Romans Buy-To-Let Retirement Strategy

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7 Dec 2018

Is buying to let the ultimate retirement strategy?

Author: Grace Watson

Many property aficionados are often keen to explore the possibility of retiring on their property portfolio as opposed to their standard pension. Whilst the potential of retiring comfortably on the income from rental properties is appealing, few people are aware of the pros and cons of each retirement strategy.

So, is a property portfolio really more financially viable than a standard retirement pension? If you’re interested in exploring this option, check out our tips and tricks below, to make sure you’re successful:

- Plan ahead. Many people think two or three good property investments will see them through their retirement, but they don’t actually have a strategic plan to see their finances grow. Consult with property/asset professionals for advice, particularly if you’re new to the idea.

- Buy when the market seems quiet. Be brave – typically first-time buyers and investors who are late to the market will push up prices. Depending on your strategy, buy based on return or potential capital gain.

- Work out and prioritise the value of your assets. A common misconception is that the number of assets any one property mogul owns is more important than his overall asset base. This is not necessarily true – your most valuable properties should be determined based on steady rental yield and expected capital growth.

- Encourage capital growth to add value to your properties. The simplest way to achieve this is to renovate or redevelop any properties within your portfolio that could benefit financially from the work. Consider consulting planners or property experts if you’re unsure of which renovations could yield the best results.

- Don’t underestimate the importance of good mortgage deals. This is especially important if you already have mortgages on any of your properties. It’s natural to shy away from reviewing your financial options if you’re tied in to a mortgage term already – after all, nobody likes the word ‘penalty’. But the truth is, the market is constantly offering new, fresh and competitive mortgage products, which could save you thousands in the long term, even if you do need to pay a redemption fee.

- Leverage your assets. Businesses do it – why should your buy-to-let portfolio be any different? Contrary to other investment opportunities, you can buy a property with a 25% deposit and with a well-structured buy-to-let, the income will far outstrip the cost of finance, allowing you to use less of your own capital.

- Be tax savvy. Ensure the structuring of your buy-to-let property is correct for today’s income tax rules, don’t assume there are no options. There are ways of mitigating increased income tax on properties you are going to buy and may already own.

Top things to consider when you’re comparing a property portfolio to a standard pension

The benefits of investing in property long-term will almost certainly outweigh the benefits of a pension. However, ask anybody to explain the ins and outs of their pension and they’re likely to struggle. It’s clear for us all to see how the value of property has risen over the years, and the financial gain is also fairly transparent.

Pensions, on the other hand, are a safe, tax-efficient way of saving for the future, with the added benefit of the Government offering tax relief on pensions. The key drawback here, though, is that you can be penalised to withdraw money from your pension early. The Lifetime ISA charges 25% on cash withdrawals if you’re under the age of 60, for example.

The beauty of property investment is that you have full control – you can cash in at any time and, despite capital gains tax, live comfortably with your monthly rental income before you even retire.

If you’re unsure as to how to continue growing your property portfolio, or want to start planning your buy-to-let retirement fund, contact our Investment Advantage team on 033 3363 4535 today.

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