Pension pot or buy-to-let retirement fund: which will serve us better?

Fri 07 Dec 2018

Property portfolio vs. standard pension is a common consideration amongst many property aficionados. Many of us like the idea of retiring happily on the earnings from rental properties, but in reality, is a property portfolio really more financially viable than a standard pension pot?

If you’re interested in retiring on a buy-to-let empire, check out our top considerations, tips and tricks below:

- Come up with a plan. Many people think two or three good property investments will see them through their retirement, but they don’t actually have a strategic plan to see their finances grow.

- Buy when others are shying away. Be brave, typically first time buyers and investors who are late to the market will push up prices. Depending on your strategy buy based on return or potential capital gain.
- Work out how valuable your assets are. What’s most important for many portfolio owners is the value of their asset base, not necessarily how many properties they own. Therefore, work out your most valuable properties in terms of rental yield and expected capital growth.
- Add value to your properties by encouraging additional capital growth. The simplest way to achieve this is to renovate or redevelop any properties within your portfolio that could benefit financially from the work. Consider consulting planners or property experts if you’re unsure of which renovations could yield the best results for your property.
- Keep your eyes peeled for top finance products. This is exceptionally important if you have existing mortgages on any of your properties. Even if you think you have a great deal, it’s wise to stay on top of the market by comparing new mortgage products – don’t let early repayment fees deter you – the chances are you could still save thousands over the course of a new mortgage term.

- Leverage your assets. Businesses do it, your buy to let property or portfolio is a business in itself. Contrary to other investment opportunity you can buy a property with a 25% deposit and with a well-structured buy to let the income will far outstrip the cost of finance allowing you to use less of your own capital.

- Be tax efficient. Ensure the structuring of your buy to let property is correct for today’s income tax rules, don’t assume there are no options. There are ways of mitigating increased income tax on properties you are going to buy and may already own.


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Top considerations when you’re comparing a property portfolio to a pension pot

The benefits of investing in property long-term will almost certainly outweigh the benefits of a pension. However, ask anybody to explain the ins and outs of their pension and they’re likely to struggle. It’s clear for us all to see how the value of property has risen over the years, and the financial gain fairly transparent.

Pensions, on the other hand, are a safe, tax-efficient way of saving for the future, with the added benefit of the Government offering tax relief on pensions. The key drawback here, though, is that you can be penalised to withdraw money from your pension early. The Lifetime ISA charges 25% on cash withdrawals if you’re under the age of 60, for example.

The beauty of property investment is that you have full control – you can cash in at any time and, despite capital gains tax, live comfortably with your monthly rental income before you even retire.

If you’re unsure as to how to continue growing your property portfolio, or want to start planning your buy-to-let retirement fund, contact our Investment Advantage team on 033 3363 4535 today.


For more articles like this, why not read about where the best place in the UK is to invest in property.