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A Pension Fund or an Investment Property. Which is Best For Me?

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May 07
You’ve already made the decision to start building your wealth for retirement.
Now it’s a matter of deciding which route to take.
“Do I start a pension or should I buy an investment property?”
Well, as long as you actually do one of them, then you’ll be making progress.
So, in this short article, we will look at the key differences between the two options.

Property as a pension

Property has long been a popular investment option in Ireland.
It is a glamorous type of investment and has a considerable amount of prestige attached to it.
Not only that, it can be very lucrative when done right but you need to know what you’re doing.
Investing in properties is not a part-time role.
You need to be fully engaged with the setup and ongoing process.

Property as an Asset

In general, the success of a property play hinges on a few critical factors, each of which is important.
  • Purchase price
  • Location
  • Property quality
  • Rental yield
  • Tenant quality
If you buy a property for a good price and rent it out for more than the mortgage cost then you will do very well indeed.
This is the very definition of a self funding asset because, when it’s paid off, you will have a decision to make.
Sell the asset for a windfall sum or continue collecting the rent as an ongoing income.
That’s a nice problem to have.
If you manage it well, then you might even be able to leverage the equity in one property as collateral for another…
…but that can be very dangerous territory and is much harder to do now than in the recent past.
But, there is no doubt that property is a great option if you’re in a position to do it.

Property – advantages

The big advantage of having an investment property is that;
  • It’s liquid: it can sell quite quickly if you need to sell
  • No age restrictions on purchase or disposal
  • Is a ‘real’, tangible asset

Property – disadvantages

On the other side of it;
  • Negative equity.
  • Unpaid rent, problem tenants and tenants rights.
  • 20% deposits.
  • High tax rates & ongoing ownership costs
  • Purchase cost & stamp duty.
  • Site fees & construction costs.
  • Legal fees.
  • Estate agent/management agency fees.
  • Utility, security and emergency costs.
  • Property taxes & levies.
  • Insurances (Home, Landlord & Life)
  • Oversupply & vacancy periods.
  • 33% capital gains tax on sale.
  • 40% income tax on rental income, even if you’re making a loss.
  • Fire, structural damage and maintenance/refurbishment costs.
  • Interest rate increases, mortgage rate increases and legislative changes.
  • Solvency issues & bankruptcy.
  • Concentrated and undiversified.
  • Hassle.
  • 0% income tax relief.
  • Huge degree of involvement and very difficult to take a break from.

Regulation, Regulation, Regulation

Some recent central bank measures have made property investing much more difficult.
This is being driven by tighter lending conditions and higher deposit requirements.
The recent implementation of IORP II has also had an impact.
It states that property investments in pension funds cannot exceed 50% of the assets held.

The Pension Option

The disadvantage of a pension is that it’s an intangible asset and has some strict rules.
But, there is no comparison to the tax advantages they have over any other investment type in Ireland.
  • Full tax relief on contributions which can mean a discount of up to 40%.
  • There is 0%capital gains tax i.e. your money gets to grow in a tax-free environment for the entire duration.
  • You can get a retirement lump sum of up to €440,000 if you retire with a fund of €2,000,000.
  • You can get a tax free lump sum of up to €200,000.
  • Another option is to fund for 18 months salary as a tax-free lump sum on if you’re a business owner.
  • There is no BIK liability on company contributions for a company director.
Buying an investment property is a full-on, all-in play which can pay off if you get it right. 
It can also take a long time to get set up and can be a very challenging process.
Starting a pension is a very simple process by comparison which can be set up in an hour or two.
If you would like to discuss your situation then call me on 01 442 3929 or email me at

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