The Rent Review Specialist
“Where are the customers’ yachts?”
31/07/2014
For most people, a state pension is quite possibly the opposite of what they’ve experienced throughout most if not the whole of their working life, presupposing an employee and not running their own business. A pension is other people paying you. For further reading, please visit LandlordZone.
Pension Plan
01/01/2014
A pension is a long-term commitment and tax relief is attractive, but setting-up fees and on-going charges for pension plans can be disproportionately high. I suggest thinking inside the box. The question to ask is: would the proposition be worth buying if there were no tax advantages? Many property investment schemes and plans are sold on tax advantages but unless the property itself makes sense as a long-term investment then I suggest the only likely advantage would be for the scheme promoter and manager of the plan.
Generally, commercial property is a depreciating asset. Since costs of buying (including Stamp Duty) and selling, and non-recoverable expenses during ownership, can be substantial, to get your money back, the value of the property must increase by enough to cover all those costs, plus loss of interest on your equity, plus adjustment for inflation, and allowing for tax on the gain. If, when you want to sell, the value has not increased by at least enough to cover all those costs and adjustments then you would either break-even, or be worse off.
There is a school of thought that treats property investment as an annuity. Provided the tenant is financially stable and likely to remain sound for the duration of the term of the tenancy, buying an investment for yield, regardless of the value of the asset may be lucrative. Even so, it is all too easy to overpay for income. Furthermore, unless the landlord’s interest is leasehold, (in which case the interest would probably revert to the freeholder on expiry (subject to any rights to renew or enfranchise), the property would revert to the landlord on expiry of the tenancy (subject to any rights of the tenant to renew) and any difficulties in reletting or otherwise disposing of the property could cause problems for the landlords.
For a SIPP (self-investment personal pension), generally buying a shop property investment for a pension based on tax advantages is not the best way to go about creating a pension. Unless the purchase is wholly a business-expense, in which case what I am about to say does not apply, the snag with buying property for investment because of the tax advantages can lead to the prospect of getting tax relief ignoring the prospects for the property as an investment itself.
I am sure there are many landlords that over the years since SIPPS were introduced in 2000 nowadays own properties that have fallen in value with no obvious likelihood of going back up to the price paid. Of course, when you are buying long-term, the occasional drop in value is only to be expected, but the question is whether any fall in value can be reasonably expected to be offset by any rise, or whether the ups-and-downs over the period of time simply cancel out each other.
Since most propositions are going to decline over the years, because of the principles of marketing, it is very much a matter of timing: the challenge is to sell and let someone else buy the slack before it becomes obvious that the investment is not going to perform. To some people, the idea of dumping on the unsuspecting might be thought anti-social, but when it’s your money you’re investing why stick around just in case?
The question is: long-term buy and hold, or long-term buy and lose?
Generally, commercial property is a depreciating asset. Since costs of buying (including Stamp Duty) and selling, and non-recoverable expenses during ownership, can be substantial, to get your money back, the value of the property must increase by enough to cover all those costs, plus loss of interest on your equity, plus adjustment for inflation, and allowing for tax on the gain. If, when you want to sell, the value has not increased by at least enough to cover all those costs and adjustments then you would either break-even, or be worse off.
There is a school of thought that treats property investment as an annuity. Provided the tenant is financially stable and likely to remain sound for the duration of the term of the tenancy, buying an investment for yield, regardless of the value of the asset may be lucrative. Even so, it is all too easy to overpay for income. Furthermore, unless the landlord’s interest is leasehold, (in which case the interest would probably revert to the freeholder on expiry (subject to any rights to renew or enfranchise), the property would revert to the landlord on expiry of the tenancy (subject to any rights of the tenant to renew) and any difficulties in reletting or otherwise disposing of the property could cause problems for the landlords.
For a SIPP (self-investment personal pension), generally buying a shop property investment for a pension based on tax advantages is not the best way to go about creating a pension. Unless the purchase is wholly a business-expense, in which case what I am about to say does not apply, the snag with buying property for investment because of the tax advantages can lead to the prospect of getting tax relief ignoring the prospects for the property as an investment itself.
I am sure there are many landlords that over the years since SIPPS were introduced in 2000 nowadays own properties that have fallen in value with no obvious likelihood of going back up to the price paid. Of course, when you are buying long-term, the occasional drop in value is only to be expected, but the question is whether any fall in value can be reasonably expected to be offset by any rise, or whether the ups-and-downs over the period of time simply cancel out each other.
Since most propositions are going to decline over the years, because of the principles of marketing, it is very much a matter of timing: the challenge is to sell and let someone else buy the slack before it becomes obvious that the investment is not going to perform. To some people, the idea of dumping on the unsuspecting might be thought anti-social, but when it’s your money you’re investing why stick around just in case?
The question is: long-term buy and hold, or long-term buy and lose?
SIPP and Commercial Property
26/03/2013
Growing numbers of retirement savers with self–invested pension plans (SIPP) are building up their pension pots by putting money into commercial property; it is suggested buying your own premises to form part of your pension is probably a good move. But is it really? For further reading, please visit LandlordZone newsletter issue 10 - click here