As every smart investor knows, other people’s money is the key ingredient to building up your own wealth.

Some pension providers will use leverage to grow your money (particularly for investing in commercial property), but they have to balance the growth opportunities with the risks to all their customers and their pension pots.

As for borrowing money from your own pension pot to reinvest it, the only way to do it is through certain self-invested personal pensions (SIPPs), which are often expensive and come with their own sets of restrictions.

But with SPV property investment, mortgage lending enables you to build your portfolio and maximise the return on both your rental income and eventual portfolio value.

Fees

One of the great things about pensions is that they typically offer compound interest on your savings. Each time you gain interest, you’re gaining it on your savings plus the previous year’s interest.

The problem is, pension fees (particularly ‘independent financial advisor’ fees, as they’re known) also compound along with your savings; so by the time you finally gain access to your pension, you may have lost hundreds of thousands of pounds to your pension provider.

While property investors have to contend with mortgage fees and potentially other letting costs, it’s not a case of ‘the more you save, the more you spend’ – each fee remains fairly fixed. Meanwhile, you can still potentially earn compound growth when you eventually sell your portfolio.

Control vs effort

Even with some of the benefits that investing in property through an SPV provides, there’s no denying that property investment is more work than a pension.

With a pension, you sign up and you start saving. If you’re employed, you don’t even need to pay into your pension pot yourself – your employer does it for you when calculating your wages each month.

By comparison, property investors need to track down high-yield properties and secure the funds to purchase them, source paying tenants, repair broken appliances and fixtures, resolve any issues and disputes – all while staying in compliance with landlord legislation.

But with the extra effort comes a lot more control over how your money is managed. You’re not trusting a third party to invest your money wisely and hoping for the best; you have a real asset in your hands, and you’re making strategic decisions about which properties to buy and how long to hold onto them for.

Of course, you can hire lettings agents to manage your portfolio; but that means giving away a chunk of your rental profits every month. Plus, you’ll also need to keep track of house prices and manage the sale of your properties (and/or the transfer of your portfolio to your successors) when the time is right.

By comparison, a pension fund requires next to no admin work on your part. If you have a workplace pension, your employer does all the hard work of paying in contributions when paying your wages. Your pension provider will even take care of subtracting any income tax when you make withdrawals from your pot.

Why not both?

Ultimately, we can’t tell you which option is the best one for your personal circumstances. You’re best off sitting down with your accountant for a closer look.

But keep in mind… you don’t have to stick to one or the other. Hedging your investments and diversifying your asset classes is key for protecting your wealth.

So why not build up an SPV portfolio and pay a portion of your net rental profits into a pension each month? It’s the best of both worlds; enabling you to grow your short-term income and two different long-term investments all at once.

Need help with setting up an SPV and transferring your existing property into a limited company? Get in touch with our SPV company mortgage experts today!