SIPP Property - too good to be true?
Discussion
I'm not completely financially illiterate. I think I've got a good understanding of what I would call "normal" instruments.
I'm 35. House has 50% equity on a low rate. Well paid job and I've got a healthy amount of disposable income each month. I currently invest £500 a month in a mixed portfolio via an ISA and been quite pleased with my 12% return over the last few years. However, I've been reading about Commercial SIPP investments, so please enlighten a luddite?
I have £120k in my pension pot. It does alright performance wise, but as my employer only puts in 5% it annoys me - perhaps irrationally. Could I theoretical use this to buy a property outright, I'm thinking a small retail property to cater for hairdressers / nail bars etc. I then rent this out at say £600 a month to some local entrepreneur. If this property modestly appreciates in value and then on top of this I'm getting £6k a year this seems like a no brainer.
So what have I got wrong?
If I'm right, why on earth is everyone not doing this?
Hell, I could even put the rent back into my pension put via my salary contributions to benefit from tax relief.
Have I uncovered a money tree?!
I'm 35. House has 50% equity on a low rate. Well paid job and I've got a healthy amount of disposable income each month. I currently invest £500 a month in a mixed portfolio via an ISA and been quite pleased with my 12% return over the last few years. However, I've been reading about Commercial SIPP investments, so please enlighten a luddite?
I have £120k in my pension pot. It does alright performance wise, but as my employer only puts in 5% it annoys me - perhaps irrationally. Could I theoretical use this to buy a property outright, I'm thinking a small retail property to cater for hairdressers / nail bars etc. I then rent this out at say £600 a month to some local entrepreneur. If this property modestly appreciates in value and then on top of this I'm getting £6k a year this seems like a no brainer.
So what have I got wrong?
If I'm right, why on earth is everyone not doing this?
Hell, I could even put the rent back into my pension put via my salary contributions to benefit from tax relief.
Have I uncovered a money tree?!
Your £120k pensions will probably be invested across a range of asset classes, including thousands of global businesses, sovereign bonds, maybe some property.
And you want to move this into a single asset class, in a single commercial unit, relying on one company to pay your income?
Do you see the difference in risk?
And you want to move this into a single asset class, in a single commercial unit, relying on one company to pay your income?
Do you see the difference in risk?
Ive looked into this briefly albeit with forestry and im probably off the mark so take this with a pinch of salt but iirc the rent is not your income, but income of the business owned by your pension. So i dont think pension relief is due on that.
Otoh i believe you can mortgage 3x or so, within the pension.
Finally, from what i can tell sipp providers who support this tend to take an active role in making sure it runs as a commercial business for compliance reasoms and therefore may charge for managing cashflow from the commercial bits of the sipp.
Otoh i believe you can mortgage 3x or so, within the pension.
Finally, from what i can tell sipp providers who support this tend to take an active role in making sure it runs as a commercial business for compliance reasoms and therefore may charge for managing cashflow from the commercial bits of the sipp.
I’ve got an industrial unit in my SIPP, I used to occupy it, for the last year it has been rented to another company who are struggling due to COVID, they are behind on rent.
Be careful of exposure, you may be best in investing in a commercial property fund which would spread your risk.
Alternatively, look at commercial property which has potential to be developed into housing, which should show a decent uplift.
Be careful of exposure, you may be best in investing in a commercial property fund which would spread your risk.
Alternatively, look at commercial property which has potential to be developed into housing, which should show a decent uplift.
thekingisdead said:
Your £120k pensions will probably be invested across a range of asset classes, including thousands of global businesses, sovereign bonds, maybe some property.
And you want to move this into a single asset class, in a single commercial unit, relying on one company to pay your income?
Do you see the difference in risk?
Yes good point. However, given I’ve got another 30 years working, I could theoretically empty the pot now, and then build up again over the next 30 years. Obviously this would be on top of the property + rental incomes etc. And you want to move this into a single asset class, in a single commercial unit, relying on one company to pay your income?
Do you see the difference in risk?
jwpepper said:
I'm not completely financially illiterate. I think I've got a good understanding of what I would call "normal" instruments.
I'm 35. House has 50% equity on a low rate. Well paid job and I've got a healthy amount of disposable income each month. I currently invest £500 a month in a mixed portfolio via an ISA and been quite pleased with my 12% return over the last few years. However, I've been reading about Commercial SIPP investments, so please enlighten a luddite?
