The surge of investors into buy-to-let is being fuelled by older people raiding their pension pots, advisers say.
While many see rental property as a great way of topping up their retirement income, using last year's pension freedom reforms to become an amateur landlord could backfire.
Portal Financial said that while many see property as the key to a comfortable retirement, the cost and uncertainty means it is rarely the best option.
The adviser said it has seen a significant increase in enquiries from people looking to access their pension to purchase a rental property since last April.
But it warned that there are significant costs involved, including tax on capital gains and income, as well as insurance, maintenance, repairs and increased stamp duty for people with multiple houses from April.
Profit margins may also be squeezed by the Government’s reform to tax relief on rental income from April 2017.
Jamie Smith-Thompson, managing director of Portal Financial, said: “This generation has seen house prices rise drastically over the long term so it is clear to see why they are confident investing in rental houses.
“It is very easy to get swept along with the belief that property is the ultimate investment, providing both income and appreciating value.
“But the reality is that after paying tax on the pension withdrawal – which could be as high as 45% – and the various fees when buying the house including stamp duty and legal costs, the buyer is at a substantial loss and the property’s value must rise significantly just to be back at square one.
“For many landlords, the profit margin is wafer thin and void periods, unpaid rent or maintenance can mean losing money rather than earning an income.”
Smith-Thompson said buy-to-let remains in Chancellor George Osborne's crosshairs and further tax changes could be possible.
He added: “If you are looking for an income in retirement and your finances are limited then the risks associated with becoming a landlord far outweigh the benefits for most people.”