A new client spoke with our client advisors a week ago and asked about a property as a retirement income generator. He had been told by his financial advisor that an annuity would provide the best and safest income in retirement. A friend of his had said that he would be better investing his money into the BTL property market.
As a route for retirement income, an investment into a property could deliver almost twice the gross income of an annuity (pound for pound). It will also protect your life savings to leave to your loved ones. When you buy an annuity, you give up that money you spend in return for income.
The Client wanted to know what type of property would be best for his investment. He was considering three options:
- A cheap property in a town
- A larger property in a small village in Kent
- A new build apartment in a large city
Cheap property in a town
The attraction for an investor is the gross rental income and their affordability.
There was a time when houses were on sale for just £1 on the street in Stoke. Although they were run-down, once refurbished they promised a good rental return. However, they were in an area where living standards were falling, and crime was rising.
nvestors built up a property portfolio, almost of cheap properties. They purchase them very quickly, with an estimated rental yield of around 10%- 15%. Within a year or so they are sitting on a big loss. Not only the properties fallen in price, but half of them were empty half of the time. They have tenants who didn’t pay their rent, goods had been trashed or stolen. Homes have had their entire contents removed, with no trace of the tenants.
There is usually a reason why a property is cheap to buy and promises incredible income. If it sounds too good to be true, it usually is.
A larger property in a Kent village
Village properties are something that many people desire. They normally acquire higher rent than normal, and tenants are usually wealthy and comfortable. The chances of a tenant like this running off without paying their rent are very low.
The problem with this type of property is that it reduces the potential number of tenants. When one leaves, it could be weeks or months before you can replace them. Especially today, as this generation renters want to live near to public transport and lifestyle amenities such as clubs, pubs, and restaurants. These aren’t available in a village.
A new build apartment in a large city
Now, the client was looking at a new build apartment in a large city. It was off-plan but would be completed by the time he retired in 18 months.
This apartment is in a development just a few minutes’ walk from a major train station. Travel to other cities is easy, and bars and restaurants are a short distance from the apartment. It has all the mod cons (a new modern kitchen and bathroom, and more). It also benefits from a ten-year builder guarantee.
The local authority and central government are investing heavily in the immediate and surrounding areas, increasing infrastructure and encouraging urban regeneration.
The rentable value is affected positively by all these factors, as is the ability to rent quickly: people love living in new properties.
The investment would be made at a discount to the current market value. That provides the client with protection against a fall in the property market, and any price rises would be immediately reflected in capital gain.
Do your research before investing
Our Clients are on the road to making a really good investment decision for their retirement. They are doing the right things, exploring the options and speaking to specialists and experts. They are figuring out returns and exploring the property fundamentals that will underpin investment.
Contact us at Nova Financial for a chat about our property investment opportunities. The sooner you start exploring your options for retirement income, the more valuable your investment is likely to be.