Looking for financial security in retirement? Why not invest in a rental property…
With this month’s eagerly-anticipated pension reforms coming into play, many savers will suddenly have access to their ‘nest eggs’ – and most will be looking for savvy investment solutions.
Many will turn to high interest savings accounts, annuities and income drawdown. But, if you’re looking for a viable investment alternative, why not consider the property market?
Offering both short-term returns and long-term gains, investing in a buy to let (BTL) property can provide the perfect ‘pension pot’. Here’s how…
“Pensioners entering the BTL market would benefit from an immediate income from their investment in the form of monthly rental return which they can use to pay for, or subsidise, their general living costs,” says owner of Belvoir Bury St Edmunds Patsy Day. “If the right property is bought in the right location and it is in good condition it should let quickly and they’ll start earning income on it straight away.
“Also a BTL property is a tangible asset so it’s easy for someone to understand – it’s not a complicated scheme that you can’t see or touch. Unlike other investment options, investing your money in bricks and mortar means that you can drive past your investment every day if you wish.”
In addition to providing a monthly income, on resale your investment property is likely to benefit from capital appreciation too.
“Investment landlords are generally going to be looking for income growth – and if you pick the right property and the market continues to grow, as it historically has done, then capital growth should occur at the end of the investment,” says Patsy.
Owner of Belvoir Tamworth Angie Allgood agrees. “The potential for capital appreciation is an important part of any landlord’s investment strategy,” she says. “Make sure you buy in a location known for good capital growth and choose a desirable property that is likely to rise in value.
“In order to maximise your investment property’s financial success, make sure you have a clear and concise exit plan too,” she continues. “Before making a purchase make sure you fully understand your short-term and long-term goals – always buy with your exit in mind and have a well thought-through plan about when you are going to execute it. Revisit your plan on a regular basis to ensure it’s still working for you.”
As part of their long-term plans some landlords choose not to sell their investment, but instead to keep hold of it to be passed on to their children.
“As well as short-term and long-term financial gains, owning an investment property is an asset in other ways too,” says Patsy. “The property can become part of your children’s inheritance, meaning you can leave them something tangible which they can then sell to release the capital or continue to let if they wish.
“Alternatively, the property could provide ongoing income for a remaining spouse, or it could finance a care home and all those other things that come along later in life.”
Another benefit of being an investment landlord will be that, as the owner of two (or more) properties, you will have living options that can be explored in the future should you wish.
“At some point your life stage or age may mean you want to move home yourself – and your rental property can perhaps provide the answer,” says Angie.
“Have you always dreamt of retiring to the coast or moving nearer to family? When buying your rental property be mindful of the areas where you want to live in the future with a view to maybe moving into the property when the time is right for you.
“Or are you thinking of downsizing in the next decade?’” continues Angie. “If your investment property is smaller than your current house, it may be somewhere that would make the ideal home for you in the future and you can release the capital from your larger property if desired.
“Buying a second property now with your own future in mind, and letting it until the time is right for your move, means you’re likely to pay a lot less for it than you would if purchasing it in 10 or 15 years time.”
“BTL properties can provide the perfect pension pot and pensioners have the potential to make perfect landlords, so it’s a very good business match,” concludes Patsy.
“Most pensioner landlords are likely to have been property owners at some point in their lives and will have prior experience in what is expected and needed during the buying and selling process. Also, someone who is retired is likely to have time available to search out the right investment property and manage the tenancy once a tenant is in place.
“As an experienced property owner they would also understand the need to keep it well presented and well maintained in order to protect their investment, plus they are likely to be financially stable and have a back up pot to take care of any unforeseen issues moving forward.
“With a mature outlook, previous experience in the property market and time available to troubleshoot, pensioners looking for an income in retirement should seriously consider the BTL market as a viable investment option.”
Why a rental property makes a good pension pot – at a glance
- You’ll receive a monthly income from the rent
- There is potential for capital appreciation on resale
- The property can be passed on to your children or spouse
- You can live there yourself in the future if you desire
- Rental income can be used to fund your care home fees if needed
Article Courtesy of Belvoir Lettings