Five Year Retirement Plan

For many investors, early retirement is a key reason for investing in the first place. In this article, we lay out a complete five year retirement plan and how property can be used to retire in just a few short years.

Should You Use This Five Year Retirement Plan?

Generally speaking, property is a long-term investment, so if you’re looking for ‘overnight success’ this plan probably won’t be suitable for you. But if you’re looking to build a diverse portfolio that delivers capital growth and a passive income, this five-year investment plan could help you achieve the early retirement you deserve.

It’s important to remember that, like with all investments, the property market will fluctuate throughout your plan. There will be dips and there may be some void periods. In long-term investment strategies, it’s not uncommon for a portfolio to experience some highs and lows, but if you’re consistently reviewing your retirement investment, you’ll be more prepared for any market fluctuations.

The following five year retirement plan is an example of how investors could use property to retire in just five years, meaning the figures used may not be suitable for every investor, even though the theory remains the same. The plan is based on an investor having an initial deposit of £50,000 for their first investment property in year one and every year thereafter. After five years, this should create a strong portfolio of five properties to deliver long-term returns. While we have based this illustrative portfolio on £50,000 deposits, these could be lower – or higher – in ‘real world’ investments.

Additionally, these figures haven’t been calculated with unforeseen expenses or maintenance costs, and they also don’t consider the rental income you could receive.

How to Retire Through Property in Five Years

The five year retirement plan begins with a £50,000 investment. This will be the deposit for your first buy-to-let property, and will require you to apply for a mortgage for the remaining amount. A key advantage of this is that you’ll be able to build your capital via natural market growth, as well as having a passive income stream of profit once the mortgage-term has ended.

Once you’ve considered the natural increases in rental yields, the opportunities to build a potentially lucrative retirement investment portfolio become even clearer. The rental income on these properties are also one of two passive income streams you can expect throughout the five years, with the capital appreciation of the properties often providing an additional ‘lump sum’ on the sale of the portfolio.

It’s crucial to remember that these tend to be the longer-term benefits of investing in property for retirement, especially if the initial returns are minor. Instead, stay focused on the consistency of the rental income, which will gradually pay off your mortgage and often provide some profit at the end of every month.

Year 1

Begin with your £50,000 deposit and invest in a £200,000 off-plan property. If you choose a regenerative location, you could see some capital growth during the build period and have some profit tied up in the property upon completion.

Year 2:

In the second year of the plan, the focus will be on expanding your portfolio. When you invest in your second property, you’ll need another deposit of £50,000. This will be invested into another off-plan property, meaning both assets should be appreciating in value during the build periods.

Year 3:

By the third year of building your retirement investment portfolio, your first property will have completed. This means that although your monthly mortgage repayments will begin, you’ll also be able to start renting out the property. The rental income you receive should equal 125% of the mortgage repayments, so if you’re paying back £15,000 per year, your annual rental income should be around £18,000.

Similar to year one and year two, you’ll also be adding another property to your portfolio in the third year. With a total of three properties, you’ll gradually be building an off-plan portfolio with staggered completions.

Year 4:

The repayments on the completed properties from years one and two should now be covered by their rental income, while also accruing appreciating in capital. In the fourth year, you’ll be investing in another property with another deposit of £50,000. By this part in the plan, it’s possible that the deposit could be raised from the rental income accumulated by your previous properties.

Year 5:

This is the final year in the five-year retirement investment plan, and you’ll be adding the final property to your portfolio. By now, your focus will be more on maintaining your rental incomes and staying on top of the market than looking for your next investment.

About the Five Year Retirement Plan

With this particular five year plan, your first rental property will begin delivering a passive income upon completion, but the most significant milestone will be clearing your mortgage on the property. Once you’re mortgage free on this property, the income will be entirely profit and can be put towards other repayments.

Once your additional properties are being rented out and you begin to complete other mortgages, you’ll eventually be left with a strong portfolio of five properties that will bring early retirement within arms reach.

Over this five year period, you will have laid the foundations for your retirement investment portfolio which can either be sold upon completion or passed on to your relatives. This means that by the end of the holding period, you will have benefitted from the rental income from these properties, and if the market has reacted positively, will reap the rewards of the capital growth upon sale.

In this example, the capital growth is based on the assumption that if you bought a property worth £200,000 in 2020, this would then have grown in value to £400,000 in 2040. If this is expanded across your entire portfolio, the total value would be close to £2,000,000, without taking into account the rental income that you’ll accrue over the five-year period.

Like we said at the beginning, this five-year plan is not for investors looking for ‘overnight success’, it’s for those that want to build the solid foundations of a property portfolio that could lead to achieving financial objectives. It’s important to remember that this plan is meant for illustrative purposes only, which uses market research and rates at the time of writing.

Building Your Retirement Plan

Regardless of why you’re investing and what you’re investing in, it’s important to have a financial plan in place. If you’re investing in property for retirement, it’s crucial that you have a solid idea of how much money you already have, the amount you will need for retirement and how to get there.

For those who are financially prepared from the outset, retirement investments are usually a case of just maintaining a clear route to reaching different financial goals. On the other hand, if you don’t take the time to prepare, you might find yourself being forced to change your retirement lifestyle.

It’s also very important to ensure that you’re realistic with both your goals and your assets. Some investors can fall in the trap of having an inflated view of the income they could receive which can lead to problems. A better idea is to break down exactly how much you need and the lifestyle that you want.

At the same time, consider speaking to a financial professional who can help you build a plan that will work for you.

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