How Many Properties Do I Need to Become Financially Free?
Whether you are new to property investment or an experienced landlord, a question you will have asked at some point in your journey will have been: How Many Properties Do I Need to Be Financially Free?
The path to financial freedom through property investment is a popular route for many UK-based investors. In this article, property sourcing agents: Property Guru focus on the bustling Greater Manchester property market and building a portfolio of single buy-to-let properties to help you navigate your way to financial freedom.
Understanding Property Investment in Manchester
Manchester's thriving property market has been a beacon for investors. The urban expanse, rich in history and culture, now promises both stability and lucrative returns in the property sector. For many property investors, this city has become the first step toward achieving a monthly passive income.
Greater Manchester contains ten metropolitan boroughs: Manchester, Salford, Bolton, Bury, Oldham, Rochdale, Stockport, Tameside, Trafford and Wigan. With so many diverse boroughs and neighbourhoods, there are property opportunities for most budgets and strategies.
For the purpose of this blog post, we will use a general property example consisting of a 2-bed terraced house which can be typically purchased for £150,000 in good condition. You can of course pay much more in the likes of Salford or Trafford, and in areas such as Wigan and some parts of Oldham, pay less.
How Many Properties Do You Need to Own to Live Off?
Manchester's property market has been a magnet for investors, especially in the buy-to-let sector. For someone aiming to achieve a monthly income of £3,000, the number of properties you'd need will vary depending on the property's price and rental income as well as how you intend to finance the purchases.
Let’s take two scenarios as examples:
Properties priced at £150,000: With an average rent of £800 per month, the annual gross rental yield would be approximately 6.4%. To achieve a monthly income of £3,000, you'd need around 4 properties of this type, assuming you owned the properties outright.
Properties priced at £200,000: If you're achieving a rent of £1,200 per month, the annual gross rental yield increases to 7.2%. Here, to reach the desired £3,000 monthly income, you'd require 3 properties with a total purchase spend of £600,000 - the same as if you were to buy 4 properties at £150,000 (not including buying fees, stamp duty etc).
How Many Properties Do You Need to Make a Living in the UK?
Understanding the UK Living Cost and Its Implications
To solely depend on property rental in the UK, one must understand the average living costs, which can vary. However, for many, £3,000 is a reasonable sum, accounting for a comfortable lifestyle. As discussed, depending on the property's value and rent, you may need 3-4 properties to achieve this:
With properties priced at £150,000 and renting at £800 per month, you'd need at least 4 properties.
For properties priced at £200,000 yielding £1,200 per month, you'd require around 3 properties.
However, it's vital to remember that these figures are gross returns. Once expenses like maintenance, agency fees, and potential mortgage costs are factored in, the net income can be significantly lower.
Investment Strategies for Manchester Properties
Single Buy-To-Let: This is the most straightforward approach. It involves purchasing a property and renting it out. As discussed earlier, based on the price and rent, this strategy can lead to substantial returns over time. Capital growth in Manchester is tipped to be 25% over the next 5 years, further increasing returns on investment separate to the rental income.
HMOs (Houses of Multiple Occupation): These are properties rented out to three or more unrelated individuals. HMOs can generate higher rental yields than traditional buy-to-lets, especially in areas with high student populations like Manchester however, with a lot of Manchester being affected by Article 4, new HMO conversion opportunities are becoming hard to come by. It is always worth carrying out a comparison between one HMO property and several single buy-to-lets to see which route suits your strategy and budget best.
Serviced Accommodation: These are furnished properties available for both short and long-term stays, offering facilities similar to hotels. Given Manchester's appeal as a travel destination and business hub, serviced accommodations can prove very profitable when done right and positioned in the right area. Nightly stays are often upwards of £200 for a terraced property but remember you will have higher running costs when compared with a buy-to-let property. Cleaning, linen, check ins, as well as managing guest queries and maintenance make for a hands-on investment.
Buy-to-Let Investment Property Example Offered By Property Guru:
This property is advertised at £130,000 and is sold tenanted at £775pcm. If purchasing with an interest only mortgage at a rate of 5%, the monthly cash flow after mortgage and letting agent fees would be around £276.
