The below case study was written before the credit crunch & although property prices have fallen it should be pointed out that the properties are providing a very good return. The investment has always been viewed as a long term and historically house prices have always bounced back.
This is a true life case study from one of the directors of Citrus Financial.
"At the age of 38 I was paying £250 a month into a pension fund, which at my last pension statement was estimated to pay me an income of £9,200 per annum on retirement at age 65. Rather disillusioned I froze this pension. To see the Financial Services Authority pension calculator click here.
I was lucky enough to have a fair amount of equity in my residential property and remortgaged to raise £80,000 capital, which cost me roughly the same amount as I was paying into my pension (ie. £250pm).
I have used this money to buy 3 investment properties between the end of 2006, beginning of 2007.
Total market value at purchase £368,000
Total Buy to Let mortgage amount £293,000 (used a proportion of £80,000 on fees etc.)
Rental income minus Buy to Let Mortgage payments minus Tax etc = £160 profit per month
Taking into account the fact that my residential mortgage has increased by £250pm my new property pension costs me £90pm (against the £250pm I was paying on my traditional pension)
If property prices continue to rise at the current rate of 11%pa in 20 years my property portfolio will be worth £2,967,000 (a profit of £2,674,000)
Pessimistically if property prices rise at 7%pa in 20 years my property portfolio will be worth £1,131,000 (a profit of £838,000)
My rental income should increase over time giving a bigger monthly profit
As the equity in my property portfolio increases I intend to take capital out of those properties to buy an additional property every year.
Despite advising clients for years on property investment I must admit it was a daunting step to take and the level of overall debt was a bit scary (and made my wife very nervous!!!). However apart from a few niggles I haven't had any problems letting out the properties or with my tenants.
I have simplified the above figures, but they are reasonably accurate.
I did jump in with both feet buying 3 properties within a short space of time, but Citrus Financial can help regardless of how far you want to dip your toe into the property investment market. If you wish to have a chat about property investment please don't hesitate to give us a call."
