The property investor knows the secret of a secure retirement
Whether you’re investing in property for now or for the future, at some time the long-term property investor will turn to his or her portfolio as an income-investing vehicle. And when it comes to income investing, rental income is hard (if not impossible) to beat.
Average rents rise over the long term
The number of tenants in private rented accommodation overtook those in social housing more than three years ago and is still rising. With this high and increasing demand, it is not surprising that average rental income has been rising steadily for so long. Look at the chart below and you’ll see that since 2005, average rents have increased by around 28%. If only wages had increased by the same amount!
When it comes to income investing, most financial advisors won’t tell you what a great deal you get by investing in residential property. That’s because they can’t make any commission when you buy property directly. So they’ll try to get you to buy stocks, or bonds, or annuities in retirement. But are you really getting great income from these, or are you getting screwed over?
Income investing in stocks – not a great deal
If you invest in the UK stock market for income purposes, you’ll probably buy a fund that invests across the FTSE 100. The, and for that, you’re investing in an asset that hasn’t increased in value since 1999 and which you cannot really leverage or have any control over.
Investing your cash in the bank
The Bank of England base rate is at an all-time low and stubbornly staying there. For people with cash, putting it in the bank means being hit by the effects of inflation over the long term. Even though you earn some interest (if you shop around and lock your money up for three years or more, you might find a rate of 3% according to Martin Lewis’s latest analysis), the longer you keep it on deposit, the less it will be able to buy when you withdraw it. So in effect you have been losing money invested as cash (or at least making no return) for the past decade.
Premium bonds used to be a reasonable ‘investment’, but not any longer. If you are using premium bonds for income investing, then you are definitely backing a losing horse – and yes, I do consider premium bonds as gambling: they should come with a huge financial health warning.
The average payout is quoted as 1.25% (less than real inflation) – but that masks what really happens. The minimum win is £25, and so only one out of every 20 bonds receives any cash. It’s not quite as bad odds as the Lottery, but not an investment I’d ever recommend.
Annuities fall short of property investment returns
An annuity is the traditional vehicle that you will buy for income investing in retirement. If you’re lucky, you’ll get 6%, fixed for the remainder of your life. Oh, and if you should die, there won’t be anything for your children to inherit (double lose I am afraid)
As a property investor, a property portfolio will pay rent every month. That rent will increase over the years and probably outstrip inflation. With demand for homes unlikely to decline in the UK in the foreseeable future, and supply falling short every year, capital growth should remain solid, too.
Income investing via property investment not only provides great returns now, but those returns are growing and, when you do die, your children will benefit fully (subject to inheritance tax planning, of course). This is why so many people are turning to property investment as a replacement for the traditional underperforming pension.
As we have been saying for over a decade ‘Property is the new Pension’
How are you planning for retirement? Has your financial advisor ever discussed investing in property as an alternative vehicle for income investing? Have a chat with us on +44 (0)207 923 6100 today and find out how our Set and Forget property strategy works.