Pension or Property: Should I invest in more properties, or in a pension?
Diversification is one aspect to this question, and Dr Fred touches on its relationship to risk.  Another aspect is leverage: So it again comes down to your appetite for risk.  A further factor is that if you are successfully renting out your property, someone else is effectively buying that asset for you, or at least paying the interest on the mortgage. Just bear in mind that if you get into a situation where you have 10 properties and the rent on them all falls at the same time as the property market crashes (sound familiar?) then you can be left on the hook for a lot of interest payments and your assets may not cover your liabilities. Investing in property hoping that it will gain value is usually foolish; real estate increases about 3% a year in the long run.  Investing in property to rent is labor-intensive; you have to deal with tenants, and also have to take care of repairs.  It's essentially getting a second job. I don't know what the word pension implies in Europe; in America, it's an employer-funded retirement plan separate from personally funded retirement.  I'd invest in personally funded retirement well before buying real estate to rent, and diversify my money in that retirement plan widely if I was within 10-20 years of retirement. "I think the real answer to your question here is diversification.  You have some fear of having your money in the market, and rightfully so, having all your money in one stock, or even one type of mutual fund is risky as all get out, and you could lose a lot of your money in such a stock-market based undiversified investment.  However, the same logic works in your rental property.  If you lose your tennant, and are unable to find a new one right away, or if you have some very rare problem that insurance doesn't cover, your property could become very much not a ""break even"" investment very quickly.  In reality, there isn't any single investment you can make that has no risk.  Your assets need to be balanced between many different market-investments, that includes bonds, US stocks, European stocks, cash, etc.  Also investing in mutual funds instead of individual stocks greatly reduces your risk. Another thing to consider is the benefits of paying down debt.  While investments have a risk of not performing, if you pay off a loan with interest payments, you definitely will save the money you would have paid in interest.   To be specific, I'd recommend the following plan -"
I have done something similar to this myself.  What you are suggesting is a sound theory and it works.  The issues are (which is why it's the reason not everyone does it) : The initial cost is great, many people in their 20s or 30s cannot afford their own home, let alone buy second properties.  The time to build up a portfolio is very long term and is best for a pension investment.  it's often not best for diversification - you've heard not putting all your eggs in one basket? With property deposits, you need to put a lot of eggs in to make it work and this can leave you vulnerable. there can be lots of work involved. Renovating is a huge pain and cost and you've already mentioned tennants not paying!  unlike a bank account or bonds/shares etc.  You cannot get to your savings/investments quickly if you need to (or find an opportunity)  But after considering these and deciding the plunge is worth it, I would say go for it, be a good landlord, with good quality property and you'll have a great nest egg.  If you try just one and see how it goes, with population increase, in a safe (respectable) location, the value of the investment should continue to rise (which it doesn't in a bank) and you can expect a 5%+ rental return (very hard to find in cash account!)  Hope it goes well! I wouldn't go into a stock market related investment if you plan on buying a house in 4-5 years, you really need to tie money up in stocks for 10 years plus to be confident of a good return.  Of course, you might do well in stocks over 4-5 years but historically it's unlikely. I'd look for a safe place to save some money for the deposit, the more deposit you can get the better as this will lower your loan to valuation (LTV) and therefore you may find you get a better interest rate for your mortgage. Regards the pension, are you paying the maximum you can into the company scheme?  If not then top that up as much as you can, company schemes tend to be good as they have low charges, but check the documentation about that and make sure that is the case. Failing that stakeholder pension schemes can also have very low charges, have a look at what's available. Invest in kids, not pension - they never inflate. Without kids your retirement will be miserable anyway. And with them you'll be good. Personally, I do not believe that that our current savings will be worth it in 30 years in these times. The below assessment is for primary residences as opposed to income properties. The truth is that with the exception of a housing bubble, the value of a house might outpace inflation by one or two percent.  According to the US Census, the price of a new home per square foot only went up 4.42% between 1963 and 2008, where as inflation was 4.4%.  Since home sizes increased, the price of a new home overall outpaced inflation by 1% at 5.4% (source).  According to Case-Shiller, inflation adjusted prices increased a measly .4% from 1890-2004 (see graph here). On the other hand your down payment money and the interest towards owning that home might be in a mutual fund earning you north of eight percent.  If you don't put down enough of a down payment to avoid PMI, you'll be literally throwing away money to get yourself in a home that could also be making money. Upgrades to your home that increase its value - unless you have crazy do-it-yourself skills and get good deals on the materials - usually don't return 100% on an investment.  