To reach a goal of £3,000 per month income, you would need 11 of these properties when buying with a mortgage, compared to just 5 if buying with cash.
You can view the full details and financial breakdown for this off-market investment property in Manchester here.
HMO Investment Property Example Offered By Property Guru:
This 5-bed ensuite HMO property is advertised at £350,000 and is fully tenanted to the local council at a gross income of £43,701 per annum before letting fee and bills. The net income is around £2,081 per month, so two of these properties would be required to meet your goal, or one HMO and a few single buy-to-lets to diversify the portfolio.
To see the full financial breakdown and property details click here.
Buy-to-Let: Mortgage Vs. Cash
One of the major considerations for property investors is whether to buy with a mortgage or cash. While for most people the decision is based on cash reserves, rather than preference, let's take a look at the options and how your goals can be reached.
Buying with Cash: This route offers a higher net monthly income since there are no mortgage payments. It provides peace of mind without debt but ties up significant capital in one asset. Whilst you will reach your monthly income goal through less properties, if one tenant fails to pay then you could find a major portion of your income is wiped out. Smaller portfolios can be viewed as higher risk compared to buying more properties and leveraging a mortgage to do so.
Buying with a Mortgage: Leveraging a mortgage, especially in a low-interest-rate environment, can be strategic. On a £150,000 property with a 75% loan-to-value interest-only mortgage (5.5%), you'll be looking at monthly payments of approximately £516. This method allows investors to buy multiple properties, spreading risk, and potentially achieving a higher overall net income, especially when property values rise. Your monthly income per property will be lower than if you own outright, so it depends very much on your attitude to risk and taking on debt to fund your portfolio.
Letting Agency Fees and Maintenance Costs
Once you've acquired your properties, the monthly costs don’t end at mortgage payments. Letting agency fees in Manchester typically hover around 10% plus VAT of the monthly rental income. On an £800 rent, that's a deduction of £96, leaving you with £704. Then there's maintenance. While costs vary, it’s wise to allocate a percentage (say 5-10%) of the monthly rent for this purpose. Annual gas safety checks, 5 yearly electrical checks and 10 year EPC certificates all add up in addition to insurance payments.
Expertise in the Field: Property Guru's Role
Property Guru, with its expert property sourcing agents in Manchester, has significantly impacted the city's real estate market. Simon Hardingham, the director, not only boasts a successful property portfolio but has assisted hundreds of investors in achieving their goals. Under his guidance, both novices and experienced investors have grown their portfolios and been able to achieve financial freedom from cash flow.
Want to know how Property Guru can help you achieve your goals in property? A free, no obligation consultation is a great way to start, so contact the team today to find out more.
What Are the 7 Levels of Financial Freedom?
Achieving financial freedom is a journey, and for ease of understanding, it’s often segmented into levels:
Financial Stability: Enough savings to cover emergencies.
Financial Security: Essential expenses covered without relying on a job.
Financial Flexibility: Ability to make some lifestyle and investment choices without financial constraints.
Financial Independence: Living comfortably without relying on employment.
Financial Freedom: Affording your dream lifestyle without working.
Financial Abundance: Wealth exceeds lifestyle desires; you're able to provide for others too.
Absolute Financial Freedom: Assets continually grow, and wealth is generational.
In Conclusion
Achieving a monthly income of £3,000 from property investments in Manchester requires both strategic planning and a keen understanding of the local market. Whether you opt for fewer pricier properties or several lower-priced ones, the route to financial freedom is paved with informed decisions, smart leveraging, and a thorough understanding of ongoing costs.
If you're on the path to financial freedom or just starting, Manchester's property market offers a dynamic playground for both new and seasoned investors. Understanding your goals, costs, and the local market can help you carve a lucrative path to property success and that is where Property Guru come in. Experts in the selling and buying of investment property in Manchester, the team are here to help you achieve your goals.
Disclaimer
This blog post serves as a guide only and includes general numbers and workings out. Always consult a financial professional to discuss your circumstances before investing in property or elsewhere. Property Guru are not licensed investment advisors.
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