How to use property to create your dream retirement

Brett Alegre-Wood
April 4, 2017

A simple property investment strategy to fund retirement

Property investment for retirement is beginning to overtake other forms of pension saving. In this article, we discuss why. We also examine the property strategies which increasing numbers of people expect to take when they retire. And we’ll show you a simple residential investment property strategy that could produce the retirement lifestyle you want while protecting the legacy you leave your loved ones.

Why is property investment the new pension plan?

Over the last five decades, the average house price in the UK has doubled every eight to ten years. The same cannot be said of stock market investments:

  • At the beginning of 1987, the FTSE 100 Index stood at 1808 points. Twenty years later, its value was 7099. That’s an increase of 292%.
  • Over the same period, the average UK house price has increased from £40,822 to £205,937 – an increase of 404%.

When you consider how retirement income options stack up against buy-to-let property, property investment provides:

  • A growing income stream
  • Opportunity for capital growth
  • A real and tangible asset to bequeath to loved ones on your death

If you’re prepared to accept a lower income when you retire, pension annuities can provide the first of these benefits. But you lose all your invested capital and have no legacy to leave.

And you can make a property investment using other people’s money. So you take advantage of the benefits of leveraging in property investment.

Of course, pension investment can be made with tax relief – that’s a definite advantage it has over property investment. However, it is possible to invest in property in a pension wrapper, and benefit from tax-efficient capital gains and income.

So, as an investment, property has traditionally provided:

  • Higher capital growth
  • Higher and increasing income
  • Possibility to invest in property in a pension
  • A legacy to leave your loved ones

It’s not hard to see why property is the new pension planning.

How are people funding their retirement today?

The majority of British people are hopelessly underfunded when it comes to retirement planning. Research by Aviva in 2015 showed that middle-aged people are likely to be £9,000 short of their desired retirement income of about £19,000 per year.

People retiring today are even worse off. Aviva said their pension pots are ‘hopelessly short’ of achieving their desired pension. The answer for many is to turn to their home to supplement their income.

In its ‘Redefining Retirement’ report, Old Mutual Wealth found that a third of people are likely to release wealth from their home to provide an income (and a third more to pay for long-term care). Bower Private Clients, who specialise in lifetime mortgages for the over-55s, have found that more than a third of people would turn to releasing equity from their home as a pseudo pension fund.

It is all very well, of course. After all, your house is bought and paid for. Why shouldn’t you exploit its value? By taking a lifetime mortgage on your property, you release the equity built up, and you can use that to provide extra income. You don’t make any repayments, but the interest accrues.

When you die, the accrued interest and capital must be repaid before your beneficiaries see a penny. The house you expected to leave to loved ones will probably have to be sold. Do you want to leave your children next to nothing?

3+1 – the alternative to traditional pension planning

We’ve seen how property is the new pension. And we’ve also seen how more people are using (and risking) their homes to provide their retirement income.

A better way to plan for retirement is by using the 3+1 Plan. Buy three properties and create retirement income from these to maintain your lifestyle in retirement. The concept couldn’t be easier. The average person pays:

  • One-third of their income on their home (rent or mortgage);
  • One-third of their income on taxes; and
  • One-third of their income on living.

Each tenant pays approximately one-third of their income on rent. So, you earn the equivalent of a whole salary.

  • One-third of this is paid on the mortgages to support your property investment;
  • One-third is paid on taxes (and other expenses); and
  • One-third is available to support your lifestyle

3+1 in action

Let’s say you have three identical investment properties. They each produce £12,000 in rent annually. The mortgage on each costs £6,000, and other expenses such as investment property management, maintenance, repairs, etc. cost another £2,000.

Your net rental income from all three properties is £12,000 (3 x £4,000). Add in your state pension of around £6,000, and your income is £18,000. You’ll have £1,500 of pre-tax income per month, and around £1,380 after tax. With no mortgage to pay. That’s the kind of income that most of today’s retirees can only dream about – or create by selling their home down the river.

Plus, of course, you’ll have an appreciating asset (your home) to pass onto your loved ones. And a further legacy of an income-producing property portfolio. And, an increasing income in retirement.

Do you want to be the retiree who leaves their children nothing, while struggling to live their desired lifestyle in retirement? Or do you want to invest to produce life-changing income, using other people’s money, while leaving a life-changing legacy to your loved ones?

Contact one of our team today on +44 (0)207 923 6100. Get the ball rolling. We’ll help you identify your financial goals and develop a property investment plan to achieve them. Your spouse will love you for it. And so, too, will your children.

Live with passion

Brett Alegre-Wood


UK Property Investment, UK Property Investment

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