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My buy-to-let properties aren't returning as much as expected - what now?

16 June 2021

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Question by John


I am 69 and retired 15 months ago, my wife is 5 years younger and reaches state pension age when she is 67.

Neither of us had made any significant pension provisions during our working lives. In anticipation of retirement, three years ago, we downsized from our family home and used the balance to buy two new apartments which we have rented out since then.

Unfortunately, the net return from the apartments has not been as expected, averaging over that time about 3.5% per annum. We have been unable to increase the rental income year on year due to local competition, so the rents that we charge are in line with others in the area.

This has meant that our living costs have had to be supplemented by our savings. None of our properties are mortgaged and the value of the apartments have increased by about 7% to a combined market value of about £300,000.

We are seriously considering selling the apartments and investing in the equities market in the hope that

1) we can achieve a higher income and 2) improved capital growth.

Our investment horizon is long term (given our age). We have no previous experience but we both have good computational and analytical skills. We are moderately risk averse.

Your comments and suggestions would be gratefully received.

Answered by Adam Johnson

Hi, John.

You are not alone in your experiences with buy to let property. A lot of clients going into buy-to-let to find the returns are lower after income tax and the time and associated costs required to manage the properties are much higher than they would have anticipated. For some people, it works well and can supplement an investment strategy, but it is not quite as advertised on TV. I would suggest that you sit down with a Chartered Financial Planner and look at some cashflow modelling. There are exit costs with downsizing the properties, including Capital Gains Tax considerations. There are a range of options open to you, which all need to be carefully explored. There are a broad range of possible solutions available for reinvesting the funds. It is certainly true that of the investment options open to you, there are plenty of solutions that will be more tax-efficient to run and will require less of your time and input.

From a return perspective, this always comes with the caveat that past performance is not a guide to the future. However, depending on the portfolio, I would like to think you should be targeting a well-managed equity portfolio to be looking to outperform the returns you have had from the rental properties. Historically equity portfolios have outperformed rental properties, but there can be local variations and of course there is still my caveat about past performance. I would say that you could reasonably anticipate better returns through a well-managed portfolio than you are currently enjoying. You will also be able to reduce your concentration risk where all of your wealth is tied to the fortunes of two apartments and both in property which is only one asset class. This concentration of risk can be diversified with an aim of achieving a higher risk-related return. The nature of the investment together with the asset allocation will need to be shaped with your Financial Planner to ensure it matches your risk profiles.

In summary, you will need careful advice about the exit options and careful consideration about where you would reinvest. I think you could hope to achieve better returns more efficiently, with a more fitting risk profile and potentially with lower costs than the buy to lets. The next point of your journey will be to find a financial planner you would like to work with who is suitable qualified to look at these issues in more detail for you.

Answered by

Adam Johnson


Helping deliver client outcomes is at the heart of everything Adam does. Helping clients achieve their dreams is what motivates Adam as a financial adviser, and he takes great pride in the way he has helped so many families over two decades of providing financial advice, and fifteen years running his own practice.