I Promised You 16% Return On Investment. Let me Explain How …
If you didn’t make the last Property Meetup you missed learning how you can make a simple and straightforward 16.8% return on investment with buy to let property. Let me explain …
TLDR;
Income 8.8% (on your money)
Capital 2% growth è 8% (on your money)
8.8% + 8% = 16.8%
Don’t miss out on The Property Meetup again! Book here for Thursday 30th March
I’ll walk you through it step by step. I’ve got to warn you, that’ll mean a little bit of maths. I’ll keep it short and sweet as much as I can. If you want the spreadsheet behind it all, email me.
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Anyone Can Invest In Property
Before we start, this only works if we have some ground rules about who it applies to. If your situation doesn’t fit, don’t worry. It’ll still work but your numbers will be a bit different. We’ve got 16.8% to play with, so there’s some room for manoeuvre.
If you:
- Want a passive(ish) income
- Are a basic rate tax payer
- Own Less Than 10 Properties
then 16.8% is very achievable.
16.8% Return On Investment With Just 1 Buy To Let
You need £40,000. With that money, you can make £6,716 each year. That’s 16.8%
Buy a 1 bed flat, or a 2 bed flat, which in this area might cost you around £160,000. Use your £40,000 as deposit and get a 75% LTV mortgage.
(We’ve skipped over buying costs here which will add some extra costs, and so will bring your return down a bit. But hopefully this is still good enough so you get the idea).
That flat should get you around £900 a month in rent. Maybe more in some places.
Taking a buy to let mortgage on interest only and a typical set of expenses will cost you £7,284.
That leaves a profit of £3,516 each year. That’s part 1 of your return on investment.
It cost you £40,000 to buy the property. So that £3,516 is a return of 8.8%
And Capital Growth!
For part 2 of your return on investment, let’s think about capital growth.
This is always a contentious one. The latest official figure I found (Feb 2023) put property price rises at 9.7% a year locally (slightly below the UK average). I polled a handful of people and they seemed to suggest 5% – 7% would be a sensible rate for our example.
I chose 2%. Nice and conservative. Remember you can’t rely on capital growth. And you don’t know when it’s going to happen. But I reckon 2% a year is a pretty safe bet.
2% growth on our property worth £160,000 is £3,200. Not cash you can get your hands on right away, but it’s still yours.
On the £40,000 you put in, £3,200 is 8%.
All we do next is add the 2 numbers together, income and capital growth.
£3,516 from rent + £3,200 growth = £6,716.
Amazing right! 16.8%
And it’s from a straightforward buy to let, including paying a letting agent to manage the property and other expenses and is reasonably passive.
You get some income today and you get wealthy slowly as well.
And here’s the kicker to finish, which I hope will get you reaching for your Rightmove link …
I have just plucked any old random property out of thin air (a real one yes, but nothing especially good). You could EASILY do better. WAY better. Buy better. Negotiate harder. Paint a few rooms. Clean a carpet. Find a great property in a great location. Not just an average one.
Happy investing!
Don’t miss out on The Property Meetup again! Book here for Thursday 30th March
