A personal blog about life, business and money – not to be regarded as Financial Advice
Do you know people who’ve chosen to invest in Buy to Let (BTL) property, instead of a pension for their retirement?
It definitely seems to have become more common in recent years (especially with programs like Homes Under The Hammer, who always make it seem so simple!).
The idea is that you buy an asset, which increases in value and provides a steady income to supplement your salary or the money you make from your business.
Then you grow the portfolio with more assets, so there’s enough income when you want to retire.
Experts like Robert Kiyosaki (Rich Dad Poor Dad) swear by rental property as being the ideal cash-generating investment.
But there’s been a LOT of changes over the last few years…
- The amount of stamp duty you’ll pay on second homes went up (from 1 April 2016, you pay an extra 3% on a home that’s not your main residence).
- And tax changes have been phased in too, that affect people in the higher rate tax bracket.
So is investing in Buy to Let property still worth it? Is it still a legitimate part of retirement planning?
Buying a house for someone else to rent from you can 100% be a good source of income.
The idea is that once you’ve bought the house and found some nice tenants, the additional rental income will just drip into your account and provide you with a regular income.
But if you’re looking for passive income (money that comes in regularly, with no work on your part) – then there’s a LOT of factors to consider.
And like all income strategies, Buy to Let investing has some reals pros and cons!
Upfront investment – Money
- At least 25% of the property price as a deposit – considerably more if you want to buy in London or the South-east.
- Money for Stamp Duty Land Tax (SDLT) at the higher rate – approximately 3.75% (so £7,500 on a house priced at £200,000).
- And to pay for solicitors, surveys and mortgage arrangement fees.
Upfront investment – Time
You’ll need to factor in:
- Visits to the area you’re planning to buy in (especially if it’s not local to you, needing overnight stays).
- Viewing the properties. It’s become more and more competitive to find the right property at the right price in recent years, with so many BTL investors searching for the same thing. How many properties will you need to see and make offers on, to secure just one?
- Completion of the purchase / mortgage paperwork and all the back-and-forth the process can involve.
- Plus sourcing and vetting prospective tenants or managing agents to undertake this for you.
As a minimum, they’re likely to be:
- Your managing agent’s fees, who’ll take a % of your rental income – if you don’t have an agent, then it’s not going to be very passive!
- Landlord’s insurance, gas safety certificates and so on
- Mortgage repayments
- Ongoing repairs
- And the costs to find new tenants, as people leave.
- BTL mortgages are much harder to get now than they have been in the past. Especially if you own more than 4 properties – when you then become counted as a portfolio landlord. This is likely to restrict the lenders available to you and reduce the amount they will lend you for further purchases.
- Unless you get a managing agent (and pay their fees), you’ll need to deal with tenant enquiries and problems. Which can quickly become quite a headache (like the boiler breaking down over Christmas!).
- You can’t get your investment money out quickly – you’ll need to wait until you can give your tenant notice, then get a buyer for the property and wait for the sale to be completed.
- If the property price decreases in value, you could end up in negative equity.
- And finally, when you sell the property, you’ll have to pay Capital Gains tax on your profit. So you may need to downsize your portfolio over a number of years to avoid a massive tax bill.
What’s the conclusion from all of this?
I’d say that as a semi-passive income source, as part of your long-term financial and retirement planning – Buy to Let could be a great idea, if the numbers stack up for you. But don’t put all your eggs in one basket!
So is Buy to Let right for you, as part of your retirement planning?
As a Financial Adviser, part of our work I love most is helping you plan for your retirement, in your way. So when the time comes and you want to stop working, you can afford the retirement you deserve!
For just £99, we can get together for your Retirement Track session, either in person (if you’re down in Kent) or on a Zoom video call.
It starts with us looking at all the income you’re expecting in the future – like Buy to Let and other property; your pensions; investments and any other sources.
We’ll then meet in person or on Zoom to talk through what you have in place, how much it’s worth and whether you’re on track for the retirement you deserve.
We’d love to help you feel confident that you’ve got the right financial plans in place for the future!
Until next time,
p.s If you’re ready to take the next step, here’s the link again to book your Retirement Track session now! https://peacetogetherbookings.as.me/Forecast