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 Clacton 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 Clacton 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 Clacton house in Spring of
1983 for £25,000, using a 75% mortgage and 25% deposit, (meaning your deposit
would be £6,250). Today, that Clacton property would have risen in value to £172,958,
a rise of 591.8%. However, when you look at the growth on just your deposit,
the rise is even better ... instead of 591.8%, we see a rise of 2667% (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 Clacton
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 Clacton? 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 Regency Lodge or Swift Avenue in Clacton,
historically they haven’t offered such good capital growth when compared to the
town 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 Holland Road. 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 Clacton property market, high yields, high
capital growth, what to buy, what not to buy and where to buy in the Clacton
Property market can always be found on the Clacton Property Blog www.clactonproperty.blogspot.co.uk
