tax at the mortgage as well as the existing £1500pm, so looking at effectively swapping one mortgage-free house for another in about 2038 (assuming 5%ish interest rates), and then able to rent out current house as a form of income. Call it ten years of that, sell current house, go nuts with the proceeds?
Anyone got an opinion on this? I've got no real interest in building a heavily mortgaged collection of flats/cheap property given the current tax environment and general noise around buy to let...
We recently cleared the mortgage
which means we should shortly that amount of cash available every month to invest (~£1500). Both of us have work pensions that we're contributing to in order to get the maximum match, there's some ISAs kicking around, and a small handful of shares. The gap in a 'diversified portfolio' appears to be property.We like the idea of retiring in about 15-20 years time to somewhere South-Westish, with a sea view. Is it completely nuts to look at buying something that fits that bill as a buy-to-let with a view to essentially swapping houses in a decade or so's time? We'd be able to throw whatever the rent is after tax at the mortgage as well as the existing £1500pm, so looking at effectively swapping one mortgage-free house for another in about 2038 (assuming 5%ish interest rates), and then able to rent out current house as a form of income. Call it ten years of that, sell current house, go nuts with the proceeds?
Anyone got an opinion on this? I've got no real interest in building a heavily mortgaged collection of flats/cheap property given the current tax environment and general noise around buy to let...
You're obviously happy to be completely debt free!
Having a rental property a couple of hours away sounds a pain. How do you know your plans wont change when you actually come to retire? A place you like now could look very different in 15 years time.
Investing the £1500 month over 15 years should easily gain you a pot of over £300k, if not more.
I would just keep it simple and max out pensions and investments move house, then enjoy!
Having a rental property a couple of hours away sounds a pain. How do you know your plans wont change when you actually come to retire? A place you like now could look very different in 15 years time.
Investing the £1500 month over 15 years should easily gain you a pot of over £300k, if not more.
I would just keep it simple and max out pensions and investments move house, then enjoy!
Edited by covmutley on Thursday 6th July 13:12
Edited by covmutley on Thursday 6th July 13:12
Tricky decision to make, would savings / investments grow in value faster than sea-view retirement friendly property in a nice part of the world? I ask, because that sort of property is not necessarily going to stay the same price over the next 20 years.
Will buying, renting out managed (guaranteed income etc) and ploughing the after tax income into the mortgage, along with any extra you want to put in to it, leave you in a better position investing the money somewhere else?
I don't know the answer. Buying and renting could be more or less risky depending on what the comparable investments would be. Property is illiquid if you need the cash in a rush, but so are some investments.
Me? I'd buy it now / soon if I could find something I liked the look of. But you will need to plan for a full renovation when it comes "off-rent" and you want to move in.
Will buying, renting out managed (guaranteed income etc) and ploughing the after tax income into the mortgage, along with any extra you want to put in to it, leave you in a better position investing the money somewhere else?
I don't know the answer. Buying and renting could be more or less risky depending on what the comparable investments would be. Property is illiquid if you need the cash in a rush, but so are some investments.
Me? I'd buy it now / soon if I could find something I liked the look of. But you will need to plan for a full renovation when it comes "off-rent" and you want to move in.
Bear in mind that you will get caned on Stamp Duty buying a second property, plus a potential hefty CGT bill on selling . Currently your pensions would give you a much more tax efficient investment, although going forward the HRT relief may be lost. If you are able to choose your funds within the company schemes, you many also be able to invest in commercial property this way.
Tit For Tat said:
Bear in mind that you will get caned on Stamp Duty buying a second property, plus a potential hefty CGT bill on selling . Currently your pensions would give you a much more tax efficient investment, although going forward the HRT relief may be lost. If you are able to choose your funds within the company schemes, you many also be able to invest in commercial property this way.
Yes we'd be down for Stamp Duty; not too fussed by that.CGT - no. We'd sell existing house where we live and move into this one, so there's no CGT unless Principal Private Residence relief has been removed without telling anyone?
Thanks all for the thoughts, might start looking at some sort of index tracker to drop spare cash in instead...
Shirt587 said:
CGT - no. We'd sell existing house where we live and move into this one, so there's no CGT unless Principal Private Residence relief has been removed without telling anyone?
..
Yes, but you mentioned selling your previous private residence at some time in the future ? ..
Low cost trackers within ISAs (currently 20K PA each allowance) is another option - no tax relief on the contributions so would grow slower than within a pension, but the upside is no tax on the way out.
