Could your Stamford property save you from PENSION OBLIVION?

If you were born in the early 1970’s or late 1960’s, and 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’ or as we now call it ‘National Insurance’ (although there are certain ‘get out of jail’ cards if they haven’t). 

As a household, could you live on just over £12k a year?

However, could the Stamford property you are living in save you from retirement poverty?  You see, a regular retirement income is vital, and the bricks and mortar you own in Stamford could provide a way for you to finance life when you retire.

If you are in your 30’s, instead of saddling yourself with rising mortgages, going from your ‘first time buyer’ flat, to a terrace, to the semi and then the large detached house, you could instead keep your terrace 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 Stamford house in the spring of 1983 for £35,000, using a 75% mortgage and 25% deposit, (meaning your deposit would be £8,750). Today, that Stamford property would have risen in value to £224,641, a rise of 541.8%. However, when you look at the growth on just your deposit, the rise is even better ... instead of 541.8%, we see a rise of 2467% (remembering that the mortgage would have been paid off).

However, buy-to-let is not all about capital growth.  In retirement, income is more important than capital growth, as monthly rent is the key to a steady income.

So surely the best strategy is to buy those Stamford 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 Stamford? Possibly, but the properties that offer these higher yields (in the order of 6% to 9% per year) tend to be in places such as the Essex Road area in Stamford.  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 4% to 5% per year (i.e. lower yields), but in a more up-market area such as Tinwell Road / Roman Bank area. 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 Stamford property market; high yields, high capital growth, what to buy, what not to buy and where to buy in the Stamford Property market.

Please contact me via david@upp-property.co.uk or call me on 01780 484 554, and I will be happy to chat it all through with you.