What type of residential property is best for retirement income?

Village, high-yield, or inner city?

A new client, Scott, spoke to me a week or so ago and asked about property as a retirement income generator. He’d been told by his financial advisor that an annuity would provide the best and safest income in retirement. A friend of his had said that he’d be better off putting his money into buy-to-let property. Being an intelligent kind of guy, he wanted to investigate further before making a decision.

What he’d found was that, as a route to deliver retirement income, an investment into a residential property could deliver almost twice the gross income of an annuity (pound for pound) as Brett Alegre-Wood explains in his investment blog post Are property investments or annuities best for retirement income? It will also protect your life savings to leave to your loved ones. When you buy an annuity, you give up that money you spend in return for income.

Now Scott wanted to know what type of property would be best for his investment. He was considering three options:

  • A cheap two-up, two-down in a northern town
  • A larger property in a small village in Kent
  • A new build apartment in a large city

In this post, we’ll look at the pros and cons of each of these property options, and their ability to produce long-term income in retirement.

Cheap two-up, two-down in a northern town

I have to tell you that I have nothing against northern towns. Nor do I have any grudge against two-up, two-down homes. The attraction for the investor is the gross rental income and their affordability.

You might remember the story of houses on sale for just £1 on the street in Stoke. Although derelict, once refurbished they promised an incredible rental return. Unfortunately, they were in an area where living standards were falling, and crime was rising.

An investor I knew built up a property portfolio in the north, almost entirely of two-up, two-down properties. He bought very quickly, with an estimated rental yield of 16%. Within a year he was sitting on a big loss. Not only had his properties fallen in price, but half of them were empty half of the time. He had tenants who didn’t pay their rent and simply did a bunk’. White goods had been trashed or stolen. One home had had its entire contents removed, with no trace of the tenants.

Unfortunately, there’s usually a reason why a property is cheap to buy and promises incredible income. If it sounds too good to be true, it usually is.

A larger property in a Kent village

Village properties are something that many people aspire to. They can command higher-than-average rent, and tenants are usually affluent and well-heeled. The chances of a tenant like this running off without paying their rent are as remote as the property.

The problem with this type of property is that its remoteness reduces the potential pool of tenants. When one leaves, it could be weeks or months before you can replace them. Especially today, millennial generation renters want to live near to public transport and lifestyle amenities such as clubs, pubs, and restaurants. These aren’t available in a village.

A new build apartment in a large city

Finally, Scott was looking at a new build apartment in a large city. It was off-plan but would be completed by the time he retired in 18 months.

This apartment is in a development just a few minutes’ walk from a major train station. Travel to other cities is easy, and bars and restaurants are a short stroll from the apartment. It has all the mod cons (a state-of-the-art kitchen and bathroom, for example). It also benefits from a ten-year builder guarantee.

The local authority and central government are investing heavily in the immediate and surrounding areas, increasing infrastructure and encouraging urban regeneration.

The rentable value is affected positively by all of these factors, as is the ability to rent quickly: people love living in new properties, just like they love driving new cars.

Perhaps best of all, Scott’s investment would be made at a discount to the current market value. That provides him with a buffer against a fall in the property market, and any price rises would be immediately reflected in Scott’s capital gain.

Do your research before investing

Scott’s on the road to making a really good investment decision for his retirement. He’s doing the right things, exploring his options and speaking to specialists and experts. He’s figuring out returns and exploring the property fundamentals that will underpin his investment.

Contact us at Gladfish on +44 (0)207 923 6100 for an informal chat about our property investment opportunities. The sooner you start exploring your options for retirement income, the more valuable your investment is likely to be.

Live with passion,

Brett Alegre-Wood

Brett Alegre-Wood
December 31, 2018

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