The best tend to be around 80%. On top of the fact that your money is going towards an asset that isn't giving you much of a return, a house has costs that a rental simply doesn't have (or rather, it does have them, but they are wrapped into your rent) - closing costs as a buyer, realtor fees and closing costs as a seller, maintenance costs, and constantly escalating property taxes are examples of things that renters deal with only in an indirect sense. NYT columnist David Leonhart says all this more eloquently than I ever could in: There's an interactive calculator at the NYT that helps you apply Leonhart's criteria to your own area. None of this is to say that home ownership is a bad decision for all people at all times.  I'm looking to buy myself, but I'm not buying as an investment.  For example, I would never think that it was OK to stop funding my retirement because my house will eventually fund it for me.  Instead I'm buying because home ownership brings other values than money that a rental apartment would never give me and a rental home would cost more than the same home purchase (given 10 years). I would go with the 2nd option (put down as little as possible) with a small caveat: avoid the mortgage insurance if you can and put down 20%. Holding your rental property(ies)'s mortgage has some benefits: You can write off the mortgage interest.  In Canada you cannot write off the mortgage interest from your primary residence. You can write off stuff renovations and new appliances.  You can use this to your advantage if you have both a primary residence and a rental property.  Get my drift? P.S. I do not think it's a good time right now to buy a property and rent it out simply because the housing prices are over-priced.  The rate of return of your investment is too low. P.S.2.  I get the feeling from your question that you would like to purchase several properties in the long-term future.  I would like to say that the key to good and low risk investing is diversification.  Don't put all of your money into one basket.  This includes real estate.  Like any other investment, real estate goes down too.  In the last 50 or so years real estate has only apprepriated around 2.5% per year.  While, real estate is a good long term investment, don't make it 80% of your investment portfolio. "I don't know much about New Zealand, but here are just some general thoughts on things to consider. The big difference between buying a house and investing in stocks or the like is that it is fairly easy to invest in a diversified array of stocks (via a mutual fund), but if you buy a house, you are investing in a single piece of property, so everything depends on what happens with that specific property.  This in itself is a reason many people don't invest in real estate.  Shares of a given company or mutual fund are fungible: if you buy into a mutual fund, you know you're getting the same thing everyone else in the fund is getting.  But every piece of real estate is unique, so figuring out how much a property is worth is less of an exact science.  Also, buying real estate means you have to maintain it and manage it (or pay someone else to do so).  It's a lot more work to accurately assess the income potential of a property, and then maintain and manage the property over years, than it is to just buy some stocks and hold them.   Another difficulty is, if and when you do decide to sell the property, doing so again involves work.  With stocks you can pretty much sell them whenever you want (although you may take a loss).  With a house you have to find someone willing to buy it, which can take time. So a big factor to consider is the amount of effort you're prepared to put into your investment.  You mention that your parents could manage the property for you, but presumably you will still have to pay for maintenance and do some managing work yourself (at least discussing things with them and making decisions).  Also, if you own the property for a long time your parents will eventually become too old to take care of it, at which point you'll have to rethink the management aspect. So that's sort of the psychological side of things.  As for the financial, you don't mention selling the house at any point.  If you never sell it, the only gain you get from it is the rent it brings in.  So the main factor to consider when deciding whether to buy it as a rental is how much you can rent it for.  This is going to be largely determined by where it is located. So from the perspective of making an investment the big question --- which you don't address in the info you provided --- is: how much can you rent this house for, and how much will you be able to rent it for in the future?  There is no way to know this for sure, and the only way to get even a rough sense of it is to talk with someone who knows the local real estate market well (e.g., a broker, appraiser, or landlord).  If the property is in an ""up-and-coming"" area (i.e., more people are going to move there in the future), rents could skyrocket; if it's in a backwater, rents could remain stagnant indefinitely. Basically, if you're going to buy a piece of real estate as a long-term investment, you need to know a lot about that property in order to make any kind of comparison with another investment vehicle like a mutual fund.  If you already live in the area you may know some things already (like how much you might be able to rent it for).  