Why not buy a holiday let? You can set these up to be completely managed for you as you can with any rental but with a holiday let you would make a lot more, the property would probably be somewhere you would want to live in and there's nothing stopping you not renting it say over the winter and getting some benefit out of it now. We do a lot of staycations in such properties and I get the idea the owners are doing exactly this and I'm staying in their pension / early retirement property.
If you like the sea, you could just buy a second home there to go at weekends?
editL: then you'd have another asset when you retire, whilst enjoying it in the run up. Obliviously a lot more expensive than buying somewhere and renting it out though. Although as someone said, holiday lets could be an option.
editL: then you'd have another asset when you retire, whilst enjoying it in the run up. Obliviously a lot more expensive than buying somewhere and renting it out though. Although as someone said, holiday lets could be an option.
mcg_ said:
If you like the sea, you could just buy a second home there to go at weekends?
editL: then you'd have another asset when you retire, whilst enjoying it in the run up. Obliviously a lot more expensive than buying somewhere and renting it out though. Although as someone said, holiday lets could be an option.
I agree with this. If it's somewhere coastal and even a tiny bit touristy, you'd be better off buying it as a holiday home and letting it out on a weekly basis (airBNB is good for this). That way, you get to use it when ever it isn't booked out, especially in winter, when it isn't quite so picturesque. So you get to find out what it's really like to live there, not just a one week snapshot of it in summer. The only downside is that it's a bit more work than long term letting. At the very least you'll want to find someone local to work as housekeeper.editL: then you'd have another asset when you retire, whilst enjoying it in the run up. Obliviously a lot more expensive than buying somewhere and renting it out though. Although as someone said, holiday lets could be an option.
If you do a BTL you'll never get any real use of it yourself, it'll still be a bit of hassle, even with good tenants. And then when you do decide to move into it yourself, you'll find that it won't be in the condition you expected and paid for it to be. At best there's going to be fair wear and tear on everything.
The downside to buying anywhere coastal/touristy is often the massively over inflated price that you'll pay for the privilege. The only way to mitigate that is the better income potential from holiday let over residential let. In any case don't rule out a change of circumstances (bad health, family etc), by the time you're ready to locate, lots of things could have happened to change your mind.
Shirt587 said:
Tit For Tat said:
Bear in mind that you will get caned on Stamp Duty buying a second property, plus a potential hefty CGT bill on selling . Currently your pensions would give you a much more tax efficient investment, although going forward the HRT relief may be lost. If you are able to choose your funds within the company schemes, you many also be able to invest in commercial property this way.
Yes we'd be down for Stamp Duty; not too fussed by that.CGT - no. We'd sell existing house where we live and move into this one, so there's no CGT unless Principal Private Residence relief has been removed without telling anyone?
Thanks all for the thoughts, might start looking at some sort of index tracker to drop spare cash in instead...
> Their Main Res owned for 40+ years,
> They bought "the perfect retirement home" c 20 years ago with a view to doing what you are.
3 years ago they sold the main res, no CGT as you'd expect.
They moved into the dream home, hated it, sold it after 2 years.
A CGT calc was done on the "retirement" home proportional to the time it was not their main res, as of course it was not, and if you could claim main res relief on any home you had rented out all BTL'ers would just sell their family home and move to their BTLs and sell them on CGT-free.
In short they paid GCT on what amounted to 17/19ths of the total gain from year 0- the point of selling, reflecting the time it was not their main res and was let. That they intended to move in [at some future point post purchase] was not relevant, as again BTL'ers would just say "I intended it to be my main res".
They were a bit cheesed at this, but as they'd had the complete gain from the main res, they had still had a decent slug to put into where they moved on to.
As other have said, from a taxation perspective you would be much wiser to put this money into an ISA (or pension/SIPP if you are a higher rate taxpayer and have the capacity without breaching the Lifetime Allowance).
Given that no one knows whether the property or a well balanced investment portfolio will deliver the highest investment returns then the leverage advantage with a mortgage is going to have to cover what could be a very large CGT liability.
Personally, I would not take such a risk and equally - why get yourself back in debt again when you are celebrating paying off your mortgage!
You also will have complete flexibility when you do come to buy your ideal retirement home (and, again it has already been said, places can change a lot over 15 years).
Equally you will be a cash buyer at that point - don't underestimate the power of this.
Given that no one knows whether the property or a well balanced investment portfolio will deliver the highest investment returns then the leverage advantage with a mortgage is going to have to cover what could be a very large CGT liability.
Personally, I would not take such a risk and equally - why get yourself back in debt again when you are celebrating paying off your mortgage!
You also will have complete flexibility when you do come to buy your ideal retirement home (and, again it has already been said, places can change a lot over 15 years).
Equally you will be a cash buyer at that point - don't underestimate the power of this.
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