Changes to UK pension regulations now offer a greater freedom to choose how to invest your pension pot. As a result many soon-to-be retirees are considering the merits of buy-to-let property as a pension investment. Here, Managing Director of property investment company Quick Move Now, Danny Luke, considers the merits of such an investment.
With would-be first time buyers increasingly priced out of the property market, rental property is always going to be in demand – as long as you buy in the right area.
If you’re seriously considering investing in property, make sure you do thorough research.
Which areas are most in demand? This is crucial to ensuring a good return on your investment – every day a property is empty is a day you’re losing money, so you want to ensure there’s high demand for rental property in the area you interested in. Research local amenities and services and keep an eye out for ‘up and coming’ areas, or areas of regeneration that will be popular with young professionals, as you want the property to be a wise investment not only in terms of rental value, but also when it comes to re-sale.
What is my budget? Be realistic about how much you want to spend, put together a robust budget, including contingencies for any work that may need to be carried out and ongoing maintenance, and stick to that budget. Buy-to-let property can be a great investment, but the property market can also be unpredictable, so if the market should experience a downturn you want to ensure you’ve got room to manoeuvre and are not under too much financial pressure. Low interest rates can also lull you into a false sense of security – rates will eventually rise, so you need to ensure your budgeting is vigorous enough to withstand a significant rise (ideally 5-7%).
What sort of return can I expect? A typical buy-to-let property in England or Wales will offer a 5% return, but this can vary widely depending on the area and the type of property you’re investing in, so do your research on expected rental income vs. purchase price and ensure it’s a healthy investment before you commit.
Who is my target tenant? Think about the area you’re considering investing in and who your target tenant might be, then select your property accordingly. If the biggest rental market is for families then a one-bedroom flat on the third floor is perhaps not going to get you the return you want. Similarly, if young professionals are your target market, a two bed bungalow is perhaps not going to hit the mark and get the desired level of interest.
As long as you do thorough research, buy-to-let property can offer a great investment in both the short and long term, but as with any investment, the property market can be unpredictable, so protect yourself and choose wisely.