Buy to let investors with larger portfolios have the potential to make their investment more lucrative than a pension pot, according to new research.
Although pension funds will beat a portfolio of just a single property, investors willing to manage multiple properties could push their profits further. Data from AJ Bell looked into how much £100,000 would grow in both capital and returns over 10 and 20 years in three contrasting scenarios. The firm compared investing in a pension with someone buying a single buy-to-let property without a mortgage as well as with someone buying three properties with a total mortgage borrowing of £300,000.
The original £100,000 is split into thirds, with each used as a 25 per cent deposit on a property. Factors such as stamp duty, tax and further costs are also considered.
A pension drawdown offered an investor £203,612 after 10 years, amounting to £174,008 after a further decade. In comparison, a single buy to let property offered £123,095 after 10 years, before growing to £156,331 after 20. However, coming out on top is a portfolio with 3 buy to let properties, which would offer an investment value of £171,600 after 10 years, and a sizeable £217,932 after another 10, with an annual pre-tax income over the period of £7,242.
Director of Armistead Property, Peter Armistead, explained that despite punitive tax measures, buy to let investment remains profitable. 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.’
He continued: ‘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.’