Warning about buy-to-let as retirement income

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Warning about buy-to-let as retirement income

Independent property adviser Simon Morris has raised concerns people believe they can remove pension equity, invest in buy-to-let and generate the income they need to live a comfortable reitrement.

Mr Morris explains in a guide he has produced that this strategy comes with a number of hidden costs attached, which can cut into an investor’s profit margins, hampering their ability to use buy-to-let to fund retirement.

Mr Morris’ guide, ‘The hidden Cost of Buy-to-Let for Pensioners’, outlines they key issues pensions must consider before they take advance of the pension reforms to invest in buy-to-let property, in order to generate retirement income.

It also explores alternative property investment options like property investment trusts, property investment funds, property investment bonds and real estate investment trusts.

Mr Morris said: “There are a lot of direct costs involved in buy-to-let property, including insurance, letting agent fees, repairs, refurbishments, council tax and more.

“A study carried out this year by Platinum Property Partners shows that the average landlord pays £8,359 in costs per buy-to-let property, per year. This is before variables such as void tenancies, which 60 per cent of landlords experience every year, are factored into the equation.

“An IFA’s experience may show investors whether property bonds, investment funds, and products may be better alternatives to bricks and mortar stock. These products, which can be invested in Isa wrappers, provide certain tax benefits; some even guarantee initial investment.

“If investors calculate costs versus returns of buy-to-let, explore alternative investment vehicles and opt for UK regulated investment products, they’ll use their pension pot to invest in the product that’s right for their circumstances.”

Daren O’Brien, director at Aurora Financial Solutions, said: “When IFAs discuss retirement benefits with clients we don’t just focus on their pensions. We look all the investment options available to them include property investments, their attitude to risk and income needs.

“With property prices increasing in some areas at a rapid rate, it is hard to keep investors feet grounded and remind them that this is a high risk strategy, investing potentially all their retirement money in one single property investment.

“Simon is correct. There are many costs and pitfall with the buy-to-let market. Some pensioners who previously might have had a simple annuity product don’t realise fully the problems and they potential don’t want or can’t deal with these issues when they arise.”

ruth.gillbe@ft.com