Establishing Your Own Investment Criteria

Establishing Your Own Investment Criteria

This is an excerpt from Chapter 4, ‘Establishing Your Own Investment Criteria’, of Frazer’s upcoming book, The Alternative Guide To Property Investment. You can register your interest in pre-ordering the book by clicking on the button at the bottom of this post.

We held a dinner for our top-20 investors recently and I think it’s fair to say that just about everybody had different reasons for investing and slightly different criteria for choosing what to invest in.

Before investing any money, you need to consider what you want to achieve. Do you want to sit back and let your investment grow in value (e.g. stamps or wine or a pension fund, if you still think that’s a good idea) or do you want to generate an income (e.g. shares or property)?

Or perhaps a mix of the two?

Do you solely want to provide for your retirement and reinvest any income generated or do you need to earn an immediate income from your investments?

Are you prepared to risk all your capital on the same sort of investment or do you want to make some ultra-safe investments and speculate with a certain portion of your money on riskier but potentially more lucrative investments?

These are just a few of the questions you should ask yourself as the answers will help formulate your own investment criteria. If you have decided that you want to invest some of your capital into property, then the two most significant decisions you need to make are whether you want the emphasis to be on capital growth or cash flow and whether you want to make commercial or residential property investments.

To read more about establishing your own investment criteria, you can click below to register your interest in the book. Fill in your details, and once the book is released, we will send you more information.

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Why Property Is the Best Vehicle to Supplement Your Pension

Why Property Is the Best Vehicle to Supplement Your Pension

This is an excerpt from Chapter 3, ‘Why Property Is the Best Vehicle to Supplement Your Pension’ of Frazer’s upcoming book, The Alternative Guide To Property Investment. You can register your interest in pre-ordering the book by clicking on the button at the bottom of this post.

Research from Saga Investment Services (amongst various others that reached the same conclusions) has found that the UK’s over-50s population needs to double the number of pension contributions they are making, if they are to stand any chance of a decent income through their retirement.

The research found that the majority of those over-50s surveyed believed they’d need an average annual income of £15,200 to get them through their retirement (personally I cannot imagine trying to subsist on such an amount in my old age – especially given inflationary factors).

The people surveyed estimated that they could generate this from a pension pot of £143,830 on average. Their estimated figures fall shockingly short of reality.

A pension pot of this size would actually generate just £7,940 guaranteed income a year (for a healthy 65-year-old) for life. That’s nearly a 50% shortfall. Basically, they need double the size of their pension just to make ends meet.

To have a comfortable life, which respondents identified as being defined by holidays, dining out, socialising, and hobbies, it was calculated that they’d need at least £21,630 (clearly they are less profligate than me). That would require a pension pot of nearly £400,000 – double the respondents’ estimate of £194,000 (which would generate just £10,170 guaranteed income a year).

On their estimated required sum, their pension fund would be exhausted within 12 years.

Poor returns, excessive fees and inconsistent annuity rates: a pension sure ain’t what it used to be. It’s no surprise, then, that people are starting to look for alternative ways of generating money for their retirement. Research suggests that property investment is turning out to be twice as popular as any other form of investment with the over-50s.

The younger generation, too, is turning down traditional pension plans, focusing instead on property investments (and now crowdfunding as a means to access the asset class). As mentioned previously, the number of people choosing – or being forced – to rent, due to the difficulty of getting into the property market, or simply because it’s more convenient in many ways, is rising rapidly.

A pension also has the disadvantages of limited (and badly publicised) choice of annuity provider and the fact the money is inaccessible.

When it comes to cashing in, holders are often disappointed to find that they are unable to access their lump sum when they wish to without severe financial penalties. And despite recent changes, one can only access 25% of one’s pension pot without incurring punitive taxation.

Not only that, as far as I know, the benefits of a pension end when the holder dies. That means you could have saved £400,000 in your pension, purchased an annuity with that, at age 65, and receive £21,000 a year thereafter. But if you were to pass away within a few years your spouse and heirs would receive nothing. The pension company keeps everything.

