If you were born in the early 1970’s or late 1960’s, if you haven’t started to think about it yet, retirement is closer than you think. In fact the number of years you have left to work is less than the number of years you have worked. The basic state pension is worth £115.95 a week for a single person in 2015/16 (or £6,029 a year) and £231.90 a week for a couple (£12,118 a year) as long as your partner has paid their stamp (although there are certain get of jail cards if they haven’t).
As a household, could you live on
just over £12k a year?
However, could the property you
are living in, in Canterbury, save you from poverty when you reach retirement? You
see, a regular income is vital in retirement, and the bricks and mortar you own
in Canterbury could provide a way for you to finance life when you retire.
If you are in your 30’s, instead
of saddling yourself with bigger and bigger mortgages, going from your first
time buyer flat, to a terraced, to the semi and then the large detached house, you
could instead keep your terraced or small semi, turning it into buy a buy to let
property, let the rent pay the mortgage and then rely on capital growth to
provide you with a lump sum when you sell the property and retire. One of
the biggest plus points of buy to let is what is known as leverage. Let me
explain ... say you have a deposit of 25% and the value of the property rises
by 3% a year, your gains in fact multiply to 12%. However, if property
prices drop, 'leverage' can be catastrophic, as losses will also be multiplied.
Property values have dropped a number of times in the last 50 years, but they always
seem to bounce back ... property must be seen as a long term investment.
Let me explain how leverage could
work for you. If you had bought a Canterbury house in spring of 1983 for £60,000,
using a 75% mortgage and 25% deposit, (meaning your deposit would be £15,000).
Today, that Canterbury property would have risen in value to £434,274, a rise
of 623.8%. However, when you look at the growth on just your deposit, the rise
is even better ... instead of 623.8%, we see a rise of 2795% (remembering that
the mortgage would have been paid off).
However, buy to let is not all
about capital growth and in retirement, income is more important than capital
growth, as rent is the key to a steady income.
So surely the best strategy is to
buy those Canterbury properties with the high rents (when compared to the value
of the property). These are called high yield properties in the buy to let
world because the monthly return is so much greater. So surely they are the
best in Canterbury? Possibly, but the properties that offer these higher yields
(in the order of 5% to 6% per year) tend to be in such areas as Hales Place in Canterbury,
historically they haven’t offered such good capital growth when compared to the
city average, have a higher tendency for void periods and such properties tend
to attract tenants that have a greater propensity to be high maintenance.
Therefore, if a high maintenance
rental portfolio wasn’t for you, another strategy could be buy a property with relatively
smaller rental returns of 3% to 4% per year (i.e. lower yields), but in a more
up market area such as St Dunstans. Properties such as these tend to suffer
from less void periods (i.e. when there is no tenant in the property paying you
rent) and they historically have had better long term capital growth when
compared to the city average.
Every landlord is different and
every property is different. All I suggest to you is do your homework.
As regular readers will know, I
am happy to share my knowledge and experience of the Canterbury property market,
high yields, high capital growth, what to buy, what not to buy and where to buy
in the Canterbury Property market can always be found on the Canterbury Property
Blog www.canterburypropertyblog.com
.
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