I have £120k in my pension pot. It does alright performance wise, but as my employer only puts in 5% it annoys me - perhaps irrationally. Could I theoretical use this to buy a property outright, I'm thinking a small retail property to cater for hairdressers / nail bars etc. I then rent this out at say £600 a month to some local entrepreneur. If this property modestly appreciates in value and then on top of this I'm getting £6k a year this seems like a no brainer.
So what have I got wrong?
If I'm right, why on earth is everyone not doing this?
Hell, I could even put the rent back into my pension put via my salary contributions to benefit from tax relief.
Have I uncovered a money tree?!
Won’t the rent be within the SIPP, you won’t have any personal access to the rent, this will remain as part of funds invested in your pension. I'm 35. House has 50% equity on a low rate. Well paid job and I've got a healthy amount of disposable income each month. I currently invest £500 a month in a mixed portfolio via an ISA and been quite pleased with my 12% return over the last few years. However, I've been reading about Commercial SIPP investments, so please enlighten a luddite?
I have £120k in my pension pot. It does alright performance wise, but as my employer only puts in 5% it annoys me - perhaps irrationally. Could I theoretical use this to buy a property outright, I'm thinking a small retail property to cater for hairdressers / nail bars etc. I then rent this out at say £600 a month to some local entrepreneur. If this property modestly appreciates in value and then on top of this I'm getting £6k a year this seems like a no brainer.
So what have I got wrong?
If I'm right, why on earth is everyone not doing this?
Hell, I could even put the rent back into my pension put via my salary contributions to benefit from tax relief.
Have I uncovered a money tree?!
In addition you will have property upkeep, insurance etc to be removed from any profit and the risk of any period where the property has no tenant.
Ok, so if the rent remains within the SIPP that makes a bit more sense.
I guess if you keep the risk low and by that I mean no mortgage, I would view the increase in property value over 30 years as the investment, any rental income after costs would be a bonus. Any empty periods wouldn't really be too concerning.
Is there specific management companies that control investments such as this? Any ideas on fees etc?
I guess if you keep the risk low and by that I mean no mortgage, I would view the increase in property value over 30 years as the investment, any rental income after costs would be a bonus. Any empty periods wouldn't really be too concerning.
Is there specific management companies that control investments such as this? Any ideas on fees etc?
jwpepper said:
Ok, so if the rent remains within the SIPP that makes a bit more sense.
I guess if you keep the risk low and by that I mean no mortgage, I would view the increase in property value over 30 years as the investment, any rental income after costs would be a bonus. Any empty periods wouldn't really be too concerning.
Is there specific management companies that control investments such as this? Any ideas on fees etc?
I am no expert so can’t comment anymore but worth maybe posting on the IM thread at the top of the finance section, Julian, Nick, Steve and team are a helpful bunch and SIPP / Investments are their business. I guess if you keep the risk low and by that I mean no mortgage, I would view the increase in property value over 30 years as the investment, any rental income after costs would be a bonus. Any empty periods wouldn't really be too concerning.
Is there specific management companies that control investments such as this? Any ideas on fees etc?
No pressure to invest from IM team and always at hand to offer guidance on such matters that will put you in a good direction and give you more of an understanding.
I put my business premises in a SIPP, having cashed in my pension fund to buy it.
It does involve a fair amount of management, you also have to use a third party to administer the plan and this carries a not insignificant annual cost.
The tax breaks made it work for me, I have no regrets at all.
It does involve a fair amount of management, you also have to use a third party to administer the plan and this carries a not insignificant annual cost.
The tax breaks made it work for me, I have no regrets at all.
jwpepper said:
Ok, so if the rent remains within the SIPP that makes a bit more sense.
I guess if you keep the risk low and by that I mean no mortgage, I would view the increase in property value over 30 years as the investment, any rental income after costs would be a bonus. Any empty periods wouldn't really be too concerning.
Is there specific management companies that control investments such as this? Any ideas on fees etc?
Look at the IM sticky at the top of the forum:I guess if you keep the risk low and by that I mean no mortgage, I would view the increase in property value over 30 years as the investment, any rental income after costs would be a bonus. Any empty periods wouldn't really be too concerning.
