Though pensions will beat a portfolio of just one property, investors willing to take more risk by managing multiple properties have the potential to exceed a pension pot, according to Armstead Property.
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 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.
Peter Armistead, director of Armistead Property, said that despite the government’s recent attack on buy-to-let landlords, rental property can still provide impressive profits, with steady rental income and capital growth over the long term.
He said: “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 30s. It is advisable to spread the risk and have investments for the future in more than one pot.
“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 instruct a lettings agent to do all of this work for you, but you will still need to manage the lettings agent.”
| 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 |
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
