Buy to let or pension?

[Twoshoesnewshoes]

Could anyone who has chosen to buy to let as a long term investment advise?
I don’t have a very good pension pot, and I’m wondering about investing in a student property instead of further pension payments.
I would need to remortgage on my property to get a deposit, then a buy to let mortgage. Hopefully I could pay my deposit back (to me) at a later date, but for now it would all just about break even.
but once the mortgage is paid off, it would give a net monthly income of £1500 (today’s money), which seems a good return.
ive worked in tax and maintenance- have I missed something?

You always have to be careful with property precisely because it is so expensive - it means putting a lot of your eggs in one basket. You don't get the benefit of spreading the risk.
You cannot sell your assets little-and-often to use up CGT allowances.
There are huge transaction costs (not least Stamp Duty).

It depends on your attitude to risk, how long you have until retirement and how you think the Government will legislate in future (eg rent controls, or those people who can't sell their flats because of the new cladding rules).

You get an instant 20% extra from the government added to your pension contributions, 25% of the fund can also be accessed tax free at retirement, you can access funds quickly and easily, property is an illiquid asset and not tax efficient, plus you would have to remortagge your own property to do this plan. You can diversify your investment stategy with your pension fund int to many different sectors, with an individual buy to let you have all your eggs in one basket.

Are you expecting a huge increase in property price? That is the reason people invest in buy-to-let, not the rent itself.

Thank you, really helpful.
@123sunshine I thought the 20% was just the tax exemption? I’m self employed so don’t get employee contributions either.
@SnowAndFrostOutside , no not really assuming an increase in property prices, just seems a much higher monthly income than pension returns.

A lot of student landlords have been burnt when the university has built their own accommodation.

a much higher monthly income than pension returns.
It's not just income, though, is it? What costs are involved in your pension return (clue: not many. On the other hand, being a landlord ... ).

Have you done your sums correctly? I'm an accountant, and nearly all clients who've purposely bought BTL properties with maximum gearing are barely breaking even on a cash flow basis, let alone making any significant return, which is set to worsen with rising interest rates. Many recent buyers are barely covering their mortgage repayments and other running costs at the moment, let alone any major repair/maintenance bills.

The ones who are making money are those who bought years ago when property prices were lower, hence benefitting from house price/rent inflation without corresponding increases in costs (unless they've re-mortgaged).

As for student lets, that's a whole different issue. If you're thinking about purpose built student blocks, they barely increase in value over the short/medium term and more likely to lose value (as they're usually grossly over-priced by the developers). If you're thinking about "normal" residential house/flat in a Uni city for students, then that market is falling in most Uni towns as many students seem to prefer the "new build" student blocks where they have their own facilities etc rather than just having their own bedroom and having to share facilities in a multiple occupancy house, so many previously used student houses are now being sold as family homes instead due to less demand and more competition.

Thanks @Badbadbunny , im
not expecting to make any profit whilst paying off the mortgage, and possibly even will run at a loss. The income is for when I retire.
There is not enough student accommodation in the city I’m considering though I guess that could change longer term.
I would prefer to buy a family type house to rent as it’s really hard to find rentals round here but the return would not come near covering the outgoings.

BTL is a lot of hassle and pretty hard to make money on now.

Back in the early 00s and maybe early 10s house prices were going up all the time, so when you paid off the mortgage with the rent you would get a nice boost through the capital appreciation of the house during the rental period.

If you believe house prices are going to increase again over the next 10 years - maybe. But a lot of people believe not.

You will need to start a company to avoid Section 24, which means you’ll pay a bit more for the mortgage and most likely need a heftier deposit.
Also be aware the EPC ratings are changing presently and it will be illegal to let a ‘D’ rated property. So these Victorian terrace houses may cost a packet to upgrade.

The main problem with pensions is that it is more difficult to access the cash than if your money is tied up in property. Not saying it is easy if it is in property but easier than a pension.
A pension has generous tax relief and is usually much safer than property investment. Property investors are screwed every which way till Tuesday now, and as someone else says, unless the properties have been bought some years ago, most investors are just about breaking even. That said, in the long term property has probably a better track record than pensions.
All depends on your appetite for risk and whether you are happy to have your money tied up until retirement.

@GasPanic I think property will increase in value over 10 years. Whether it will beat the shares market I don't have a crystal ball for. However, I invested in pension and stock & shares ISA myself because I don't like the hassle of being a landlord.

I inherited a student let but have transitioned out of the student market due to the city building a lot of purpose built student accommodation, and students becoming used to much higher standards than 10-20 years ago. For me it meant going from 3 bed with kitchen diner to 2 bed with lounge and separate kitchen. Some people who converted 3 bed family houses into 5 bed student properties by massively eating into the garden and carving up kitchen space are now left with properties neither students nor families want to rent.