Clearly, this is not the case if you buy a property, which can be inherited; though the Treasury will, no doubt, steal as much of it as they can. Did I say ‘steal’ – how outrageous, that I should accuse our esteemed government of ‘stealing’ money that has already had tax paid on it at least once before – in the form of income tax, stamp duty, tax on savings interest, dividend tax, etc.

I do apologise. Clearly, it’s perfectly fair for them to take whatever they feel like.

Whilst it is important to start saving for retirement as early in life as possible, the younger generations are waiting later and later before considering their retirement planning. This may be in part due to high living costs and stagnating real earnings amongst the young … or, perhaps, their preference for electronic gadgets, dining out, designer clothes and foreign holidays over prudent saving … Just saying!

To read more about supplementing your pension with property, you can click below to register your interest in the book. Fill in your details, and once the book is released, we will send you more information.

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Is Property Investment Really Better Than Pensions?

Bank of England Chief Economist : “Property is better than Pensions” (and our view on property investment in Manchester as an alternative)

A couple of weeks ago, the Bank of England’s chief economist Andy Haldane claimed that property is a better investment for retirement than a pension.

Haldane believes that property investment is a better bet for retirement planning than a pension. “It ought to be pension but it’s almost certainly property,” he told one newspaper.

However, former pensions minister Ros Altmann mentioned that Mr. Haldane’s views were “divorced from reality” and it was “irresponsible” to suggest people should rely on property rather than pensions.

Haldane has admitted to the media that he is moderately financially literate and has admitted that pensions to him at times seem relatively confusing.

Other commentators in the financial sector also disagree with Haldane’s recent comments. Many have pointed out that Mr Haldane earns a basic salary of more than £180,000 a year, and it is believed that his accumulated pension pot that will pay him £84,000 a year when he retires from having a long tenure with the Bank of England.

In contrast, wealth manager company Charles Stanley stressed that many people underestimate how income can be made from a household.

For example, if a property is worth £500,000 and the owner(s) downsizes to a £250,000 property, they can release £250,000 that can go towards their retirement.

Mr Haldane is not alone when he admits he struggles with Britain’s “complicated” pensions system, we believe that as well as having a pension, investment is also key.

Property Investment in the North West

We are a passionate bunch here at The House Crowd, especially when it comes to investing in our beloved North West.

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Unlike the confusion about the country’s pension system, when it comes to investing in geographical areas of the UK, the north west remains robust despite the recent Bexit vote.

Commercial property consultancy firm Lambert Smith Hampton’s quarterly UK Investment Transactions shows that despite expectations that investment activity would drastically slow down in Q2 in the run up to the referendum, there was a 42 per cent uplift to £501m compared with the same period in the previous year of £353m. (MEN, September, 2016).

In addition, their research reveals that investors have now turned their attention to defensive assets to counter the volatility in the current market.

Moreover, the level of economic uncertainty still looms, however due to recent low interest rates and an attractive exchange rate means that investors are hungry to invest into a very appetising region.

It’s not only domestic investors that have been drawn to the Northern Powerhouse city. Last month research indicated that Manchester has one of the highest proportions of foreign property investors in the UK, while the city has also been recently described as a ‘magnet for investors’ post-Brexit.

During these uncertain times, we’ve heard many say post-Brexit, that they don’t want to take the risk profile that they did beforehand and that’s why they have looked to the north for an alternative, many have also looked at specialist property due to the fact it tends to be less risky and slightly more defensive.

The likes of student housing, hotels and health centres had become “more institutional, liquid sectors” due to their less cyclical nature and long leases as mentioned by Mike Sales, head of TH Real Estate in a recent Reuters article on UK property post-Brexit.

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To sum it up, whether you agree or disagree with the Bank of England’s chief economist views on property investment is better than a pension or not, one thing is clear that an alternative is needed, the likes of property crowdfunding can be used a vehicle for obtaining relatively good returns with property yields in the north west at around 6-7%.

In addition, as Mr. Haldane put it in a recent article : “As long as we continue not to build anything like as many houses in this country as we need to meet demand, we will see what we’ve had for the better part of a generation, which is house prices relentlessly heading north.”

For more info on our investments and properties click here for more info.