New research from the Telegraph suggests that buy-to-let has performed worse than pension contributions when it comes to planning for retirement.
Someone investing £100,000 in BtL in 2005 would be £83,000 worse off after ten years than someone who invested the same money in an aggressive pension scheme.
The Telegraph reckons the initial £100k would have grown to around £235k by 2015; compared to only £152k if invested in buy-to-let.
But What about Rental Income?
Can the rental income earned from letting the property during those ten years make up the difference in asset value? Apparently not, according to the report.
Taxes on rental income, plus repair costs and voids all add up. And then, of course, is the interest paid on your BtL mortgage.
Landlords who don’t use OpenRent will also lose around £1,200 a year on agency fees!
Capital Gains Tax (CGT)
Finally, there is Capital Gains Tax. If you want to access the value of your property asset, you will have to sell the property and that means paying CGT. You will have to pay 28% on the increase of value of the property over the ten years.
The whole report can be found here (behind a paywall).
But is it really that straightforward?
The report makes some interesting points, but we think property has some great strengths.
Firstly, as @Steve1 has said below, retiring is about living on a passive income. And receiving a regular rental income could be preferable to drawing from a pension with, e.g., an annuity. Fixed annuities have a defined monthly value, whereas rents can increase with or even above the rate of inflation. And if you change your mind, you can always sell the property. It’s much harder to change your annuity back into a lump sum.
Remember, too, that the shares that pension funds invest in may have performed well over the report’s ten year period, but there’s no guarantee that they will continue to outperform property over the next ten years.
And of course, there is no one, unified property market. It is a very fragment scene, with prices in some areas rising much faster than others. If you have invested cleverly, then your BtL could be doing much better than the average.
Have you invested in Buy to Let? Are you relying on it for your retirement?
Reply to this post with your thoughts!