I met up with a friend this week who is also a landlord. He is from the south west part of the country and also uses the services of a professional managing agent to manage his portfolio. As we were talking, over some light lunch, the subject had to come up and so we obliged. My friend told me how he was going to rely on his property portfolio to save himself from pension oblivion. This of course got me thinking so I thought I’d share those thoughts with you below.
So, in terms of your working life, consider this: 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 national insurance contributions. As a household, could you live on just over £12k a year? I think for most Walsall landlords (if not all) the answer would be a resounding ‘no’.
However, could the Walsall property you’re living in save you from poverty when you reach retirement? A regular income is vital in retirement, and the bricks and mortar you own in Walsall could provide a way for you to finance the rest of your 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 a semi-detached, and then a large detached house, you could instead keep your terraced or small semi, turning it into 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 property investment in Walsall is known as leverage. So, for example, if 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.
If you had bought a house in Walsall in the Spring of 1983 for £20,000, using a 75% mortgage and 25% deposit, meaning your deposit would be £5,000.
Today, that property would have raised in value to £125,950 – a rise of 529.75%.
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, is the best strategy to buy those Walsall properties with the high rents, when compared to the value of the property?
Possibly, but the properties that offer these higher yields (in the order of 6% to 8% per year) tend to be in such areas as Caldmore, Pleck, Palfrey, Birchills or Chuckery in Walsall, as historically they haven’t offered such good capital growth when compared to the borough average, have a higher tendency for void periods, and such properties tend to attract rented property 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 to buy a property in Walsall with relatively smaller rental returns of 4% to 6% per year (i.e. lower yields), but in a more affluent area such as Tamebridge, Aldridge or Parkhall.
Properties such as these tend to suffer from less void periods (i.e. when there is no tenant in the property paying rent) and they have usually had better long term capital growth when compared to the borough average.
Every private property landlord in Walsall 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 Walsall Property Market, high yields, high capital growth, what to buy, and what not to buy, and where to buy can always be found in my Walsall Property Blog.
Phone: 01922 311016