Whether in search of a smart investment opportunity or looking for the perfect family home, there are many reasons why someone might want to purchase property. Certain buyers may wait until they can buy the property outright, while many other investors and homeowners explore traditional mortgage loans to facilitate the purchase.
In Ireland, it is still possible to purchase a property through your pension. While it is not possible to use your pension to “buy” a property that’s already in your name, you can explore this avenue if you wish to purchase a new property.
What are the pros?
If you are considering the possibility of purchasing a property through your pension, you’ll be interested to learn that there are some noteworthy advantages of taking this route:
- One of the key advantages of purchasing property through your pension is that you aren’t limited to a certain kind of property. That’s right; you can purchase a residential or commercial property to provide consistent rental income. Both options are allowed, once you have an appropriate Self-Administered Pension in place. You have total control over what type of property you wish to buy – budget-dependent of course.
- If you wish to purchase a property with pension funds but you find yourself a little short of the mark, it is possible to recruit the help of a co-investor. If a trusted relative or friend wishes to become involved, their pension pot can be used along with yours in order to secure your perfect property.
- Pre-retirement, it’s important to note that while rental income is tax free when applied to your pension fund, it does become taxable when you withdraw that income post retirement. However, the existence of a consistent income from rent payments will provide you with a certain level of financial security and peace of mind well into your retirement.
- If you are wondering about whether you will benefit if your property goes up in value, the answer is yes! In order to benefit from that profit you will of course have to sell the property, but fortunately, any profit made will not be subject to capital gains tax.
- While excess household expenses such as maintenance, insurance and other costs can cause a dent in funds for any homeowner, these regular outgoings should be covered by the property owner’s pension pot, leaving their personal income untouched.
- Some banks may allow borrowings of up to 50% of the value of the property on a pension mortgage.
There is no doubt that the list of positives associated with purchasing a property through a pension gives us food for thought, but there are also a number of drawbacks to this process that need to be considered.
What are the pitfalls?
As with any decision, you have to weigh up the pros and cons, Here are some of the pitfalls to be aware of when purchasing a property through your pension:
- Firstly, because of the rule that only those holding an appropriate Self-Administered Pension can avail of this route, it isn’t an option for everyone.
- Secondly, there are strict rules surrounding the use of the property once it has been purchased. It cannot be bought for personal use, for example as a holiday home. The property must only be purchased and utilised as an investment.
- Another disadvantage of purchasing property in this way is that you will have to keep sufficient assets in your pension pot to provide for liquidity and expenses. This includes assets besides the property, so it might not be realistic for every investor.
- While rental income can provide a hefty nest egg for retirees, there are also a number of potential dangers involved. Both property prices and rental rates can fluctuate over the years, therefore the amount of profit you earn either through rental income or the sale of the house is entirely dependent on the economic climate at that time. Similarly, maintenance and excess costs involved with managing a house can prove expensive and may make a significant dent in your pension fund over time.
- It could prove problematic for you in the instance of a medical emergency or an urgent situation that requires access to quick cash, as it will likely take some time to sell the property to access the balance of funds.
Conclusion
Buying property through your pension can be a great long-term investment, allowing you to take control of your pension fund and provide greater opportunity for retirement. But, with any investment there will be potential drawbacks, some of which we have outlined above. If, on balance, you decide that this is definitely something you would like to explore, then the first thing you need to do is seek professional financial advice.
This will not be a straightforward process on your own and so the guidance of experts in the field is crucial so that you know you are making the right decisions along the way. At Symmetry Financial, we will walk you through this step by step. We tailor our plans and advice to work for your individual circumstances while creating a strategy to achieve your goals. Contact us to book your free consultation today.
