Rise in silver landlords building ‘piecemeal portfolios’ as pension reform approaches
The government’s proposed pension reforms, coming into play from April 6th this year, are set to radicalise the property industry, with many on the brink of retirement looking to the sector as a way of keeping them in the lifestyle they are accustomed to once they reach retirement age. The financial freedoms the reforms allow mean that increasing numbers are purchasing property for buy-to-let purposes, joining the growing numbers of private landlords.
Neil Woodhead, Founder of Ready Rentals, an online support service for private landlords, and long-time industry expert, at the helm of letting agent Castle Estates in Glasgow, explains that this is a trend that they are certainly witnessing,
“In recent months we have certainly noticed a greater interest from those approaching retirement in becoming a part of the buy-to-let market in response to the new legislation. Some of these ‘silver’ clients are looking to release money from their pension and others have had money tied up in bonds that are coming to an end and, with the increased talk around the growing private rented sector and the potential therein, many are looking at this as a new approach to funding their retirement years.”
Other silver buyers are approaching the buy-to-let market from another interesting angle when it comes to funding their retirement – these are creating a ‘piecemeal portfolio’, having previously purchased a single large buy-to-let property and, in light of the changes in the market, are diversifying their investment by selling the property to purchase two or more smaller rental properties instead.
The reasoning behind this move is a decision to purchase cheaper properties in areas where long-term capital growth is not as substantial but shorter-term rental yields are.
Neil Woodhead explains that this is a new emergence in light of the imminent pension changes,
“One client has sold a modern flat for £160,000 (originally bought for £110,000) and has now purchased two single bedroom flats in a cheaper area instead for £28,000 each. This move has ensured that his rental per month has in fact grown from £550 per month to a figure of £730 per month.
“Upon retirement he originally had the view to sell the property and reinvest in a pension fund but instead took the option to change tack. In reality, when it came to retirement he could see greater benefits in looking for regular rental income rather than longer term capital growth and his story provides a good example of how those of retirement age are now looking at bricks and mortar differently.”
It certainly seems to be a growing trend. A recent survey by Platinum Property Partners revealed that a third of those heading for retirement are considering purchasing a buy-to-let property or properties. The current shortage in available rental stock is set to continue, with even the growing number of private landlords unable to make up the shortfall anytime soon, therefore providing great opportunities for those looking to enter the industry in 2015.
Yet it is not without its pitfalls. It is often all too easy for new landlords, retirees or otherwise, to overlook the added costs of operating in such a sector, something that differs substantially to an investment in stocks and shares for example.
Ongoing repair bills, the correct vetting of tenants, putting procedures in place to ensure everything is managed efficiently and keeping up to date with ever-changing legislation and legal requirements means that too many will fall fowl to the perils of naivety and inexperience.
Neil Woodhead has the following tips for those on the brink of retirement and looking to join the buy-to-let sector in 2015:
- “A buy-to-let investment is not one where you can simply sit back and watch your money grow. Whilst there is potential to generate a healthy retirement income, it is important to be realistic and ensure that you factor in the additional costs you will have to incur when managing a property. Do your sums in advance!”
- “Make sure you don’t fall foul of legal requirements. The buy-to-let sector is a regulated industry that can appear daunting to even the most experienced of landlords. Using a service such as Ready Rentals to self-manage your property will make sure that you keep abreast of any legislative changes and don’t encounter legal problems along the way. Everyone wants a stress-free retirement!”
- “When choosing precisely where to purchase your property, the best location may not necessarily be on your doorstep. Whilst there are obvious benefits of buying close to home, you may find that looking further afield can offer greater rental yield opportunities. Even if it is not somewhere that you would choose to live yourself, that is not a concern, remember that this is an investment for arguably the most important time in your life. Do your research thoroughly!”
For more information about the Ready Rentals service for private landlords and how it can support new and existing landlords, available from just £20 per month (including VAT), visit www.readyrentals.co.uk or call 0141 212 9120.