Could you make your retirement fortune as a grandlord?
One in ten people over the age of 50 are considering buying a property to rent out, to help supplement their retirement income. This could prove a brilliant move, as on average landlords over the age of 50 estimate that they make around £700 a month from their property. However, before you join the rush to snap up a property, those who are already in the lettings business warn that it may not be as simple as you think.
A study by Saga Landlord Insurance found that after all the associated costs, one in ten 'grandlords' are either just-about breaking even, or making a loss. A quarter of those who had taken this step said they found it all far harder than they had expected.
There are costs you need to take into consideration - not least the fact that George Osborne recently announced that he was reducing the tax relief on mortgages to the 20% basic rate - which could leave any pensioners paying higher rate tax out of pocket when it starts rolling out in 2017.
Sue Green, Head of Landlord and Home Insurance, Saga says: "Buy-to-let is an increasingly popular investment for the over 50s, particularly in the current financial climate, but clearly it is not without challenges. The recently announced cuts to tax relief for buy-to-let landlords, for example, are a new factor that people will have to take into account when deciding whether to start letting a property."
Worries
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Even if everything goes to plan, and you make money, an extra property comes with extra stress. The most common concerns are about bad tenants - which a third of grandlords are alarmed about, and letting out the property as they get older - which worries a fifth of people.
Unfortunately, things do go wrong too. A third of people said they have had problems getting tenants to pay their rent, while a quarter had suffered damage to the property. For one in ten grandlords, things had got so bad that they were forced to take legal action against their tenants.
Green said: "Our research shows that, while landlords are largely positive about their decision, they are also likely to face practical and financial hurdles."
It's worth thinking very carefully, therefore, about whether this step is right for you.
Careful considerations
It's worth doing your calculations, and making sure that even after all the costs associated with rental - including tax and ongoing maintenance - you make sufficient profit to pay for difficult periods when you cannot rent the property out, or when tenants refuse to pay.
You also need to consider whether you are likely to need to get your hands on the money tied up in the property at short notice - and therefore will hit difficulties if the property market does not work in your favour. It's not safe to assume that property prices will continue to rise, so you also need to think about what would happen if property prices fell when you were trying to sell.
Last of all, it's worth taking the time to decide whether you want to spend your golden years taking care of all the details that are bound to crop up in a rented property.
Saga has produced a guide for Landlords, to help them work through all the key questions before they get started, and get to grips with the steps involved. It also warns that you need to be aware of current legislation affecting you, and you need to factor in the risk that more legislation may come in that will mean more work for you. At the moment, for example, there is pressure on the government to ensure better standards for private tenants - which could mean training requirements and inspections.
After taking everything into consideration, you might decide that it's worth the risks, but unless you have done the maths and considered the impact on your lifestyle, those who are already grandlords warn that you could be in for some nasty surprises.
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