The founder of an online lettings agency, Upad, has claimed that he does not have a pension fund. James Davis has instead chosen to invest in 20 buy to let properties, and like many property investors, he is certain that this will fund his retirement.
Mr Davis explains that should property prices continue rising over the next 20 years in a similar pattern to the previous two decades, this would mean that the average value of property today of £235,000 will increase to a staggering £1 million by 2038.
Over the same time frame, pension investment would require minimum contributions of £1,200 each month, following an initial investment of over £90,000, which is also without any interim monthly income. It is clear that for committed landlords with financial management that is carefully planned, and a vision for the long-term, residential property remains a good investment strategy.
Although it is clear that each investment, whether pension or property, suits different people, depending on their strategy, circumstances and risk appetite. Property purchases do require large initial costs, as well as additional fees for management and renovation, which is not always viable for someone searching for ways to fund their retirement.
Despite smaller returns, pensions do allow individuals to save for their retirement through monthly payments over a long period, which is far more achievable.
Property will almost always outperform pensions when analysing returns. However, with recent changes in taxation and stamp duty, investors must be well-informed about how to mitigate costs and their tax responsibilities. Property is also an asset class which everyone understands, whereas pensions can be extremely complicated. With house prices also rising over the years, there are rewards for investors who take the risk.
However, with the government providing tax relief on pensions, these are a tax-efficient means of saving for retirement. It is also important to bear in mind that there are fees associated with pensions. For example, there is a charge of 25 per cent to withdraw cash from a Lifetime ISA if you are aged under 60.
There is also growing concern that pension funds will not be large enough for most people. The average fund is approximately £50,000 in the UK, which would pay around £200 each month if you retire at the standard age.
If investing in property, you can choose to cash in whenever you choose, although there will likely be a bill for capital gains tax. There is also a monthly income from rent, providing additional funds before retirement. This will also ensure that the property’s own mortgage is covered, and the predicted capital growth should outweigh any pension type.
Although becoming a landlord comes with its share of responsibility, help is available for property investors. Businesses can help manage your buy to let properties for you, with firms such as Inventory Base providing simple and easy to manage inventory and inspection software, which enable smoother property management.
With recent crises in pensions, such as with BHS and Carillon, there is no more security in pension funds than there is with property investment. In fact, property is one of the few assets which is tangible, providing security and comfort for investors, and it is the perfect means to diversify a portfolio.
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