Even so, though, you should try to get some advice from trustworthy people who know the local real estate situation." "Defined benefit pensions are generally seen as valuable, and hard to replace by investing on your own. So my default assumption would be to keep that pension, unless you think there's a significant risk the pension fund will become insolvent, in which case the earlier you can get out the better. Obviously, you need to look at the numbers. What is a realistic return you could get by investing that 115K? To compare like with like, what ""real"" investment returns (after subtracting inflation) are needed for it to provide you with $10800 income/year after age 60? Also, consider that the defined benefit insulates you from multiple kinds of risk: Remember that most of your assets are outside the pension and subject to all these risks already. Do you want to add to that risk by taking this money out of your pension? One intermediate strategy to look at - again for the purposes of comparison - is to take the money now, invest it for 10 years without withdrawing anything, then buy an annuity at age 60. If you're single, Canadian annuity rates for age 60 appear to be between 4-5% without index linking - it may not even be possible to get an index-linked annuity. Even without the index-linking you'd need to grow the $115K to about $240K in 10 years, implying taking enough risks to get a return of 7.6% per year, and you wouldn't have index-linking so your income would gradually drop in real terms." "Some of the other answers recommended peer-to-peer lending and property markets. I would not invest in either of these. Firstly, peer-to-peer lending is not a traditional investment and we may not have enough historical data for the risk-to-return ratio. Secondly, property investments have a great risk unless you diversify, which requires a huge portfolio. Crowd-funding for one property is not a traditional investment, and may have drawbacks. For example, what if you disagree with other crowd-funders about the required repairs for the property? If you invest in the property market, I recommend a well-diversified fund that owns many properties. Beware of high debt leverage used to enhance returns (and, at the same time, risk) and high fees when selecting a fund. However, traditionally it has been a better choice to invest in stocks than to invest in property market. Beware of anyone who says that the property market is ""too good to not get into"" without specifying which part of the world is meant. Note also that many companies invest in properties, so if you invest only in a well-diversified stock index fund, you may already have property investments in your portfolio! However, in your case I would keep the money in risk-free assets, i.e. bank savings or a genuine low-cost money market fund (i.e. one that doesn't invest in corporate debt or in variable-rate loans which have short duration but long maturity). The reason is that you're going to be unemployed soon, and thus, you may need the money soon. If you have an investment horizon of, say, 10 years, then I would throw stocks into the mix, and if you're saving for retirement, then I would go all in to stocks. In the part of the world where I live in, money market funds generally have better return than bank savings, and better diversification too. However, your 2.8% interest sounds rather high (the money market fund I have in the past invested in currently yields at 0.02%, but then again I live in the eurozone), so be sure to get estimates for the yields of different risk-free assets. So, my advice for investing is simple: risk-free assets for short time horizon, a mixture of stocks and risk-free assets for medium time horizon, and only stocks for long time horizon. In any case, you need a small emergency fund, too, which you should consider a thing separate from your investments. My emergency fund is 20 000 EUR. Your 50 000 AUD is bit more than 30 000 EUR, so you don't really have that much money to invest, only a bit more than a reasonably sized emergency fund. But then again, I live in rental property, so my expenses are probably higher than yours. If you can foresee a very long time horizon for part of your investment, you could perhaps invest 50% of your money to stocks (preference being a geographically diversified index fund or a number of index funds), but I wouldn't invest more because of the need for an emergency fund." The assumption that house value appreciates 5% per year is unrealistic. Over the very long term, real house prices has stayed approximately constant. A house that is 10 years old today is 11 years old a year after, so this phenomenon of real house prices staying constant applies only to the market as a whole and not to an individual house, unless the individual house is maintained well. One house is an extremely poorly diversified investment. What if the house you buy turns out to have a mold problem? You can lose your investment almost overnight. In contrast to this, it is extremely unlikely that the same could happen on a well-diversified stock portfolio (although it can happen on an individual stock). Thus, if non-leveraged stock portfolio has a nominal return of 8% over the long term, I would demand higher return, say 10%, from a non-leveraged investment to an individual house because of the greater risks. If you have the ability to diversify your real estate investments, a portfolio of diversified real estate investments is safer than a diversified stock portfolio, so I would demand a nominal return of 6% over the long term from such a diversified portfolio. To decide if it's better to buy a house or to live in rental property, you need to gather all of the costs of both options (including the opportunity cost of the capital which you could otherwise invest elsewhere). The real return of buying a house instead of renting it comes from the fact that you do not need to pay rent, not from the fact that house prices tend to appreciate (which they won't do more than inflation over a very long term). For my case, I live in Finland in a special case of near-rental property where you pay 15% of the building cost when moving in (and get the 15% payment back when moving out) and then pay a monthly rent that is lower than the market rent. The property is subsidized by government-provided loans. I have calculated that for my case, living in this property makes more sense than purchasing a market-priced house, but your situation may be different. "Is the mortgage debt too high? The rental property is in a hot RE market, so could be easily sold with significant equity. However, they would prefer to keep it. Given the current income, there