Your Property Network: Book Review April 2014
Before getting stuck into the April 2014 YPN review, would you mind indulging me in a little personal digression?
My parents retired twenty years ago. Pragmatic Welsh farmers, they subscribed to the work hard, save hard ethos common to their generation, a tough combination of factors that led to practical but extremely cautious retirement plans. After retiring, they had a comfortable lifestyle sustained by pension and investment income but fast forward twenty years and the picture is very different. After my father’s death in 2001, my mother’s health deteriorated through Alzheimer’s disease and she went into residential care seven years ago. Averaging care costs out at £2,000 pm over that time, which has coincided with a period of appalling investment returns, the income is no longer enough to cover these costs. Had some of the funds not been reinvested into property as bonds matured, the income would be pitifully low.
This is relevant to the message that Gill Alton wants the UK population to hear: traditional pension plans are not going to sustain us into our old age. Starting now, individuals need to take responsibility for their own pension planning instead of leaving it to employers and pension fund managers. Referring to Gill’s example, we are realistically likely to need £25,000-£30,000 pa in today’s money to sustain a decent lifestyle during retirement. If you have more expensive tastes, increase the figure accordingly. What pension pot do you need to generate that? If you are aged 40+, is your pension on track to deliver? If you are under 40 – well, the earlier you start, the greater the long term benefit. (That’s not pension advice by the way, it’s just common sense!)
This is a classy book, very well written and edited. There are stacks of tables, charts and diagrams to support the text. There are also warnings about pitfalls and plenty of emphasis on the necessity of carrying out due diligence on both properties and service providers. Though there are a few tips on how to do due diligence, a brief chapter explaining exactly what to do and how to do it would have got the message across even more strongly.
A Cautious Approach
I am aware that here, we are most likely preaching to the converted. However, though I have long been aware of the reasons why we invest in property, going back to look at a cautious approach to investing was a salutary reminder of WHY we do what we do in the first place. And that I might be guilty of losing sight of that at times.
Gill studies the situation of a fictitious character called David and takes us through his pension case study in minute detail. From this book you will find out, if you don’t already know, how to calculate your current pension provision and what to do if it falls short. Given that we’re all about property here, the answer will be obvious.
From there on, however, my eyebrows began to raise. This book is all about caution. Gill is very careful to point out that you cannot afford to gamble your wellbeing in retirement, and advocates straightforward buy-to-let, ideally with a repayment mortgage but acknowledging that some might prefer interest only. No fancy deal-making, optioning, multi-letting or speculative capital growth buying. Keep it simple, and keep the end in mind – ie, securing your retirement. She acknowledges that there are other strategies, but this book has a very clearly defined audience.
Who is it For?
By introducing the fictional David, Gill outlines who her book is for – people in employment who have pension provision but who don’t know what it is, don’t have enough, or who are simply ignoring the subject. This, I believe, is a mass market book with a message for everyone who cares about the quality of ‘life after work’.
It is not for people who a) want to turn property investing into a business; b) want a fast route to replacing their salary with income from property; or c) have already secured their future income ad infinitum.
But there is a group of property professionals who might benefit from this: those who source for or joint venture with passive or hands-off investors. Many of you already understand the situation, but having a copy on hand for your client’s reference might help to support any messages you give about property investment strategies for retirement. But not if you want them to invest for capital gain – this is purely about investing for cash flow from rentals.
As with others, this book cannot be construed as pension advice, but what it will do is help people understand the often baffling financial terminology and calculations around the subject. In fact, though property is referenced as a comparable strategy, it is only towards the second half that a purchase strategy begins to emerge, and in the final chapter that it is brought together.
I wish Gill well with this book, and hope that her message spreads far and wide. It is a message that most working age people need to hear.