Securing an Early Retirement through Property

Preparing for the future is always an important thing to consider, although many neglect to plan ahead. Many young people don’t usually think twice, which isn’t normally a big deal if you plan to work until you are 65, but starting to think ahead can leave you in a better position when the time comes for your retirement and this is important, as any retired person will need a steady income. Before you reach that age, you can secure yourself a prosperous and satisfactory retirement through buying a property and there are many ways to do it. Here are just a few:

  • Cashflow on rental property - Buying a property where your passive income increases due to rental income.
  • Buy and hold on rental property - Very similar to cash flow on rental property, except that when you buy the property, the cost of owning it is greater than the property’s yearly income.
  • Buy and hold, for capital gains - This type of purchase is solely for capital gains. Even though you are renting out the property, it is still costing you monthly, but the aim is for funds to double approximately every 8 years - a good investment for young people considering retirement.
  • Renovating - Typically this involves buying a property for a decent price that is in minor or major disrepair, renovating it, and selling it for more than you bought it for. Additionally, there are also several other ways in which you can invest in property that involve developing, subdivision, commercial investment and more. (1)

pensions

UK PENSION FUND

The automatic response to retirement is usually the way of the pension, but what people often do not realise is that pensions are only one way of preparing for retirement. However, pensions are now becoming more and more unpopular as people are seeking alternative sources of income along with the new freedom that pension law has allowed. With new laws giving more freedom with pensions and allowing retirees to spend their pensions as they choose, many are cashing in their pensions and investing in buy-to-let properties, or choosing to take the lump sum as an alternative to a pension. Residential property has become particularly ideal due to the skyrocketing house prices that have been creeping up in recent years. (2)The allure of investing in residential property is great for those wanting to receive a steady income with a successful mixture of tenants renting as well as capital growth on rising house prices. The housing crisis occurring in the UK is also resulting in a demand for new landlords due to the high rise of tenants. With last April reshaping and changing pensions, the rules now declare that those over the age if 55 will be able to withdraw 25% of their overall pension, tax-free, meaning that you can use that sum of money in whatever way you desire. This could include going on holiday, paying off debts or finding a way to turn that money into more profit. (3)

If you are considering investing in property as an alternative to your pension, then you need to take into consideration the potential hassle that might come with it. Firstly you have to find a property and when you do, you need to have faith that it is going to make you profit. Many people invest in property and can end up losing money on it if the value of the property begins to decrease and prices go down, if you have spent more on it than you would make through renting it out, or if the property itself remains empty. You will also need to think about doing the property up and working on any maintenance issues and how the property will be managed. These are tasks which can be handed over to others, however, it involves money and time - which could end up costing you. Nevertheless, a very promising prospect if done correctly. (4)

stamp duty

UK STAMP DUTY CHANGES

Chancellor George Osbourne recently announced the rise in stamp duty, requiring that buy-to-let investors and second home buyers pay around 3% of stamp duty upon their property purchase. All current rates will be rising 3% in each price range bracket. This, along with many other tax costs surrounding property investment, prevents some on the buy-to-let ladder from buying homes to let, rather than families who wish to buy their own home to live in. Consequently, the rates charged will contribute towards first-time buyers buying their own property, as opposed to first-time buyers who are buying to let, sometimes even before they have even bought their own home. (5)

Due to the stamp duty increase, we may find an increase in tenants in addition to housing developments slowing down in progress which could turn into an issue. This may cause house prices, as well as rent, to rise, therefore, as a result, it may be a good idea to invest in property before the likely decline in opportunity arrives.

uk property market

UK PROPERTY INVESTMENT

In addition to UK residents, there are also a large number of overseas investors who have been seduced by the promising prospects the UK property market has to offer, putting financial security in motion for themselves and their families.

The UK property market is seen as a safe place to invest and many investors reap the successes made of their investments without the fear of financial downfall or government interference in private property. However, overseas investors are conveniently not only interested in buy-to-let properties for the sake of having them, they are also funding new build properties too which means there are a lot more quality homes available to rent.

Many investors are also interested in HMOs (House of Multiple Occupancy) for an increased rental income. This is a great idea for helping to achieve a return on investment and making the most out of a property - converting the property into as many apartments/bedrooms as possible. For example, despite receiving roughly £400 per month for two residents (making £800 monthly), the more tenants you have occupying the property, the more money you will make charging £250 for say, five residents (making £1250) The more you can optimise this type of property, the better. (6) After all, the more the merrier!

Despite rising stamp duty, property investment can turn out to be a lot more prosperous than what the standard pension can provide, offering you a steady income and turnover if tackled in the right way. For many, it gives a lot more financial freedom and control in the sense that everything is down to you and rests upon your decisions and sense of judgement when it comes to the house you choose to buy and how much you spend on it. Do your research and consider all of the options carefully and you may find yourself amidst a very satisfactory retirement that is flourishing financially.

Sources

1. On Property - Retire early through property investment

2. This Is Money - Want to cash in your pension to become a buy-to-let landlord?

3. Saga - Releasing pension funds at 55


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