Alternative Retirement Option – Property Investment

Alternative Retirement Option – Property Investment.

h4u - Property Investment

When it comes to retiring and financial preparation, there is no universal option that is suitable for everybody.

Property investment is a great way to generate strong returns. Rental income can provide a long-term, predictable cash flow to prepare for and into retirement.

Here, we explore further into property investment as an alternative retirement option:

Pension or Property?

Typical routes for retirement income come from paying into a pension pot and investing in stocks and shares ISAs. Buy to let properties offer an alternative option.

Workplace pensions project growth of investment of around 5% a year before accounting for inflation and charges.

In the UK employers are required to make a contribution to individuals’ workplace pensions.

Pensions are considered “tax-efficient” as there is tax relief on whatever is paid in. There is also the option to withdraw 25% of the pot as a tax-free lump sum at age 55.

To compare this in terms of capital growth, property offers rental income as well as increased equity from value increase.

House prices have continuously stayed above inflation. With the stamp-duty holiday this year, property prices exploded by up to 30% in some areas. As a result property investment has been increasingly seen as a good idea.

Buy to let property

Being a long term investment, there is potential for considerable capital growth in the value of the property over time.

As with any business transaction, the general aim when it comes to a rental property is to see the greatest return of investment.

Rental yield is calculated by the annual rental income divided by the amount invested in the property. Generally, a rental yield of upwards of 7% is the aim.

To be a sustainable retirement investment, the income needs to show a profit while covering any fees incurred from the property. Such fees include mortgage payments, repairs, agents and insurance.

Remortgaging your buy-to-let property can decrease outgoings associated with the property. Securing lower interest rates and in turn boosting monthly profit.

Principal Protection

A huge factor in retirement planning is reducing risk and protecting the capital invested, aka principal protection.

Paramount to this is securing great tenants and using a reliable agent that provides a landlord rental guarantee. This means that as an investor you can as a whole expect to receive regular payments.

By doing this your investment property and retirement fund are protected. This is because you should have enough money to pay any operating expenses of the investment properties while accumulating a retirement profit.

Inheritance Tax

It’s important to recognise that investment properties are subject to inheritance tax whereas typical pensions are usually exempt.

After a passing, any part of the estate over £325k is liable for a 40% tax rate before any equity release. This includes any property, whether that be an investment or a personal home.

As with any large investment, independent financial advice should be sought when financial planning.

Investing in Property – Risks

Other possible risks that can affect property investment as an alternative retirement option include:

– A dip in the property market meaning a loss of equity from the property value.

– Property costs outweigh the rental income. For example in the case of costly, unexpected repairs.

– A change in taxation. For example, you have to pay income tax on rental income. If the threshold is reduced it can negatively impact your bottom line.

Investing in Property – Pros

– Capital growth over time. There has been a long-term increase in the property value, with this trend having no sign of slowing down.

– You own a real asset.

Rental demand is at a 5 year high. Rental property is increasingly in demand, meaning it’s likely you’ll be able to find great tenants easily.

Things to consider when investing:

So, you’re considering investing in property as an alternative retirement plan. Apart from the above, the key factors to research when deciding whether to invest are:

– Current/ upcoming legislation. Laws surrounding renting property, tenant and landlord rights often change. Keep up to date to work out the potential returns from a property.

– Landlord insurance. Essential for anyone looking to rent a property, compare costs and the level of insurance required for your needs.

– Property management. Decide whether you have the time and resources to manage the residence by yourself. Or whether you’d rather have a hands-off experience and want to use a property management service.

– Independent financial advice. It is important to weigh up all your options when it comes to retirement.

An independent financial advisor can offer insight about other options along with property investment when planning for retirement.

How homes4u can help

When investing in property a reliable property management company can make the process as straightforward and stress-free as possible.

homes4u have over 30 years of experience in property management services. Providing specialist assistance we can help reduce the risk, and ensure that you get the most out of your investment property.

If you’re interested in learning more about property investment or our property management services our specialist team are on hand to help.

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