Could property investment be the key to unlocking early retirement?
It has long been the norm to land a good stable job, work your way up and retire with a solid pension. Your parents probably advised you to do this when you were younger; they might even be recommending you to do this now. But is this the right way? The only way? Maybe not.
There has been a shift, particularly since the pandemic, where side hustles and entrepreneurial ventures are taken up by so many people in a bid to build a future for themselves. Being in control of your destiny and generating your own income so that you are not beholden to a 9-5 job and a salary is a very enticing prospect for many of us.
Surveys show that Millennials no longer expect to stay in the same job for their whole career. It is now acceptable to have an entire industry change, completely turning your life around and following a different path. The story we've been told for years - to get a good job and stick at it until you are promoted to a senior or managerial role, where you can then retire on a good pension in your mid-60s - seems to be just that, a story.
Spend a few minutes online searching for get-rich schemes or passive income options, and property will likely pop up. Property investment has created many wealthy people; most millionaires will have at least some of their cash invested in property. And so the two seem to go hand in hand - wealth and property investment.
And it's clear to see why. Once you have purchased the property, you own the asset and benefit from capital appreciation if that asset's value increases. Sounds good, doesn't it? But the same could be said for a nice Rolex watch or a classic car, right?
The difference with property is that you generate income from the asset whilst you own it, and the potential capital increase. To be able to do the same from a Rolex, you'd have to rent it out to others to wear.
And so, many see property investment as the ultimate cash-generating investment. And, you can leverage the purchase (borrow a mortgage) to pay for it so that you are not using all of your cash to pay the purchase price, which means that when you buy a property for, say, £100k, you are only paying £25k of your own money. The mortgage pays the rest, and the loan payments are covered by the rent paid by the tenants. It is a win-win situation!
But could you retire based on renting out properties?
Perhaps you are in your 40's, looking at the prospect of another 20-25 years of working before you can consider retirement. An ominous thought. But, if you invested your savings into property, could you generate enough revenue to replace your salary and retire early? Yes, you probably could.
This is in no way a get-rich-quick scheme. It will take a few years and quite a lot of cash, but if you have enough to get started, it can snowball quite quickly, and 20 years of work could be reduced to just 10. Early retirement, financial freedom, spending your time doing exactly what you want rather than being chained to a desk - sounds fantastic, doesn't it!?
But there are some key things that you need to understand before you run off to your boss and hand in your notice:-
- You will unlikely be able to retire early from just one property investment, so this will need to be a commitment to building a portfolio of properties.
- It won't be quick. Property purchases alone can take months, and if you have enough savings to purchase one property, you will need to wait until you have built up more savings or release some equity from your home to buy more properties.
- The general rule of thumb is that you will need to invest 30% of the property purchase price when you buy a property for investment - this will be a 25% deposit and enough to cover the associated fees and stamp duty taxes.
Each property should generate a few hundred pounds monthly, so you will need multiple properties to replace a salary.
If you are going to build a portfolio, speak to your accountant or a tax advisor first to ensure that you are setting yourself up correctly for your plan from the outset; otherwise, you could end up paying more tax than you need to.
If you are considering investing in property and need help or advice on getting started, contact our team of property experts today.