What is retirement? Changing your perspective through property investing.
For most of us following a professional career path, retirement means the same thing. We have been taught that to retire you must pay into your company pension scheme, work until you hit 65 and then start to collect the return on your years of saving. At that point, you think, your life will have been well spent and retirement will be worth the wait. But that doesn't have to be the way.
On a simple level, retirement to me means replacing my income with something I do not physically need to spend time working on. Generating the same level of income I need to pay my bills and lifestyle expenses but without working the 9am-5pm (or 8am-7pm or longer!). If I had something that paid me the same amount of money as my monthly salary right now, I could technically "retire". So why do we put everything into pension funds that we cannot draw down on until we are into our twilight years? That makes no sense to me anymore.
While this all sounds great, how do you actually do it? How do you replace your income?
Well, you need to invest and buy assets that generate that income for you. There are lots of different ways to do that and I will explore those more in another post but for me the biggest one we are focussing on as a family is property.
In the UK we have system that is still quite favourable towards property investment. People need to rent properties and landlords are happy to provide them. Buy-to-Let mortgages are still pretty easy to obtain at the time of writing and there are plenty of strategies to help you accelerate your investments along the way.
I had that lightbulb moment when I saw the following explanation, so I wanted to share it here in case it helps someone else re-think what retirement really means:
- Your current monthly income, say £4,000. That covers your expenses, bills, savings, lifestyle costs, etc.
- You buy a property that rents out for £1,000 per month and after the mortgage and costs, you are left with a profit of £300 per month. That might not sound much but all of sudden, you only need to earn £3,700 per month from your job in order to maintain your current lifestyle. That might give you a little more security, or allow you to move jobs. But it gets better.
- After a little while, your property has gone up in value, or you have added value some other way (my preferred route), so you refinance it to release some equity. Your current profit drops to £200 per month with the new higher mortgage. BUT... you buy another property that generates £300 per month profit, so now you have a rental profit of £500 per month from the two properties.
- Hopefully you are starting to see a pattern here and this gets repeated... £800 per month with the next property, £1,100 per month with the property after that.... onwards towards your goal of £4,000 per month.
In this example (using made up numbers) I have assumed you have added £300 per month profit each time you refinance and buy a new property. I think that is a realistic figure. You might achieve more. You might be comfortable getting less. It depends on your circumstances and where in the world you are investing but these figures work for me for this example. So on this basis, you would need to own and rent out a portfolio of 13 or 14 properties before you reach the goal of having a profit of £4,000 per month. But that is perfectly achievable.
It is also important to remember that this is not a case of "retire or don't retire", "on or off", "black or white". Along the way to that goal your circumstances will improve and accelerate rapidly.
For example, say you get half way to your goal, you own 6 or 7 properties and are making around £2k per month in rental profit. That is a huge step forward from where you started. It means your job now only needs to pay you £2k per month if you want to maintain your current lifestyle, which might mean you could look for an entirely different job that you like better, or work less hours. Or you could use all of that additional income each month to save towards further property deposits. That £24k per year of additional profit could be the deposit for another property outside of any refinancing strategy you are following, so you start adding properties to your portfolio more quickly. The more quickly the properties add up, the more quickly your income grows.
So although the end goal might sound daunting, the process is there to be enjoyed and to improve your life along the way.
Because of this idea of replacing my income, I buy investment properties for their income producing potential and worry less about what capital growth I might achieve. I know that the big money in property is made through capital growth over time but that is an aside for what I am trying to achieve for my family. Once we get to the stage where my income is replaced by rental profit, I can choose whether or not to continue working as a lawyer, or simply step back and do something else. But I do not need to wait until that point to have a change in lifestyle, and that is an exciting prospect as I progress along this journey.
Let me know your thoughts on your own property investment journey, or other ways you are looking to replace your income outside of the traditional pension scheme.
Thanks for reading.
Jake
For most of us following a professional career path, retirement means the same thing. We have been taught that to retire you must pay into your company pension scheme, work until you hit 65 and then start to collect the return on your years of saving. At that point, you think, your life will have been well spent and retirement will be worth the wait. But that doesn't have to be the way.
On a simple level, retirement to me means replacing my income with something I do not physically need to spend time working on. Generating the same level of income I need to pay my bills and lifestyle expenses but without working the 9am-5pm (or 8am-7pm or longer!). If I had something that paid me the same amount of money as my monthly salary right now, I could technically "retire". So why do we put everything into pension funds that we cannot draw down on until we are into our twilight years? That makes no sense to me anymore.
While this all sounds great, how do you actually do it? How do you replace your income?
Well, you need to invest and buy assets that generate that income for you. There are lots of different ways to do that and I will explore those more in another post but for me the biggest one we are focussing on as a family is property.
In the UK we have system that is still quite favourable towards property investment. People need to rent properties and landlords are happy to provide them. Buy-to-Let mortgages are still pretty easy to obtain at the time of writing and there are plenty of strategies to help you accelerate your investments along the way.
I had that lightbulb moment when I saw the following explanation, so I wanted to share it here in case it helps someone else re-think what retirement really means:
- Your current monthly income, say £4,000. That covers your expenses, bills, savings, lifestyle costs, etc.
- You buy a property that rents out for £1,000 per month and after the mortgage and costs, you are left with a profit of £300 per month. That might not sound much but all of sudden, you only need to earn £3,700 per month from your job in order to maintain your current lifestyle. That might give you a little more security, or allow you to move jobs. But it gets better.
- After a little while, your property has gone up in value, or you have added value some other way (my preferred route), so you refinance it to release some equity. Your current profit drops to £200 per month with the new higher mortgage. BUT... you buy another property that generates £300 per month profit, so now you have a rental profit of £500 per month from the two properties.
- Hopefully you are starting to see a pattern here and this gets repeated... £800 per month with the next property, £1,100 per month with the property after that.... onwards towards your goal of £4,000 per month.
In this example (using made up numbers) I have assumed you have added £300 per month profit each time you refinance and buy a new property. I think that is a realistic figure. You might achieve more. You might be comfortable getting less. It depends on your circumstances and where in the world you are investing but these figures work for me for this example. So on this basis, you would need to own and rent out a portfolio of 13 or 14 properties before you reach the goal of having a profit of £4,000 per month. But that is perfectly achievable.
It is also important to remember that this is not a case of "retire or don't retire", "on or off", "black or white". Along the way to that goal your circumstances will improve and accelerate rapidly.
For example, say you get half way to your goal, you own 6 or 7 properties and are making around £2k per month in rental profit. That is a huge step forward from where you started. It means your job now only needs to pay you £2k per month if you want to maintain your current lifestyle, which might mean you could look for an entirely different job that you like better, or work less hours. Or you could use all of that additional income each month to save towards further property deposits. That £24k per year of additional profit could be the deposit for another property outside of any refinancing strategy you are following, so you start adding properties to your portfolio more quickly. The more quickly the properties add up, the more quickly your income grows.
So although the end goal might sound daunting, the process is there to be enjoyed and to improve your life along the way.
Because of this idea of replacing my income, I buy investment properties for their income producing potential and worry less about what capital growth I might achieve. I know that the big money in property is made through capital growth over time but that is an aside for what I am trying to achieve for my family. Once we get to the stage where my income is replaced by rental profit, I can choose whether or not to continue working as a lawyer, or simply step back and do something else. But I do not need to wait until that point to have a change in lifestyle, and that is an exciting prospect as I progress along this journey.
Let me know your thoughts on your own property investment journey, or other ways you are looking to replace your income outside of the traditional pension scheme.
Thanks for reading.
Jake
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