Is there specific management companies that control investments such as this? Any ideas on fees etc?
https://www.pistonheads.com/gassing/topic.asp?h=0&...
If you speak to Nik or JulianPH they will talk you through your options.
They work best when it's your own company occupying the premises rather than an independent tenant. Your SIPP provider will arrange for it to be managed by an appropriate property company, so not only will you have additional charges but also you'll have lack of control.
At the lower end of the market these fees can be a relatively high proportion of income. I also found that the stipulations on lease length etc set out by the provider are often at odds with the market, e.g. stipulating minimum 5 year straight lease when the market demand was 3 year with 12 month break.
At the lower end of the market these fees can be a relatively high proportion of income. I also found that the stipulations on lease length etc set out by the provider are often at odds with the market, e.g. stipulating minimum 5 year straight lease when the market demand was 3 year with 12 month break.
jwpepper said:
Could I theoretical use this to buy a property outright, I'm thinking a small retail property to cater for hairdressers / nail bars etc.
I'm not sure what it is like where you live, but in my town there are countless empty retail units which hairdressers/nail bars could populate. It definitely seems like a tenant's market at the moment.CzechItOut said:
I'm not sure what it is like where you live, but in my town there are countless empty retail units which hairdressers/nail bars could populate. It definitely seems like a tenant's market at the moment.
That's the other point - who wants to take a 30 year bet that the High Street will continue to exist in its current form?Good points from everyone, thanks for the info.
It was an idle thought really and I guess I like the idea of having a tangible asset that I could drive past. Clearly it’s not as simple as I thought (and knew it wouldn’t be).
In numerical terms the ISA has performed well, but no guarantee that will continue.
At the risk of veering off topic, I guess my query at a wider point is - what do you guys wish you did 30 years before retirement?! I’m going to be £1k a month better off in January for various reasons and aside from the obvious increase in ISA saving, I can’t help but wonder if there’s something better?
It was an idle thought really and I guess I like the idea of having a tangible asset that I could drive past. Clearly it’s not as simple as I thought (and knew it wouldn’t be).
In numerical terms the ISA has performed well, but no guarantee that will continue.
At the risk of veering off topic, I guess my query at a wider point is - what do you guys wish you did 30 years before retirement?! I’m going to be £1k a month better off in January for various reasons and aside from the obvious increase in ISA saving, I can’t help but wonder if there’s something better?
jwpepper said:
Good points from everyone, thanks for the info.
It was an idle thought really and I guess I like the idea of having a tangible asset that I could drive past. Clearly it’s not as simple as I thought (and knew it wouldn’t be).
In numerical terms the ISA has performed well, but no guarantee that will continue.
At the risk of veering off topic, I guess my query at a wider point is - what do you guys wish you did 30 years before retirement?! I’m going to be £1k a month better off in January for various reasons and aside from the obvious increase in ISA saving, I can’t help but wonder if there’s something better?
I have a small commercial unit in my SIPP which has worked well, yields 7% annually, tax free of course and the property has increased substantially in value over the period, it will shortly be sold with no CGT to pay.It was an idle thought really and I guess I like the idea of having a tangible asset that I could drive past. Clearly it’s not as simple as I thought (and knew it wouldn’t be).
In numerical terms the ISA has performed well, but no guarantee that will continue.
At the risk of veering off topic, I guess my query at a wider point is - what do you guys wish you did 30 years before retirement?! I’m going to be £1k a month better off in January for various reasons and aside from the obvious increase in ISA saving, I can’t help but wonder if there’s something better?
However the costs were around £5k to get it into the SIPP and there are SIPP management charges of approx £1kpa.
Bear in mind that should the property become vacant the costs are significant - business rates, insurance, legals and agent costs for the new tenant. Take into account that you may have to accept a lower rent than previously and offer a rent free period, all this will seriously impact the yield.
I'm nearing retirement and to answer your wider point I wish I'd invested even more in both equities and property, I read last year that if you'd invested £200 per month into an isa 20 years ago and it had grown at a rate of 6% pa you'd have £114,000.
NickCQ said:
jwpepper said:
ISA ... 12%
£120k property ... £6k a year
You are trading a 12% net yield for a 5% gross yield (less after voids, management and maintenance costs)£120k property ... £6k a year
Moreover the commercial property has a reinvestment issue and more administration hassle
Doesn't seem like a no brainer.
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