It is important for property investors to set and meet financial goals. Follow these steps to work out the number of properties you might need to meet your financial goals.
In this example, we will assume that you want to be able to earn enough from your property investment so that you do not need to work anymore.
Step 1 – Average Expenses
The first thing to do is to work out your average expenses each month. Have a look at your outgoings for the past 6 to 12 months and consider everything;
- holidays
- food shopping
- school fees
- tv subscription
- car expenses
- nights out
- gifts that you buy
Leave nothing out.
When you have done this, work out your average monthly expenses. Let us say for example that it is £2,700.
You might want to add some extra to give yourself an additional buffer. Let’s say 10 per cent and round it up to an even £3,000.
In this case, if £3,000 extra each month was coming into the household, all the outgoings would be covered, with a bit to spare and you would have the financial freedom you desire.
Step 2 – Number Of Properties
There is a wide range of properties that you could invest in but for this example, let us stick with an average three bedroom house that is going to be let to one family.
Most of the three bedroom houses we buy are for £70,000 – £85,000 before refurbishment. Once renovated are revalued at between £90,000 to £110,000 and rent for an average of £600 per month.
Let us stick with this example and use £600 as a suggested rental income.
Step 3 – Profit Per Property
You might look at your target figure of £3,000 and the average rent figure of £650 and conclude that you would need to invest in five properties to achieve your goal. However you need to be cautious and take into account void periods, where the property is not let, and any ongoing maintenance and repair costs.
We recommend allowing an additional 10 – 20% for void periods, maintenance, and repairs.
You will also need to deduct any monthly expenses (mortgage payments, letting agent fee, insurance) Let us say in this example it is £250 per month.
In a worst-case scenario, we would be making £210 per month on this house.
600 – 20% – 250 = £230
Step 4
Taking your target, in this case, £3,000 and dividing it by an approximate rental income of £230 gives us just over 13.
13 or 14 (three bedroom) properties is what you would need to achieve your £3,000 target.
Using a strategy of mortgaging and refinancing this is surprisingly achievable. We can talk you through this process and you can book a phone conversation with our team on our website.
Try this sum with your own finances to work out your own financial goal and to see how many three bedroom family houses you would need to invest in to achieve financial freedom.
Monthly expenses + 10% / (Rent – 20% – monthly expenses) = No. of properties needed for financial goal
Please note that different types of property achieve different rental income and require different mortgage repayments. There are many variables that will affect the final number of properties that you require to meet your financial goals. This should only be used as a rough guide.
