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Does buy-to-let still pay?

The popularity of investing in property to fund retirement remains prevalent, in spite of the government’s attempts to make buy-to-let less and less attractive. But is buy-to-let investment really a viable alternative to a pension pot, for example?

A recent study has investigated the numbers behind each option. The research looked at how £100,000 would grow in three different investment scenarios. The study uses historic data on housing and investment to estimate the capital and returns growth over a ten year period. Other costs including tax and stamp duty are all factored in.

The first scenario assumes that the money is invested in a pension by someone paying a basic rate of tax; the second that it is used to purchase a single buy-to-let property with no mortgage. The third is a little more complex: it looks at what might happen if the £100,000 was split into three equal parts, with each third used as a 25% deposit on a buy-to-let property, borrowing a further £300,000 to do so.

Ten years in and the study shows the pension would have grown to £203,612 after charges. This assumes that no income is being taken and that stock markets continue to perform as they have over the last decade, delivering an annual total return of 5%.

Assuming a similar return seen in the last ten years (27%), the single buy-to-let property’s value would have increased to £123,095. A rental income of £41,180 brings its total return to £164,275.

The three properties option, meanwhile, would have grown to £171,600 with rental income of £72,420 after tax and mortgage costs for a total of £244,020.

There are other factors to consider in these scenarios, however, no matter which one your investing instincts naturally gravitate towards. The figures for the buy-to-let options are based on having a constant stream of rent with no tenancy gaps, as well as not taking into consideration any major development or repair costs such as refits. Another important point is that a pension offers simplicity that investing in and maintaining property does not.

Both options will clearly suit different people during their retirement. For those considering a buy-to-let property to fund life after work, it’s generally a good idea not to put your eggs in one basket: there’s nothing to stop you having both a pension and property to give you the retirement income you want.

If you have any questions surrounding this topic, please feel free to get in touch with us directly.


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