Investing in property as a pension?

[Thistledew]

I am self employed and need to start some pension provision for myself.

I have a pretty good income but payment can be erratic - ie some months I may not have any money coming in but other months will make up for it.

I was wondering if investing in property is a reasonable way to make a pension provision? If I saved for 5-8 years I could put down 20% on a buy to let mortgage, the rental income from which would then at least contribute to if not cover paying off the mortgage, which could in turn generate an income when I retire or be an asset to sell.

Also, DP (not married at the moment but plan to soon) suggested he could contribute as well to saving for a deposit but I feel that it would be better if I did it all myself so that he would have no claim if we ever were to split.

Any other suggestions for a pension for someone with an erratic income?

I will be going to see an IFA soon but want to go with a few ideas in mind rather than completely clueless.

Thanks for any advice.

Are you renting, or paying a mortgage at the moment? If renting, would saving up a deposit to buy a buy-to-let property mean that you weren't able to buy your own house to live in?

When you are married all your assets are joint, so it would be difficult to ring-fence your claim on the buy-to-let.

I wouldn't at the moment - I'm not convinced property prices have bottomed out yet.
Apart from that consideration, property could be part of investment for the future but don't put all your eggs in that particular basket.

I would imagine the IFA could suggest all sorts of investments into which you can put varying amounts or lump sums but watch out for charges!

Over the year my income is good and I pay a big amount (to me!) into a private pension each month too - though could do this as a lump sum at end of tax year. Was thinking that as pension was seen as an expense for my business I could put more into it - but wasn't overly impressed with how the pension did this year so reluctant to put eggs in one basket so to speak.

My accountant has suggested that instead of putting so much into the pension leave the money to build up until enough to use as a deposit on a flat that could be rented out.

That's something that I'm considering as right now prices aren't too bad.
Btw I'm assuming you're a Limited Company?

Sounds like I'm a tycoon - def not :(

My DH's accountant advises this too

Thanks for all replies.

DP and I own our current home for which we are both paying into the mortgage.

One thing that is encouraging me to think of investing in property is the uncertainty in the financial markets. I would rather end up with a tangible asset rather than investments that could all disappear in a stock market crash.

I'm a sole trader btw. My professional regulations prevent me from becoming a company.

I understood that you couldn't invest in residential property within a pension fund, just with commercial property?

Although I suppose it could be treated as a 'normal' investment, and not within a pension.

There's plenty uncertainty in the stock market, too!
As long as you treat it as a very long term investment (30+ yrs) I expect property is as good as stocks/shares/anything else.
But personally I would pay off my own mortgage & other debts first.
Then think of all you own as a portfolio: you're already highly exposed to the property market thru your home, do you want to further invest in the same sector, or go for a more diverse portfolio?
That's why we went for home improvements & stocks in recent investments, including private pension. Our house is worth too much already. We looked at BTL, but I couldn't stomach doing it on an interest-only mortgage basis & banking on property prices rising to make any money out of it. Gold is overpriced, Art hard to fathom, still can't even figure out how to buy ETFs.

If your income is erratic I would be looking at spreading available money across several long & short-term options. Some low risk, others higher risk.

-A stakeholder pension. Costs are low and you get the tax paid into it as well as your contributions. Contributions can go up, down or halt all together as required. Can also be taken to a company should you start working for an employer. Disadvantage is that your money is locked away until retirement age.

• Tax-free savings. Use your annual Cash ISA allowance. It's low risk for relatively low reward but it's tax-efficient and the money is easy to get at if you needed a deposit on a BTL property or some sort of emergency expense.
• Long term bonds. Can often pay better than Cash ISAs if you're prepared to put a lump sum away for several years. Look at National Savings in the new tax-year as they often have some attractive, index-linked products. Again, low-risk
• Unit/investments trusts. Similar to a pension but without the tax contributions. Relatively risky short term but, if you choose these wisely and make regular monthly contributions you can iron out any ups/downs in the market in the long-term.

A good way to decide how much to invest 'high risk' and how much 'low risk' is to take your age as a guide. The younger you are, the more you can take a chance on high-risk because you have the advantage of time. The older you are, the more you should have your money in safe, low-risk places.

i think property is probably the safest investment out there, so long as you choose the right one, and do not over-extend yourself in order to make that choice.

whether or not the value of the property goes up or down in the short -medium term, there is the increase in equity (if bought using credit) and the rental income.

'paper' investments...you can't live in them...

Me and DH are seriously thinking about doing this - sorry to hijack thread but this may be of use to you thistledew - but when I went to see Nationwide today (who we have our current mortgage with) they said they no longer do buy2let mortgages and suggested we borrowed against our house as we have quite a bit of equity in it.

Any thoughts from anyone as to whether this is a good idea?

You could lose the investment (your house, your home) if it all goes Tits Up.
Someone else does BTL loans, I'm sure.

Thistledew - you already own a house and you have a mortgage against it.

That means you have a leveraged exposure to property already. If you bought another property on a mortgage you would just be increasing your exposure and your leverage. In investment terms you woudl have a very concentrated investment exposure and one that multiplied teh risk with borrowing (leverage).

In my view, if you have spare money you should pay off your existing mortgage ASAP and once you have done that you should diversify your portfolio by investing in other asset classes such as shares, bonds, commodities.

We do not own a house but as we get older we know that one of our investments will need to be the house we live in as it will allow us to avoid paying rent (as we currently do). In effect teh rent you now avoid oaying by owning your house is a notional investment income.

In effect the rent you now avoid paying by owning your house is a notional investment income.

owning your house when you retire doesn't give you an income...

unless it's big enough to sell and buy two houses!

the main dangers...if you are ever benefits dependant, the rental-income would reduce the benefits you receive (the mortgage would not be counted against it) making the mortgage on your own house harder to pay than it would be already (not being eligible for HB)

non-paying tenants or no tenants at all (though obviously you can choose a house with good prospects, and tenants the same..there is never certainty on that.)

Edless - if you own a house it provides a stream of benefits (ie like an income) that you enjoy as you live in the house. That is a stream of benefits you would have to pay out for in the form as rent if you did not own the house.

I rent my house rather than own and instead invest elsewhere. I pay my rent out of investment income. When I buy a house I will sell some investment assets to buy another investment assest we will call 'our house'. In reality we will just be swapping one investment for another though.

This is the problem in this country. No one ever sees owning a house as buying a stream of future implied rent. Ultimately, a house yio own has a fair value based on an implied rental yield just like any other asset.

We're thinking about doing this as well, buying a couple of newbuild apartments, but without mortgages as I don't want to be fretting about void periods, and the income stream is only really an income stream if it's not going on mortgage payments imo.