Your pension – is property enough?

Your pension – is property enough?
Posted by Josh Rafter

Following a recent episode of Dispatches on Channel 4, we started thinking about property investments as a pension. Many of the landlords we manage properties for in London are planning on using the income from tenants or the sale of a property to fund their lifestyles when they no longer work. But will that be enough and what are the risks? Here’s a rundown of what we know from our work at Outlet and some of the findings from the Channel 4 documentary.

The average return for a buy-to-let property according to the TV report is around five to six per cent, while pensions can deliver more depending on how they perform. A higher yielding property, which includes larger homes, or HMO, can return a landlord with 12 to 15 per cent. You can Compare that to high performing pension pots where tax relief has been sought on the premiums going in at larger amounts, which can offer around 12 per cent.

You’re probably thinking, ‘there’s not much in it then’. And if you are relying on an overflowing pot of property cash to spend on your cruises in your old age there’s definitely no need to panic and start a pension fund just yet. On the surface, the returns are averaging out at about the same. However, don’t forget that the location of your property can make a difference to property prices and rental income in the same way a differing investment strategy can also make a huge difference.

Something you do need to consider is that pensions have the added benefit of being tax efficient. Plus, when you put your hard earned money into a pension, the government does too, so the amount continues to grow. It would be nice if you could claim tax relief on properties, but sadly that doesn’t happen.

Although many people will claim that pensions are a safer place for your money, there is of course an argument that no pension pot or savings account is completely immune from collapse, as many people found out in the economic crisis in 2008. In most circumstances, good old fashioned bricks and mortar will ensure you at least have an asset you can sell as protection.

Ultimately, the advice as always remains to stay aware of the developments in the market. Don’t invest every last penny of the money you have in a house or apartment when property prices are at a peak and likely to fall – especially if you’re planning to retire any time soon. Consider the age you are now and how many years you have left before you decide to live a life of leisure. That will help you assess the risk you’re willing to take with your money.

And as is the case with all investing, diversity is the key. Investing a sensible amount with a clear investment strategy split between a pension pot, property, stocks and shares and savings accounts is always the safest route to financial wealth and stability for the future. This combined with an ongoing review and assessment will ensure that you meet your financial objectives, helping you to achieve the goals you have for your own lifestyle.

Looking for help managing your property portfolio? Find out more about our management services on this page.

For independent financial advice, give Outlet a call. We have a team dedicated for services including mortgages and insurance. You can get in touch on 0203 7734 608 or click here. 

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