is no stress. However in absence of any other liquid [cash/near cash] assets, having everything locked into Mortgage is quite high. Even if real estate builds assets, these are highly illiquid investments. Have debt on such investments is risky; if there are no other investments. Essentially everything looks fine now, but if there is an crisis, unwinding mortgage debt is time consuming and if it forces distress sale, it would wipe out any gains. Can they afford another mortgage, and in what amount? (e.g. they are considering $50K for a small cabin, which could be rented out). I guess they can. But should they? Or diversify into other assets like stocks etc. Other than setting cash aside, what would be some good uses of funds to make sure the money would appreciate and outpace inflation and add a nice bonus to retirement? Mutual Funds / Stocks / bullions / 401K or other such retirement plans. They are currently in mid-30's. If there is ONE key strategy or decision they could make today that would help them retire ""early"" (say, mid-50's), what should it be? This opinion based ... it depends on ""what their lifestyle is"" and what would they want their ""lifestyle"" to be when they retire. They should look at saving enough corpus that would give an year on year yield equivalent to the retirement expenses." Which is generally the better option (financially)? Invest. If you can return 7-8% (less than the historical return of the S&P 500) on your money over the course of 25 years this will outperform purchasing personal property. If you WANT to own a house for other reason apart from the financial benefits then buy a house. Will you earn 7-8% on your money, there is a pretty good chance this is no because investors are prone to act emotionally. Lucky you - here where I live that does not  work, you put money on the table year 1. Anyhow... You HAVE to account for inflation. THat is where the gain comes from. Not investment increase (value of item), but the rent goes higher, while your mortgage does not (you dont own more moeny in 3 years if you keep paying, but likely you take more rent). Over 5 or 10 years the difference may be significant. Also you pay back the mortgage - that is not free cash flow, but it is a growth in your capital base. Still, 1 flat does not make a lot ;) You need 10+, so go on earning more down payments. Can you wait until you retire before needing the money? Will you buy your first house sometime in the future? If yes, then favour an RRSP. Remember that you are rewarded by paying less tax for having the foresight and commitment to defer income taxes until your retirement, when you are presumably earning less income. Are your household expenses higher than 28% of your gross income? 35% of your net income? Does making your mortgage payments stress you? Are interest rates lower than their historical norm and an increase would cause you difficulty? If yes, then favour your mortgage. Do you need this money before your retire? Does your TFSA earn more interest than your mortgage costs your? If yes, then favour a TFSA. Does an alternative investment earn more than your TFSA? Can you handle an uptick in your mortgage interest rate? If yes, then favour the alternative investment and not your RRSP, mortgage or TFSA. "with 150K € to invest to ""become a landlord"" you have several options: Pay for 100% of one property, and you then will make a significant percentage of the monthly rent as profit each month. That profit can be used to invest in other things, or to save to buy additional properties. At the end of the 21 years in your example, you can sell the flat for return of principal minus selling expenses, or even better make a profit because the property went up in value. Pay 20% down on 5 flats, and then make a much a smaller profit per flat each month due to the mortgage payment for each one. At the end of the 21 years sell the flats. Assuming that a significant portion of the mortgage is paid off each flat will sell for more than the mortgage balance. Thus you will have 5 nice large profits when you sell. something in between 1 and 5 flats. Each has different risks and expenses. With 5 rental properties you are more likely to use a management company, which will add to your monthly cost." Fahad, in finance we make a distinction between investments that tend to grow in value and assets that hold value.  Investments that grow in value are generally related to investing in well-thought out businesses.  Investments can be done in retirement accounts through stocks and bonds but also owning part of a business directly.  Good investments make more and more money off the money you put in. Common examples of assets include gold and other non-productive property like real-estate you don't rent or cars.  You can even have some assets in your retirement account as many would argue government bonds behave like assets.  All of these things tend to (more or less) go up in value as the cost of everything goes up in value, but don't tend to make you any excess money in the long run. There is certainly a place for both investments and assets.  Especially as a young person it is good to lean toward investments as you likely have a lot of time for the money to grow as you get older.  As RonJohn suggests, in the United States this is fairly easy as retirement accounts are common there is a long history of stable financial law even in crises.  Pakistan's institutions are fairly stable and improving but still assets and investments of all types can be riskier. So, I recommend taking your father's advice... partially. Having some assets are good in riskier situations, but good investments are generally the way to grow comfortably wealthy.  A good mix of the two is the way to grow wealthy slowly while protecting yourself from risk.  You, your father and your neighbors know you local situation better than I, who has only visited a number of Pakistan's neighboring countries, so I can't really give more detailed advice but hopefully this gets you started.