Thirty years ago, the idea of investing in a rental property seemed like a good idea, and thats exactly what I did with some savings Id accumulated from a stint working overseas.
But that was before the buy-to-let boom really took hold, house prices were significantly lower back then, and rental yields were decent at least if you managed your property yourself.
But with decades of rising house prices, the market is getting squeezed and yields are lower. And the assumption that house prices will keep on rising needs re-evaluation. In fact, there are increasing fears of a sustained house price slowdown, or even a slump.
Squeeze
My colleagueRobert Faulkner has highlighted a key point about the UK governments approach to taxation wherever politicians see people doing well, they cant resist trying to squeeze as much tax as possible out of them. And the latest changes in buy-to-let taxation are making the whole sector look less and less attractive.
Even if you think a buy-to-let property might be good for a portion of your investment portfolio, I still think its a poor choice for retirement income.
In retirement, what you want is reliability, so a monthly rental income might sound like a very tempting prospect. And it could work out well as long as you have a good tenant who pays regularly.
But what happens if a bad tenant stops paying and you have to attempt an eviction? Not only has your monthly income from the property stopped completely, but youre also likely to face costs in getting them out.
Or what about what happened to me once, when a tenant just left without saying a word and took every portable item from the house with them. Not only did I have a rental void, but I also had to cough up for replacement carpets, curtains and more.
Options
In retirement, I also want the option of cashing in some capital from time to time as well as taking regular income. If my wife and I fancy splashing out on a little luxury now and then, and if it doesnt impact our income too much, Id like the ability to sell off a portion of my investments.
With a property investment, thats not really an option you cant, for example, just sell off one room.
And then theres the problem of maintenance. Ive always managed it myself, but the older I get the less Ill be able to do that. And I dont want to have to spend a portion of my income on paying someone else to manage it for me.
No, my pension cash is all being moved to dividend-paying shares in top UK companies, with sensible but modest diversification.
Safety
Maybe one individual dividend might be cut if a company faces a squeeze, but Im not going to see a 100% cut in income as can happen with a rental void.
And if I want a cash lump sum for some purpose, its easy to sell as few or as many shares as I need, instantly.
Theres also no management to worry about, other than perhaps a tiny annual charge levied by my ISA or SIPP provider.
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