Bank of Dave: When people ask if property or pension is better I tell them this

At one point, I had dozens of rental properties. When I started out in my working life, I invested in properties because it felt like something I understood. So when people ask me in my local cafe: “Should I buy property rather than invest in a pension?“, I can understand where they’re coming from. I was in my early 20s when I bought my first two-up, two-down terrace in Brierfield for £4,600 and rented it out for £65 a week. Soon I had two houses, and then three, and so on. I’d buy them, do them up myself and rent them out. The best tenant I ever had was in a property I owned in Lancashire. They were a perfect renter – until they burnt down the entire back of the house. The whole street had to be evacuated. That’s just one reason I don’t really do rentals anymore. On paper, the idea of owning a buy-to-let looks amazing. That particular house cost about £16,000 to buy at the time (this was the early 90s) and I spent another £10,000 doing it up, then drew about £100 from rent. But the numbers on paper don’t take into account the chance of someone burning down your house – or other problems that are a bit more usual. You need to go in with your eyes open. At the very least, there will be decorating costs – paint, new carpets – and it will always be double what you think. Then there are the maintenance costs – fixing the boiler, getting a licence if you need one, estate agent fees. And that’s before all the tax and regulations. I’ve had times where I’ve had to replace all the pipes after they were stolen because the copper price had gone up, or when a tenant has gone to prison and you only find out when the rent isn’t paid. After all that, it’s actually very difficult to make money as a landlord in a lot of places. There are pros, of course. The rental income is helpful, you will hopefully see a rise in the property value, and insurance can help to protect you against some of these losses. Having a good agent will also take a lot of the hassle off your plate. A lot of people have become very rich doing it. Tenant dramas aside, the thing a lot of people think about a property over a pension is how much prices have gone up over the past 30 years. But here’s the thing: there’s no way to get rich quickly; you get rich slowly, that’s the only way, and for a lot of people a pension is a great way to do that. The first major benefit of a pension is the tax relief you get on your contributions – this is a huge advantage that pensions have over property, where the tax rules can be far less generous. As well as that, if you are employed, then your company will put a certain amount in as well, which helps the pot grow further. If you can afford to put just a little bit into a pension every month and forget about it, then it’s like planting a tree – over a period of 20 or 30 years, it will grow. Don’t overcomplicate it: choose a low-cost, well-diversified tracker fund, put your money in and don’t look. There is a lot of uncertainty around pensions – people are worried about what will happen to the state pension or if the rules are about to change, and they don’t know what to do about it. In my local cafe the other day, Stephen, a customer who is 75, asked me whether the government would take his pension to cover care costs in the future. Karen, another patron, asked me whether she should withdraw money from her pension or leave it invested. They don’t know where to go for the answers, so they come to me. Against all that uncertainty, property can seem appealing because it’s something you can drive past, that you can touch. The question “property or pension?” is a difficult one (and it doesn’t have to be one or the other). The right answer for you will depend on your own goals, financial situation and tolerance for risk. But it is important not to overlook the potential of a pension to grow your wealth over time – and it can be a more predictable way to do that than banking on house price growth or dealing with nightmare tenants.