Is A Buy To Let Pension A Good Investment?

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Financial experts are forecasting newly released pension cash will flood into buy to let when flexible access retirement saving rules start from April 2015.

The latest survey, from landlord insurance firm Direct Line for Business, reveals around 35% of 45 to 64 year olds are contemplating switching their pension investments into bricks and mortar.

They argue, says the study that they will gain a 10% to 14% return on investment, a regular income and profit from capital appreciation.

Many also feel property is one way of leaving a financial legacy for their loved ones.

Head of Direct Line for Business Jazz Gakhal said: “Buy to let offers a flexible investment and regular income and it’s easy to see why the option is so attractive to someone approaching retirement looking for a stable financial future.

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Looking at yields

“But buy to let comes with a lot of financial risk as well. Tenants may not pay the rent; that the property may stand empty and inevitably will need repairs and refurbishment.

“Headline yields may be attractive but net yields will be much less.”

The latest buy to let yield figures from lettings giant LSL Property Services – the firm which runs letting agents Reeds Rains and Your Move – calculates actual gross yields are an average 5.1%.

The figures are from October 2014 – and are 0.3% down on the average gross yield of 5.4% from a year earlier.

In financial terms, the firm explains the average gross return before expenses for landlords in England and Wales in the year to October 2014 was £22,434 – comprising rent of £8,404 and a capital gain of £14,030.

Rental reality

LSL spokesman David Newnes said: “Gross yields have dipped as property prices have outstripped rent increases. They have steadied as property prices have slowed down and are around the historical average of 5%.

“Letting is becoming a more stable business as tenants settle for longer and are less likely to fall into arrears.”

The reality of buy to let returns seems not to match the expectations of prospective investors.

The survey says investors expect 10% plus returns, when the data shows the average is nearer 5% – and that’s gross, which means before deducting expenses and tax on profits and capital gains when disposing of a property.

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