Your Property As a Pension

Property as your pension … or not

Does “My Property Is my Pension” still apply?

“My Property is my pension” is a saying used by many who are solely relying on using their main residence to fund their retirement. Away from the traditional company and state pension available, how can one correctly use their property to fund their retirement?

The two main methods used by most pensioners were either “Downsizing” or “Equity Release”. With pensioners spending ever increasing time in retirement (read “Living longer”) — taking a cash lump via Equity Release is deemed a high risk solution, as you will most likely outlive the cash received and possibly lose rights to your home there after. Downsizing is an option, but there comes a point where you cannot downsize anymore and there are also costs involved in buying and selling property.

So what is the alternative?

Although it may not seem like it, using your current property for continued income is the only way to ensure you are funded throughout your life and also have the equity available incase of emergencies. We cover some alternative income strategies, you should consider for funding your pension. Giving away rights/control of your property is possibly the worst mistake one can make — eager for immediate cash, we rarely think about the long term impact of doing so.

We believe that a regular monthly income will better finance your long term future than a lump sum of cash. We never know when we will pass away, but knowing that you will have an income until its no longer needed is a massive weight of your shoulders as you get older. With property, the income can also be re-assigned to a family member, so any effort you make now will not go to waste.

Some alternative income strategies

Rent A Room

If you have a large house, the rental income from 1 or more rooms can provide you with a rental income equivalent to having to save over £500,000 in a retirement fund (depending on location and demand for the property). Empty rooms and unused space are wasted income opportunities and the longer left like this, the more cash you are letting slip through your fingers. You will have to be comfortable with living with other people (of your own choosing), but usually this far outweighs the benefits the additional income provides. There is currently a “rent a room” tax relief income allowance of £7,500 if you just wanted to take on a single lodger.

Convert large home into Flats/HMO

A large house can easily be converted into multiple flats or turned into a House Of Multiple Occupation (HMO). You can choose to sell or rent out the created dwellings leading to continued income. You can also take one of these dwellings for yourself (you have to live somewhere) and the rest will usually fund the development costs and give extra cash income for a lifetime.
This option is more capital intensive at the outset, but imagine you could use that 25% tax free lump from your pension pot to create an asset that would provide a lifetime of income and would leave you with ability to also profit.

Financing is regularly available for this sort of development and in some cases the project can usually finance itself. You should work out the cost and income possible from the conversion to determine the number of dwellings needed.

Sell or Develop the land

Your garden could be a goldmine. Older properties or those in the suburbs usually come with an ample amount of attached land. Have your thought about the possibility of putting another building on site? It is possible to get some pre-planning advice for free whether the council will allow the building of another dwelling or even a number of flats.
 
Just getting the planning permission will allow you to sell the piece of land at a much greater value than if its status were to remain as just a garden. If you don’t live in the suburbs, how about a corner plot or your large unused garage full of junk? The opportunities could be endless. With the need to build more housing, it never been a better time to go for planning.

Permitted Development and Planning

The government have introduced some ammedments to planning law which reduced the effort to perform some changes of use and add larger extensions to homes.
With an income strategy in mind, you need to think how this simpler planning rules can increase space and usage of your property so you can gain more income from your property.
- Extensions (Loft room, additional bedroom, move kitchen to create extra functional room)
- Large side extension that can become a self contained apartment, allowing you to rent out your main house and receive the income
- Split the large house into two or more flats
- Build an annex to the house, or convert/add a large detached annex in place of a detached garage

These are just a few of the opportunities I have listed of the top of my head. If you would like to consider opportunities for yourself done hesitate to contact me — andrew@finalsalary.com