Q I own a house in Leeds, which I loved living in for several years. When I got together with my partner, however, he didn’t. So I let the house and he and I jointly bought an old house with a huge garden in a regeneration area nearby. We are very happy here and expect to be living here for the next five years. After then, I would like to downsize to somewhere more manageable – or go straight into an independent living setup for active older people.
I am wondering if I should sell my buy to let when the current tenant, who has been happy there for 10 years, decides to leave. It yields me about £5,000 a year (after tax and charges), which tops up my personal pension of £17,000 a year. In two years’ time I will be eligible for the state pension.
My buy to let is looking a bit tired these days and I am not sure I can face the work of doing it up for new tenants. It needs a new kitchen, for example. The property would be a good option for housing us in old age, should I or we need it later on. Or I could sell it. I would get about £200,000.
My partner says selling it is a bad idea if I want to maintain my income level. He argues that property rental is the best and most secure long-term investment for me – there is no equivalent. Is that really true? Could I invest in something else and get that return?
A Your partner has a point in saying there is no equivalent source of income because you can only get rental income from renting out property or land. However, I’m not sure that he is right in saying “property rental is the best and most secure long-term investment” for you. From a purely financial point of view, the return of 2.5% (after tax) that you are getting on your £200,000 property isn’t bad. It is certainly better than the 1.5% tax-free return you could get with the best interest rate you can get on a cash Isa (from United Trust Bank). But if you were to invest in share-related investments – such as unit trusts – you could do a lot better than 2.5%. As you are under 75, and even though you are already drawing a pension, you could do even better by investing in a personal pension that allows you to draw down income. Investing in a pension has the added bonus of tax relief boosting the amount you invest because for every £100 invested the government adds £25 (within limits).
Your partner might argue that share-based investments are riskier than investment in property because share prices fluctuate but that wouldn’t wash because so do house prices. The other advantage of savings accounts and share-based investments is that there are no maintenance costs and no need to have annual gas safety checks, five-yearly electrical safety checks or to produce an energy performance certificate. There are also no months where no income is being generated as there can be with rental properties.
Finally, I’m not convinced that the property would be a good option for your old age as your partner didn’t like living there.