With ISAs taking a long time to build up – 15+ years of maximum deposits to make ~£10,000 interest per year – and a stocks and shares market that can be volatile, buy-to-let might sound like an ideal solution for those approaching or entering retirement.
But, there are a few things to take into account – aren’t there always? – before you seriously consider taking this approach.
Are Your Prepared For The Hassle?
If you’re anything like me, you envision your retirement being one half jetting off on holidays/taking mini-breaks and one half sat with your feet up on the sofa enjoying cup after cup of tea.
With the prospect of hoops to jump through to secure a mortgage, trying to find people to rent your property and dealing with demanding tenants (if you’re managing the property yourself) all on the agenda, buy-to-let threatens both of those ideas.
It can be lucrative, but it can also be a lot of work… and retirement isn’t supposed to involve work.
We Don’t Know What The Future Holds
New legislation is already making it far more difficult to build a buy-to-let portfolio than it was even just a couple of years ago. It’s not hard to imagine that future governments will be tightening their grip on landlords even more.
Buy-to-let may still be an attractive prospect for now – there’s still, and is always going to be, money to be made in property – but that’s not to say that it won’t become a lot more difficult to make a profit down the line.
There Could Be Unexpected Costs
In the USA, medical bills are the biggest cause of bankruptcy. They’re not such a concern in the UK or other countries with universal health care, but there are other expenses associated with getting older that could cost you – private healthcare bills, accessibility, increased insurance, caring for parents and so on.
With money coming in every month in the form of rent, it’s easy to dip into it instead of saving to pay back your interest-only mortgage at the end of its term. If the sale of the property doesn’t cover it, you could find yourself facing a shortfall in your twilight years with no way to earn more money.
Thinking About The Future
If you’re going to invest in buy-to-let as a retirement strategy, you need to start thinking about it sooner rather than later. Mortgage providers want to know that you can cover repayments, even when the property is empty, and they won’t look favourably on someone who’s already retired.
Plus, and this one’s really not fun to think about, your family might end up having to sort out the property and mortgage should you pass away before reaching the end of the term. Adding another property into the mix, even if you had intended to sell it before you died, could obviously have inheritance tax implications.
Buy-to-let isn’t necessarily a bad retirement strategy, but it’s one that deserves some serious thought. The earlier you can start that thought process, even if retirement feels like a long way away right now, the better.