With the change in law around pensions coming in at the beginning of April this year, many people will be able to have the choice of being able to take out lump sums from their pension which would otherwise have been locked up for good, affording them a return from that fund into their retirement. Whilst of course it is prudent to ensure you have enough retirement provision in place, the reality in recent years from a certain proportion of pension funds has been sometimes vastly different from what was expected at the outset, often being much less than anticipated. The onus is becoming more and more that the responsibility lies with the individual to take control of his or her own financial future. With that in mind, it may be that you are looking to invest a portion of your pension fund into property when the time comes. This may be a new venture you are considering or it may be that you would like to expand your existing portfolio. Whatever situation you find yourself in, there are some important points to take into consideration. The following guidance comes with the caveat that I am not a qualified financial advisor or authorised or regulated by the FCA (Financial Conduct Authority), it is in the capacity of a property mentor and coach with a large amount of experience assisting people who are working with property to support them into their retirement.
- As age creeps up on us all, it is important to consider the most appropriate amount of leverage. If you have a relatively modest sum to work with, it may be that you have to use mortgages to enable you to buy. If this is the case, you may want to consider hitting the sweet spot so that you create a margin to mitigate yourself against any risks.
- Work out exactly what you want your fund to create for you in terms of an income. At the end of the day, you must be as certain as possible that whatever you do with that money yourself, you are creating a better return than if you were to leave it where it is. It would also be a good idea to find out what the tax implications are on releasing your funds and working with property vs. drawing funds from your pension.
- Think about how many properties will be viable for you to look after as time goes by. Of course, the services of a good letting agent can be invaluable, however it is still your business for which you are ultimately responsible. I often speak with clients about the viability of the number of properties versus LTV (Loan To Value) on any lending, bearing in mind that cash flow increases as debt is paid off. It really does depend on individual circumstances.
- Which brings me on to the point of logistics. Again, this is down to personal choice. Whatever you decide, it must work for you. If you want to keep a close eye on your portfolio yourself, then your choices will most likely be made closer to home. If, however, you want to be able to enjoy travel and the freedom retirement brings, then as long as you set your properties up correctly you can be fairly hands off.