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 Melton Mowbray 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 Melton Mowbray could provide a way for you to finance
life when you retire.
If you are in your
30’s, you could 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 Melton Mowbray house in Spring
of 1983 for £25,000, using a 75% mortgage and 25% deposit, (meaning your
deposit would be £6,250). Today, that Melton Mowbray property would have risen
in value to £168,458, a rise of 541.8%. However, when you look at the growth on
just your deposit, the rise is even better ... instead of 541.8%, we see a rise
of 2467% (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 Melton Mowbray
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 Melton Mowbray? Possibly,
but the properties that offer these higher yields (in the order of 6% to 9% per
year) tend to be in such areas as Asfordby in Melton Mowbray, historically they
haven’t offered such good capital growth when compared to the town average.
Another strategy could be buy a property with relatively
smaller rental returns of 4% to 5% per year (i.e. lower yields), but in a more up
market area such as Burton Lazars. 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 town 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 Melton Mowbray property market, high yields, high capital
growth, what to buy, what not to buy and where to buy in the Melton Mowbray
Property market can always be found on the Melton Mowbray Property Blog or pop in and see me at our Burton Street office.
No comments:
Post a Comment