Landlords often talk about property pensions, but is buy to let really a viable alternative for retirement saving?
To find out, Landlord Money takes a look at the buy to let market.
The objective of buy to let investment is based on a two-pronged approach:
• Capital growth – The hope that over the long-term, house prices will rise leaving a significant gain
• Yield – Yield is the cash return on investment, or more simply the money left in the bank after collecting the rent and paying the bills each month.
Since the credit crunch, the buy to let market has turned on its head. Until 2007, when prices peaked, property investors were buying because of house value inflation leading to big gains over a short period.
Then the credit crisis hit and the market reversed – now it is about return on investment in terms of profits from rent as house prices have slowed.
The question remains, will property investors make more from buy to lets than a personal pension?
Sensible attitude to investment suggests putting a lot of cash in to one sector is risky, so landlords should have some more liquid cash and assets.
Pensions also pick up tax relief at the highest rate of income tax the retirement saver pays. That means less money in for more money out.
Experts will also argue the tax problem. Investors pay capital gains tax on house price profits when they dispose of a property and income tax on rental profits, while investing in pensions and ISAs is tax free.
Property investors argue back that yields on student housing are double the returns most investments can pay – especially in these times of low interest on savings.
The real answer is no one really knows if a property pension is better than other investments.
All investments are subject to highs and lows, and the real trick is nipping in and out of the market at the right time to maximise profits and minimise tax.