Why Property Investment is the new Pension. In the last blog we looked at the death of the traditional pension and how hanging on to outdated methods could cost you your retirement. In this blog we look at how property investment could be the answer to your retirement or financial freedom.
The most important factor to look at is how has property performed over the years to see if it’s an asset we can rely on.
This graph illustrates UK property prices over the last 40 years. As you can see, if you had bought at any time in the last 40 years and held on to your property for at least 10 years not only would have you made a profit, your property would have doubled in value.
It’s amazing how many people we speak to who say they wished they bought more property 10, 20, 30 years ago and I can’t recall anyone saying the opposite. Imagine if you or your parents had bought more property 10, 20, 30 years ago how different would your lifestyle be today?
The past data allows us to make assumptions on how we see property prices moving in the future and when we plan we use the rule of ten.
“Rule of ten – historically property has doubled in value on average every 7-9 years. We like to be conservative when planning so we use a 10 year assumption.”
But why will property prices continue to move forward? Property prices are influenced by supply and demand and human nature. Shelter is a basic human need and this will never change, whether we own or rent. We live on one of the most densely populated islands on the planet and as with anything else, the scarcer the commodity, the more valuable it becomes.
So we understand that property investment is a safe bet over the long term but how can property investment be the new pension?
There are many benefits to a property investment pension over a traditional pension. First of all you are in control – your property portfolio is run by you. You don’t hand decisions over to a stranger who will decide your financial future.
You can actually make an income as you build your property portfolio. If you buy property at below market value you should always achieve this. With traditional pensions you don’t see any return until you retire.
Your profits from your property portfolio remain with you and are not drained by excessive management charges. In some stock market pension plans you can pay in excess of 40% in charges.
When you come to sell your portfolio or release equity from it, the money is yours when you want it and not controlled by an annuity, giving you far more flexibility.
One of the biggest factors that make property investment such an attractive option is leverage. This is such an important reason that it needs a blog all on its own, which will come.
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