Please Note: This Article is 5 years old. This increases the likelihood that some or all of it's content is now outdated.

Buy-to-Let v Pensions:

The Government’s recent tax hikes and tougher criteria for mortgage lending have hit the buy-to-let market heavily, but according to Armistead Property, over the long term, the right property investment can provide an enviable pension pot.

There are plenty of reliable surveys that show that despite the property market being more risky than pensions, property is nevertheless, king. Despite the Government’s recent attack on the buy-to-let landlords, rental property can still provide impressive profits with steady rental income and capital growth, over the long term.

Though pensions will beat a portfolio of just one property, those investors who are willing to take more risk, by taking out a mortgage and managing multiple properties, have the potential to exceed a pension pot.

Data from AJ Bell reveals how much £100,000 would grow (in capital and returns) over 10 and 20 years in three scenarios. Using historic and housing stats, the projections compare investing in a pension (assuming a basic rate taxpayer) with someone buying a single buy-to-let property without a mortgage and with someone buying three properties with a total mortgage borrowing of £300,000.  The original £100,000 is split into three where each third becomes a 25% deposit on a property. Stamp duty, tax and other costs are factored in with the property investments.

Scenario Value of Investment Over 10 Years Annual Income Over Period (Pre-Tax) Value of Investment Over Another 10 Years
Buy-to-Let (1 x property) £123,095 £4,188 £156,331
Buy-to-Let (3 x properties) £171,600 £7,242 £217,932
Pension drawdown after first 10 years £203,612 0 £174,008


NB Projections are based on house price, rent, FTSE All Share (after fees) growth between 2006 and 2016. For next 10 years, pension withdrawal rate is 4% a year and investment growth is 3% (reflecting lower risk portfolio). Source: AJ Bell

Peter Armistead, Director of Armistead Property comments: “The research shows that three buy-to-let properties produce £42,000 more than a pension over the 10 years.  However, property investment comes with greater risks such as fluctuating house prices and capital growth; void periods; fluctuating rents, maintenance issues, tenant management issues etc.  Property is definitely a long term investment and does have many drawbacks as an asset class which a pension doesn’t, the most notable one being lack of liquidity.

“In an ideal world, people should be investing in both a pension and property from as early an age as possible and ideally from your 30’s.  It is advisable to spread the risk and have investments for the future in more than one pot.

“In my 20s, I had a normal day job before becoming a full time property investor in my 30s.  “During my 20s, I managed to save up the deposit for my first house.  I lived in that for a few years, then re-mortgaged it and took the cash and bought a second place.  I kept the first property, rented it and lived in the second.  Two years later, I did the same again.  After six years of doing this I had four properties worth over a million with £300,000 of equity.  All of this came from an initial £30,000 which I had saved up.  That was the 1990s, but the general principles still hold true today.

“I would definitely advise having both a pension fund and investing in real estate, but it’s important to consider the two in separate terms.  If you are using a managed pension fund then you don’t need to be hands on with that investment.

Property on the other hand, requires you to actively manage it and treat it like a business not just an asset class.  If you don’t want to take up the day-to-day issues with the property, then you can (as most investors do) instruct a lettings agent to do all of this work for you, but you will still need to manage the lettings agent.”

Peter Armistead is a property investor in South Manchester.  He has developed and sold over 400 properties and has a portfolio of over 100 properties in Manchester.

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Please Note: This Article is 5 years old. This increases the likelihood that some or all of it's content is now outdated.


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