The British have been obsessed with property for several decades. Is buy-to-let property really a substitute for a well-invested pension pot? Is it a sensible choice in the face of low yields from deposits? When one takes a closer look at the financial and emotional burdens of managing buy-to-let property, the case for property may be less clear cut than some imagine. Sensibly structured pensions invested in robustly structured portfolios have a central role to play in most investors’ retirement planning.
Perhaps the biggest risk of the buy-to-let market is the concentration of risk in not just one narrow asset class – residential property – but in one house or flat, on one street in one town. This lack of diversification is an unattractive attribute for a plan to deliver wealth and happiness in retirement.
Conclusion – pension funds should remain as a core pillar of retirement
It would appear that on an ungeared basis, buy-to-let is the ownership of a small business that holds a depreciating asset that needs constant love and attention in order to achieve a rate of long-term return somewhere between bonds and equities that one might expect. As soon as one takes on gearing, the risks multiply in line with the multiple of times the investor’s capital is geared, along with the potential rewards. The one thing that is certain is that it is a very big leap from the deposit like alternative that many newspaper articles suggest that it is.
Buy-to-let is certainly not a quick road to riches. It has material costs and downsides unacknowledged by many who embark on such a course. It demands to be managed like a business with a detailed business plan and to receive the time and effort that such a small business deserves. For some that is an enjoyable past-time. For others it becomes a headache, a chore and a source of stress.
In our view, making the most of the tax breaks and investing assets in a sensibly structured, globally diversified investment portfolio makes enormous sense and should remain at the centre of any sensible retirement plan. And what price can you place on the time that you free up to do the really important things that enrich your and others’ lives. Who wants to be at the beck and call of a tenant whose washing machine has broken down!