Sunday, March 3, 2013

Boost your Pension with Property Investment

Property market
Property market (Photo credit: Alan Cleaver)
Twenty years ago, a carefully cultivated pension plan was your ticket to a comfortable retirement. Sadly things have now changed and with interest rates on savings accounts dismal and pensions performing at an all-time low, it is a good idea to look into alternative ways of generating some extra income if you want to enjoy your twilight years. So is property investment a good idea, or is becoming a buy to let landlord more trouble than it’s worth? 

The State Of The Rental Market

The UK rental market is currently booming. First time buyers are unable to gain a foothold on the property ladder and millions are being forced into rental accommodation as the recession continues to bite. As a result, demand for rental accommodation is far outstripping supply in many areas, which makes property investment a smart move for anyone with some cash to spare. 

How Easy Is It To Get A Mortgage?

Lenders have tightened up their lending criteria considerably since the property market crashed in a spectacular fashion a few years ago. Most now expect borrowers to have at least a 25% deposit, so unless you have the cash, you will struggle to obtain a buy to let mortgage. Lenders will also expect your anticipated rental income to be higher than interest on the loan. 

Will Buy To Let Properties Generate A Good Income?

The average savings account pays less than 1% these days, so even if you have tens of thousands stashed away, you will be lucky if you can generate much income from it. The alternative is to invest in some high-risk schemes, but if this is your retirement pot, you might not want to play Russian roulette with your savings. Buy to let yields are a much better bet in the current market - rental yields do vary, but on average you can expect to see a good 5-6% return on your investment, even taking into account expenses incurred. 

Things To Consider Before Investing In Buy To Let

Buy to let property investment is an excellent solution for a lot of people, but it is not all plain sailing, so before you jump in feet first, you need to think about a few things.

  • Location – not all locations are equal. London and the south east generates a far higher rental income than some other parts of the UK, so do your homework before you invest in property in your area. 
  • Choose your target market carefully – decide in advance what type of tenant you want to attract. Young professionals, students, families or social tenants: they all have different requirements. 
  • Void periods – you will need to factor in periods of time when your property is empty. No tenant means zero income, so bear this in mind. 
  • Self-manage or letting agent – managing rental properties requires a time commitment, which might not be convenient, but if you use a letting agent, the service comes at a price. 
  • Legal responsibilities – landlords are subject to all kinds of legal requirements, so make sure you are aware of your legal responsibilities before you invest in a buy to let property and advertise for tenants. If you fall foul of the law, you could end up being prosecuted. 


John is approaching retirement, so he has been looking into ways of maximizing his pension income. He used the compensation he received from and invested it in a small terrace property in his local area. Now he enjoys a steady income rental from a young professional couple.

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