HOW COULD YOU BENEFIT FROM USING A £50,000 PENSION POT FROM APRIL THIS YEAR TO PURHCASE BTL PROPERTY?
Take 25% of the pot as tax free cash is £12,500
£37,500 of the pot is taxable (to make it an equivalent amount comparing it with other investments) at the basic rate tax this would be £7,500 paid in tax
Therefore £12,500 tax free cash plus £30,000 taxed cash equates to £42,500
Investment options
- Buy an annuity, rates are around 3.8% so this would produce an annual income of £1615 or £134.58 per month
- Invest in the stock market , you could expect dividend income of around 4.5% producing £1912.50 per year or £159.38 per month
- Buy one property costing £100,000 using all of the cash £42,500. This leaves a loan required of £57,500. You can get a mortgage rate of 3.5% no lender fee and £150 broker fee. There would be mortgage payments per year of £2012.50 or £167.71 per month. Taking a typical yield of 7% the income per year would be £7000 or £583.33 per month. This would be £415.62 per month or £281.04 per month more than investing in an annuity .
- Buy two properties of £100,000 each and splitting the pension pot of £42,500 you would need to borrow £157,500. As there is only just over 20% deposit on each of these properties a typical mortgage rate would be 4.25%, no lender fee and £150 broker fee. The mortgage payments per year would be £157500 x 4.25% = £6693.75 or £557.81 per month but you would be receiving £14000 per year in rental income or £1166.67 per month, after mortgage payments this would equate to £608.86 per month or £474.28 more than investing in an annuity.
ASSUMPTIONS
On options 3 and 4. No voids, no maintenance, no management charges, the mortgage rates are fixed, no service charges, no utility costs
With options 3 and 4 you have the potential for capital growth, rental prices in the long term rise so your income increases, the rental income does stop when you die, as you get capital growth you can take cash out the property by borrowing more.
In all scenarios we are comparing £42,500.
Before you make any investments we advise you to take wealth management advice, we can refer you to fully qualified and highly recommended wealth managers who work very closely with Belvoir.
