How many buy-to-lets do you need to be able to retire?
Investing in buy-to-let is not only a practical way to make passive income but, if scaled properly, can provide a sufficient retirement income, and can even be passed down as an inheritance. Assuming that by the time you retire, your properties are more mortgage-free, it means that you can enjoy an additional income stream while the costs of owning a buy-to-let property are paid by your tenants. So, how many buy-to-lets does one need to retire?
Figuring out your retirement income needs
Everyone’s needs are different. The question shouldn’t really be about how many investment properties you need own to retire, but how much income do you need/require for your retirement and match the market conditions to that equation. Moreover, you will have different requirements depending on your situation:
- You may have a sizeable retirement fund already, but you need an extra level of income.
- You may be a seasoned landlord and only count on your retirement income from your property portfolio.
Moreover, when figuring out your retirement income goal, you should also think about:
- At what age do you want to retire?
- Do you have any dependents that may rely on you, such as children (& their education fees?)
- Will your living expenses increase or decrease?
- Will you still have other liabilities at the time of retirement (such as mortgages?)
Investment property retirement formula
When it comes to retiring solely as a result of rental income, the maths is quite simple.
You will need just two formulas:
- Your monthly retirement needs ÷ The cash flow per rental property = The number of buy-to-let properties you will need
- Cash flow = income – expenses
Once you’re clear on your monthly retirement income goal, you can work backwards from there to figure out how many rentals you’d need to reach that goal.
So, if your retirement goal is to have 5,000 GBP per month, and on average, minus all expenses, you can estimate to get 1,000 GBP rental income from one property, you will then need five rental properties to achieve your desired retirement income from just rental properties.
How to choose the buy-to-let?
Ideally, you would want to look for buy-to-let properties that can provide you with the highest return on your investment. There are various aspects that influence this, such as:
- Property’s location
- Property’s price
- Property financing
- Property’s rental income
- Property’s price growth
When researching properties, pay attention to the property’s costs and rental rates, as well as rental demand in the location you are looking to buy. Also, decide what level of involvement you want to have with your rental properties – most likely you would like to find a turnkey solution provider, such as Lifestyle Property – that can source, finance, and then manage and rent your property.
Also, consider that your property might not be rented out 100% of the time. How will that affect your plans and ability to pay off the mortgage? Will that highly influence your overall income levels?
Simply being aware of these factors before buying a buy-to-let property will put you as a landlord at a significant advantage. You can work out a plan and make an informed decision about your plans and financial abilities.
Related: The pros of new build investment properties
Holistic retirement planning
While this article focuses on figuring out how many buy-to-let properties do you need to retire happily, we do need to mention that it is wise to have your investment portfolio diversified.
Lifestyle Property is a property broking division of Business Class Group, which also focuses on wider retirement planning, tax, and investment planning. Our in-house financial advisers suggest having a few sources of income for retirement.
- A workplace or private retirement plan, in which you can invest part of your monthly income is a pillar of your retirement plan.
- Then, you may consider solutions such as regular savings plans, or fixed-income investments, which are usually on the “safer” side of investing. Some people also look into trading, or stocks markets, or choose to let professional fund managers grow their wealth.
Related: Is the property a viable choice for retirement?
- Property investments are an important, if not crucial part of retirement planning. Often, people are afraid they may outlive their retirement funds, and with property, they can assume having the rental income continuously and rising with inflation. Moreover, the property can be sold to access cash, can be used to release some of the equity, or passed down as an inheritance to children. This makes the property as an investment for retirement an incredibly excellent choice.
How many buy-to-let properties do you need to retire?
For portfolio diversification reasons alone, the buy-to-let property can be a worthwhile investment for your retirement if you prepare yourself and go about it the right way.
- Know your retirement income needs
- Don’t rely on property income alone
- Invest in locations with good rental predictions
Many financially independent people have built their wealth with income-producing buy-to-lets. It’s important to remember that building a successful property portfolio takes time, finances, and knowledge. It also requires planning and setting smart retirement goals. As your circumstances or even property or financial market change, it’s good to have flexibility and room to adjust.
If you are interested in the latest turkey solutions offered by Lifestyle Property – or even to have a chat about your retirement plans – contact us today to make the first step in your property investment journey!