You may be too late anyway.
www.telegraph.co.uk/business/2023/01/10/bank-england-cracks-buy-to-let-mortgages/

“Buy-to-let mortgages have boomed in recent decades, with close to £1 trillion currently borrowed by landlords. However, recent increases in borrowing costs raise the risk that landlords will not be able to find tenants who can afford rents high enough to cover their mortgage payments. Many thousands of buy-to-let investors are at risk of a default if they start to lose money.”

Looks like the BOE is finally closing the door on low quality/risky BTL lending, probably by increasing the deposit, affordability checks and checking the debtor has other assets and income streams the bank can access to cover their loan.

Contrary to popular belief there’s not a great deal of money in BTL
Also the law is stacked heavily in the tenants favour
they can quite simply pay nothing take you months and months to get them out
you pay all the fees very little chance of getting them back
also the risk of getting it trashed

It's not something I'd ever want to do and the words "retirement" and "BTL" seem like an oxymoron. When I retire, I want to be retired, not worrying about tenant hassles. As @rwalker points out, do you really want your "pension" income to be reliant on someone not paying rent for months, followed by protracted Court proceedings.

My dad put inheritance money into a buy to let back in the 90s as he had very little pension. I know he found it difficult at times. As a landlord you have to be quite resilient, handle stress well, have good emotional intelligence and as he got older all of that got more challenging.

Thank you all for the thoughts and info.
the issue for me is that I am self employed and have a very small pension pot.

if I calculate my retirement income based on the deposit I would pay for the buy to let, and the £250 a month contingency I’ve allowed for the property, I get an annual income of under £2000 for retirement.

the property would give me, in today’s money, around £900 a month after contingency, management and tax. It’s not even comparable.

i would genuinely like to hear alternative ideas to boost my retirement income!

I don’t want to say having a buy to let is not doable, clearly it is and many make a success of it. You just need be prepared for the lows as well as the highs. And factor in that as you age, certain things eg refurbs, dealing with problem tenants become more burdensome. To an extent you can mitigate that by renovating while still younger, using agents , taking out insurance etc but of course all this has a cost. Good luck with whatever you choose to do.

£250 a month is nowhere near enough “contingency”. I’ve just paid twice that to fit a new extractor fan in a bathroom in one of my properties. I will have a similar bill in another property to redecorate a flat after a leak in the roof after all this rain we’ve had.

Ive been in the game for several years but I wouldn’t start out now for the reasons others have mentioned. I don’t do students - you would need enough funds at hand to completely redecorate the property every year, and to replace furniture (all my properties are unfurnished save for white goods). You would also need funds to pay an agent and/or time to DIY all the necessary upfront admin, right to rent checks, references, guarantor contracts etc to ensure you have met all the required legalities. Plus fitting in a hard wired smoke alarm system and fire doors as it will be a HMO.

Honestly it’s not worth it.

What if your tenant decides not to pay?

@VanCleefArpels I have budgeted for full management, also the properties I’m considering are already student HMOs so have the fire alarms etc.
I have budgeted £3000 per year for repairs do you think this is too much low?
I have also allowed for two months a year with no tenants. I am not expecting any income from the property for the next 15 years whilst it is mortgaged but would like to not spend too much on it.
thanks for your advice!

Personally I think that should be OK. However every few years you will need to refurbish- new carpets/ flooring, repaint throughout , replace the kitchen and bathroom say every 10 years. That will be more than £3000. It’s also essential that you develop good relationships with reliable tradies.

The thing is the £3000 could all go in a flash - you must calculate on worst case scenarios. So replace boiler, fix roof, damp works etc. Not all things that go wrong are covered by landlord insurance (which will be expensive for student accommodation because students do not care how they treat the property). A student house might have 2 or 3 bathrooms, what if all the showers go kaput are the same time? You get my drift.

Students will not put up with shoddy houses any more (I have 2 recent graduates so direct recent experience of this) so expect a good standard of upkeep. That’s why I said you will need to redecorate every year at the very least.

What might be slightly less work would be one or 2 bed flat aimed at young professionals (this is what I have) so close to travel / big town or city. This kind of tenant would tend to be a bit older and more careful and any redecorating would be cheaper as a smaller unit. No need to provide furniture. However service charges on leasehold property (payable by the owner) can be high so that would need to be factored in.

You need to factor in your own personal situation, for example your pension is IHT friendly whereas your a rental property is not.

Additionally CGT is chargeable on the gain upon sale of your additional property.

Take proper tailored advice specific to you is the way forward.