Part 3: The Property Portfolio That Ages With You
With the right approach, property has the power to be a major player in the arsenal of your investment portfolio – one that delivers lucrative rewards at every stage of your life as an investor. However, to optimise its potential, you’ll need to adapt your investment style and strategy as you age.
Welcome to the final part of our UK property series. In the first two instalments, we’ve analysed the current UK property landscape; and explored direct and indirect opportunities available to international investors. To conclude the series, we take a holistic look at property in the context of the investor lifecycle – and consider how to adapt your approach as your time horizons and earning potential shift.
Why your property investment style need to change as you age
Ultimately, it comes down to your time horizons. As with other asset types, property investments offer an array of shorter and longer-term opportunities. To benefit from the latter, you need the time to ride out any market volatility.
And while it isn’t easy to time the market with a property investment, it is possible to leverage certain market conditions – undervalued shares or fixed-income loan notes while inflation is high, for example – to your advantage.
|Climbing the first rung of the property ladder||For first-time UK property investors, the direct investment route is fraught with difficulties – including rising house prices, and obtaining a mortgage in unfavourable conditions||To overcome these challenges, consider an alternative strategy to spearhead your career as a property investor:|
|Building your property portfolio||As you approach your peak earning years, develop out a property portfolio that delivers both rental income and capital uplift.||Now’s the time to be more aggressive in your approach. Use the equity you’ve paid off in one property as collateral to borrow more money to purchase more.|
You’ll enhance the property ‘bucket’ of your investment portfolio without impacting the remaining (long-term and opportunistic) pots.
This is the right time for opportunities with longer time horizons, as you have the time to ride out any market volatility and reap the benefits.
API Global, Joseph Mews and Alliance Investments offer an exciting range of options – including new builds and off-plan developments – in UK property hotspots.
|Running your property business||As a busy professional who’s not based in the UK, finding the time to manage your growing property portfolio is tough.||Leverage the expertise of property management companies to run your property business – avoiding stress and allowing you to take a passive role, while still obtaining a regular income.|
A significant proportion of the top UK developers have a lettings and management arm, with many offering a full turnkey solution.
|Planning your retirement||As you wind down from work, you might be keen to take on a more active role in managing your property portfolio – and may even consider replacing your pension with rental income.||Now’s the time for that passion project – a green real estate investment, a fix-and-flip or a property to double as university accommodation for your children, for example.|
However, when weighing up the rental income versus pension conundrum, it’s crucial to evaluate the pros and cons from a tax perspective.
Did you know that you’re also able to hold certain types of real estate within a SIPP (self-invested personal pension)?
|Approaching your retirement||Shortening time horizons and liquidity become key considerations, the closer to retirement you get.||Shifting priorities doesn’t mean abandoning your property portfolio altogether. Instead, opt for loan notes (such as those offered by Capital 3PM) which offer indirect exposure to real estate without the management costs and long-term view.|
|End-of-life property considerations||At the final stage in your life as a property investor, you want your loved ones to benefit from your property portfolio.||The most significant legacy you’ll leave your family is likely to be assets in the form of property – so it’s crucial to get the handover right.|
The process of gifting UK property – either before or after your death – is governed by complex tax regulations.
Generally, your estate has an inheritance tax allowance on assets to the value of £325,000 plus an additional £175,000 for property – with anything above that taxed at 40%.
Bear in mind that gifting without tax implications is only possible 7 years before passing away – which presents obvious challenges when it comes to timing!
If your portfolio is extensive, it’s worth exploring the possibility of trusts and structuring your portfolio as a property company.
In property as with other asset classes, it’s crucial to have a well-diversified portfolio
As you age, your goals – and your earning potential – are constantly shifting, impacting your attitude to risk and, crucially, your investment time horizons.
With a rich variety of direct and indirect options, property offers an abundance of opportunity for diversification within the real estate asset class. And when you invest in it from an early stage, you’ll have the power to leverage your returns to develop out and expand your portfolio without touching any investments in other asset classes.
Whether you’re a first-time property investor, in the process of growing out your portfolio or an experienced international landlord, it’s worth consulting an expert – someone who can help you devise strategies to achieve your objectives or even introduce you to opportunities you hadn’t considered.
At Lawsons Wealth, our advisers leverage their expertise and experience to help build you a balanced property portfolio with the flexibility to draw on different streams of income as your life progresses. They’ll help you kickstart, develop and expand your property business, leveraging your returns to move to the next stage without reliance on profits from other asset classes. To find out more about how we do this – or to talk through any of the topics covered in our UK property series – please get in touch.