Pensions

The main point to consider IMO is should this theoretical young earner put all his/her eggs in one basket.

'Pay into a pension' can mean many things, especially as some pension funds offer a property fund.

IMO

- one should not consider putting money into a pension unless one is a 40% tax payer. (Under current legislation - I didnt spot if the tax breaks will remain the same under the new proposals)

- One should not buy a second property as an investment unless it is a small proportion of ones total investment strategy.

As to your actual direct question will property prices do better than any other investment over the next 40 years - The answer is obviously no - all you have to do is spot the next Microsoft and put all your money in there :-)

And most young earners that I know have enough trouble funding their first property.

I presume you're talking about a second property to let.

Historically property prices have risen by about the same rate as mortgage interest rates, which won't be too far off cash pension rates. So if he buys a second property the mortage interest he's paying/savings interest he's losing should match the rise in the property's value (based on the last 40 years history). He'll make a profit from his rent minus expenses. Expenses (maintenance/insurance) tend to be about

However it should be noted that this is extremely risky - with an 80% mortgage it would only take a 20% drop in prices to totally wipe out his whole investment, and with a 30% drop he'd lose more than he invested. Also one troublesome tenant could cause major financial problems. Investing in the most risky of equity markets carries less risk, you can't lose more than you invested! So it could be very profitable (as people who BTL'ed 6 years ago know), but it is also very risky and does involve far more work than an equity based investment.

Oops, forgot to clarify that point, yes, of course.

Well argued. It is indeed a risky business.

So you strongly believe that throwing any extra income into shares is just as risky / perhaps even less risky than aiming for a BTL property to safeguard the long-term future?

Interesting food for thought. Thanks for your input Andy.

Property is generally less volatile than shares, so buying property with cash is usually less risky that buying shares with cash. But then the average returns are greater with shares.

The riskyness comes from gearing, if you buy with borrowed money you are multiplying the potential gains/losses, therefore multiplying the risk. People don't tend to buy shares with borrowed money, but they do buy property with borrowed money. An 80% mortgage multiplies any gains/losses by 5, making an investment of 20,000 in a

No, I think he's talking about a first property to let.

I agree with your first sentence, but with regards to your second sentence, I'm wondering what factors you are assuming in order to come up with that conclusion. Are you assuming that since some shares may well go up by a whopping 1000% over 1 year and others may fall by 200% in the same period, the overall average of say the FTSE 250, etc is higher than the average house price rise / fall over a year, some logic like that? So, in conclusion its not a very easy comparison to make since its like judging apples and oranges...

I wonder if there are historical figures for comparing average house prices against average stock market gains / losses over a few decades - or does anyone know off the top of their head?

You keep going on about eggs, but if you've only got one egg, isn't it better off in a basket than not? Anyway, the trouble with many pensions is that they too are one basket. It might be a good idea, if opting for marketed pensions, to go for several mini-pensions instead of one maxi. Likewise, when it comes to retiring, it might be an idea to buy several mini-annuities instead of just one big one. And you can have a rental property *as well*.

You forgot to add the rider "and will not be a 40% tax payer once retired".

So landlording is only for the rich?

Ah, but here's the rub. BTL properties are *easier* to fund than own homes. If your income fails the eligibility test, but you have enough saved for a deposit, you can buy a BTL because it's the rent, not your income, which is used as a decider. Then you can move in and "rent" the place to/from yourself!

If you only have one egg, then it might be better to make an omlette. Have some fun with it, invest it in something high risk and if it fails wait for the next egg to get laid.

Many can spilt your contributions into different funds.

I have heard (but havent reasearched) that you get better annuity rates with

And a second home in the sun,

I did forget to add that sorry - How many pensioner are 40% tax payers ?

Or foolish (IMO)

But would you be liable to CGT when you sold your investment :-)

"Miss L. Toe" wrote

Just because the place is rented, doesn't stop it being your PPR!

Would you have to pay income tax on the rental income you paid yourself if it was above the rent-a-room limit ?

"Miss L. Toe" wrote

No - just charge yourself a low rent, so that it does not exceed your allowable expenses!

No.

Well, you wouldn't pay yourself more rent than would just cover your outgoings of mortgage interest, insurance, repairs, etc, would you? Hence no profit, hence no income tax.

But the simple answer is that unless you rent to someone else you would not be considered to have rental income. It is only the lender to whom you pretended [*] that you were going to rent the place out.

The lender can hardly claim you were defrauding them. After all, BTL mortgage interest rates are generally higher than "normal" ones. The only reason everyone doesn't pull this trick to get around the income multiples rules, is that they haven't got the minimum 20% deposit which BTL mortgages normally require.

What if you decide to combine the two ?

i.e. buy into commerical property (or a commercial property syndicate) via a pension plan ?

Why does a 'second' property always need to be a residential property ?

Neil.

R>

Well, in a pension plan you don't have any expenses of your own to set against income, the scheme administrators deal with all that.

We were talking specifically about pretending that a "first" property is "second". What did you have in mind? Buying an industrial shed and living in it?

I see what you mean. That's what happens when I try and scan-read posts.

I would'nt m> snipped-for-privacy@>

Most shares are nowhere near that volatile, in any case any sensible shares investment would be spread amongst various different companies/sectors/countries. This could even make the investment less volatile than an investment in a single property - which could fall just because bad neighbours move in, or a change in the local area such as a motorway being built.

Yes, the overall rise in share prices is greater than property prices historically.

No, and the other thing to bear in mind is that with a property there's work to do, such as organising maintenance when the tenant rings to say the boiler has broken etc, making sure all the regulations are adhered to, getting insurance quotes every year, mortgages etc, dealing with problem tenants etc, whereas with shares you just sit on your backside and let others do the work.

Have a search - but the problem is they will just show capital growth, not income (ie dividends, or rent minus expenses).