Is becoming a Buy to Let Landlord a good way of investing your money and planning for a comfortable retirement?
Since the changes in the early 2015 budget, anyone aged over 55 can withdraw money from their pension and invest it elsewhere. This immediately led to a lot of panicked articles about a ‘flood’ of amateur landlords cashing in their pension pots and crowding out the housing market.
The main opinions on the subject fall into two camps:
1. “It’ll be a disaster!”
Those cashing in their pension pots will be hit with huge unexpected tax bills! They’ll be left with no private pension and sink into an old age of poverty! It’s encouraging reckless investment by inexperienced landlords and inflating house prices!
2. “Hurray! Cash it all in! You can’t go wrong!”
Becoming a Buy to Let landlord is a licence to print easy money! House prices are going up and up! You can make money while you sleep!
Both of these stances are extreme and – like most extreme views – have their problems.
Like any investment or financial plan, each individual needs to look at their own circumstances and needs, and assess if becoming a Buy to Let landlord is for them. There are a few points to consider before you make the decision that’s best for you:
- Due to growing demand and short supply, the value of properties will more than likely increase significantly over the next years and decades so – if you have the capital to put down a healthy deposit and negotiate a low interest rate – the rent could more than cover the mortgage and leave you and your family with a valuable asset.
- For those willing to assess the market and consider which area(s) to invest in, and which types of properties are available in those areas, shrewd investments are there to be made (and for those who don’t have the know how to make those choices, they can ask an experienced letting agent to advise them – see our guide to Building a Property Portfolio).
- With the poor value of annuities in recent years, a property portfolio could be just the right investment if you’re looking for a new challenge in retirement.
- Be prepared for void periods – can you cover the mortgage? A good letting agent can help you avoid long periods without a tenant.
- YOU are legally responsible – even if you engage a letting agent. So make sure that you personally keep up to date with the latest legislation affecting landlords (for example, by visiting our Advice for Landlords pages).
- If you’re planning to manage the property yourself, are you prepared to spend your retirement regularly inspecting and maintaining your properties, chasing rent and dealing with problem tenants?
- Only 25% of your pension pot can be withdrawn tax free – the rest may push you into a higher tax bracket! So consider the implications carefully and decide whether it’s worth investing the whole amount, or if you only want to cash in that tax free 25%.
So really, the story is the same as always. There’s no magic get rich scheme, but it’s not all doom and gloom either. Buy to Let can be an excellent investment, whatever your source of seed capital, so long as you are prepared to look into it carefully before you leap.
And of course, if you want to become a Better Letter, we are always on hand with advice and online tools for private landlords.
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