Just twenty or so years ago we lived in a world where 30-year olds didnt think about their pensions. Retirement was a long way off and, after all, the state would take care of them, wouldnt it? Even those sensible enough to invest in their company scheme were confident that it would offer them a comfortable retirement, with their guaranteed final salary income allowing them to enjoy their later years after a lifetime of working hard.
But now that all those 30-somethings are 50-somethings, retirement is not only a much more real prospect, for many its also a real worry. Yes the state will provide, but how much and for how much longer are thorny topics for any near-retiree. And all those big fat pension funds that many used to look forward to are now the stuff of legend, with few final salary schemes still around.
It all sounds like doom and gloom and, certainly, something that is clearly worrying the Government so much should definitely be of concern to the man in the street. For many 30-, 40- and 50-somethings the golden hope has been buy-to-let investment. Not necessarily a bad option if you got in early and know what youre doing, but, in my experience, many that are banking on their buy-to-let property to provide their retirement income jumped on the bandwagon too late and havent got a clue.
The sad fact is that there simply arent enough tenants for all those swanky city centre buy-to-lets and an empty apartment is not only failing to provide a retirement income, its failing to pay its way (which could include a hefty mortgage). Sure, there may be some capital gain if you decide to sell when you retire, but in a market thats been threatening to crash for a couple of years already, thats something of a high risk strategy, and capital gains tax could wipe out any profit anyway.
Thanks to the increasing army of smaller investors that have realised all this, there is a growing shift away from independent buy-to-let investment, towards commercial property. It may traditionally have been seen as the safe option for longer-term investments, but when you combine that increased security with a dynamic approach to adding value and avoiding unnecessary tax, it begins to look like a very attractive option.
The advantages add up very quickly. For a start, while residential properties are typically rented out in six-month chunks, a commercial lease ties the tenants in for years at a time, reducing the risk of your property standing empty and costing you money. Whats more, the demand is there, particularly if you choose your investment carefully. At Property First, we find the project first, then look for the finance and, as a strategy, waiting for the right opportunity is the most rewarding approach.
For the smaller investor who doesnt have £200,000 to spend on an apartment, let alone a few million to splash out on an office block, funds or syndicates are the ideal approach. That doesnt have to mean getting involved with the big players, in fact, they may be able to make a tax-efficient investment in commercial property with as little as £20K, with a profit share return within just 3-5 years.
How? The first thing to do is get involved with the experts, not all commercial property is a good investment and a firm that improves the property to increase its yield will help the investor get better returns.
Secondly, make it tax-efficient. A SIPP investment in commercial property is not liable to either capital gains tax or inheritance tax thats why around 80% of Property Firsts investors hold their investment in a SIPP. And once the SIPP is in place, any additional money invested is eligible for a tax rebate, as the SIPP is a tax neutral vehicle and the investor will have already paid income tax on any further money he adds to the pot.
Finally, choose the investment carefully – which may mean keeping an open mind. It may not be 100% commercial, indeed, the planners are ensuring that more and more developments are mixed use. The key is to identify a good opportunity in the right location, taking advantage of getting in early, so the property firm needs to be able to secure off-market deals.
There are some in the property world who resent the amateur investor getting into commercial property, but really, why shouldnt any opportunity be open to anyone with the insight to seize it? And with 50-somethings now taking advantage of this method of growing their pension within just a few years, they may soon be heralded as the pioneers of a new approach to securing a comfortable retirement.
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