Independent property adviser Simon Morris has released a new guide that’s designed to explain the hidden cost of using pensions to fund buy-to-let investments.
The new guide is called ‘The Hidden Cost of Buy-to-Let Investments for Pensioners.’ The property expert used it to examine whether people can remove their pension and invest the money into buy-to-let residential property in order to generate retirement revenue.
Simon explained that there are a number of hidden costs attached to investing in buy-to-let which can slash an investor’s property margins, and limit their ability to utilise buy-to-let to fund retirement. It also outlines alternative property investment options such as real estate investment trusts, property investment trusts, property investment funds and property investment bonds.
Simon Morris spoke out on the release of the guide. He was quoted by FT Adviser saying: “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.”
Morris went on to say: “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.”
High risk strategy
Daren O’Brien, director at Aurora Financial Solutions agreed with Simon. He noted: “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.”