According to most insights, the pension sector in the UK has been facing a crisis for quite some time. According to a HSBC study in 2018, 42% of people of working age are preoccupied by saving for short rather than long-term goals, while just 3% are looking to accumulate wealth to cover the cost of future nursing and care home fees.
At the other end of the spectrum, another survey has revealed that 51% of the UK’s pension investors will now not have enough cash to meet their original retirement needs, with the coronavirus pandemic having accelerated an already significant decline in the value of savings nationwide.
This is being described as a pensions blackhole, and one that reinforces the need for investors to consider alternative assets in the near-term. But how can property investment be a viable option for your retirement?
Investing in Real Estate in the Short and Longer-Term
Perhaps the most traditional way of investing in real estate is to buy a second property and eventually resell this for a desired profit. In most cases, this involves seeking out undervalued properties in up-and-coming geographical areas, before developing these entities and selling them at a premium in the future.
However, this type of investment may be beyond the means of most aspiring investors in the current climate, with disposable income levels falling and the value of savings in decline.
Not only this, but house prices in the UK fell for the fourth consecutive month in June, with the most recent 0.1% drop extending the worst property market run since the aftermath of the financial crash in 2008.
The best way to hedge against this is to invest in a buy-to-let property, as while the UK government may have reduced the tax incentives associated with this market, this enables investors to secure short-term returns and maintain the option of selling the house in the future.
This means that a buy-to-let property can help you to create a viable stream of monthly income in the near-term, enabling you to accumulate wealth gradually while simultaneously retaining a potentially high-value asset for your future.
Of course, there are other cost implications when investing in a buy-to-let property, including ongoing maintenance, stamp duty and dedicated landlords insurance. Fortunately, investors can minimise the cost of the latter by securing insurance from competitive providers such as HomeLet, and this can make a significant difference over time. Being a landlord comes with its own unique set of challenges and risks and our specialist insurance is designed to meet those particular needs.
Are There Other Ways of Investing in Real Estate?
The modern investment market is incredibly diverse, particularly in terms of the vehicles available to aspiring investors.
More specifically, you can now invest in real-estate without actually owning a property, creating potentially inflated returns without requiring you to retain an asset that may actually decline in value over time.
One particularly popular vehicle is a ‘real estate investment trust’ (REIT), which is becoming increasingly commonplace in the investor community.
When you invest through an REIT, you’re essentially buying shares of a corporation that actively owns a residential and commercial real estate portfolio, and subsequently distributes a significant portion of its income as dividends.
Sure, there are tax complexities involved here as such dividends aren’t eligible for the low tax rates associated with common stocks, but they can still offer a healthy and regular return given the right value proposition and a sufficient margin of safety.
This type of investment vehicle can certainly make for a positive addition to your investment portfolio, which is more important than ever in the current pensions climate.