How to Retire Through Property in 5 Years

If your goal is early retirement, a property investment is a commonly-used asset that can help deliver multiple income streams over the long-term to achieve financial goals. Designed to deliver freedom and security through passive income, the following plan is just one example of how to set up retirement through property in five years.

Notes before we begin: 

Designed specifically to create a diverse portfolio that delivers both passive income and capital growth. This plan is made for the long-term and isn’t suitable for those looking to build an ‘overnight success’. This plan is designed to generate wealth for your future, not necessarily right now. 

Also remember that there will be void periods and the market will fluctuate with your plan. Every investor experiences highs and lows in a long-term plan such as this and ensuring that you’re constantly reviewing your cash flow can ensure you’re ready for any eventuality.

While all investments carry their own risks, figures by the Office for National Statistics (ONS) shows that property consistently delivers growth – particularly over a long-term strategy. 

Remember that the figures used in this plan are examples and may not be identical for every investor but the theory remains the same. The general scope of the plan is to start with an initial deposit of £50,000 in year one and each year thereafter, creating a portfolio of five properties that can deliver returns over the long-term. Remember that the deposits given in this example are illustrative and will be typically lower in a ‘real-world’ example.

These figures don’t take into account maintenance costs or unforeseen expenses, although they also don’t account for the rental income you could accrue. 

The Five Year Retirement Plan

Initially, you’ll invest £50,000 in a property and apply for a mortgage on the remaining amount, allowing you to expand capital through natural market growth whilst also creating a source of passive income post-mortgage term. 

Once rental yield increases are also taken into account, you can see a clear path into building a comfortable retirement and even future inheritance.

As the market grows, so does the value of your investment. As the rental income pays your mortgage, you’ll also see your loan-to-value (LTV) decreasing. 

While returns may be minor during this stage, a steady stream of tenants means that your mortgage is steadily being erased, leaving a source of pure profit. 

Year 1: Invest £50,000 into an Off-Plan property worth £200,000. If the market remains stable, you could potentially start seeing capital growth as your property increases in value during the build period.

Year 2: At this point you can look to invest in a second property, expanding your portfolio. This would require a second deposit – £50,000 in our example – invested into a second Off-Plan property. Both your first and second properties should begin creating capital growth during their respective build periods.

Year 3: At this point you’ll begin paying the mortgage repayments on your first property after completion. Your rental income should equal around 125% of the mortgage repayments – meaning if you’re paying off £15,000 a year, your rental income should be around £18,000. You will also invest into a third property as before, steadily building an Off-Plan portfolio that will have staggered completions.

Year 4: The repayments on any properties bought earlier in the plan will be covered by rental income while each property also looks to accrue capital growth. During Year 4 you will invest in your fourth property, once again investing £50,000. By this point in the plan, it’s feasible that the deposit could be raised purely from income raised by previous properties. 

Year 5: This will be the final year of investment where you purchase your fifth property. After this point, it’s a matter of ensuring you maintain rental incomes and keep an eye on the market for growth. Rental yield increases will only serve to benefit your plan if they occur.

As you can see, clearing your first mortgage means any income from that property can be profit or put towards other repayments. In the subsequent years, the same will happen to your remaining properties, leaving you with a strong portfolio delivering quality returns – ready to be put towards your retirement. 

In just five years, you’ll have built the foundations for a strong retirement plan based on both rental income and natural market growth, ready to be passed on or sold for further profit – provided the market has reacted positively.

The example above would mean a property worth £200,000 in 2020 would be worth around £400,000 in 2040. If you expand that to all five properties in the portfolio, you would have a total worth close to £2,000,000, all built from an initial £250,000 investment over five years that grows over the long-term. 

This is not including the rental income that is accrued while the investment grows.

Clearly this plan is designed for a long-term cycle to maximise returns and acts as a base for retirement, rather than directly funding it in five years. Remember that this plan is purely illustrative, using market rates correct at the time of writing. You should always speak to a financial advisor before undertaking an investment.

Perfecting Your Retirement Maths

Whether you’re preparing the five-year plan mentioned above or simply planning for the last five years before you retire, having a solid handle on how well-prepared you are is vital, especially if you’re looking to completely retire from work. 

If you’re financially prepared, it’s typically just a matter of maintaining your program and continuing on to your retirement goal. If you’re not prepared, you may be looking at a modification of your overall retirement lifestyle which is never ideal.

How Much Money Will You Need?

One of the main reasons that people struggle during retirement is because they don’t fully understand their retirement needs. You need to consider your current income and your expenses – although you can assume that your expenses will likely go down after you retire. 

The safest way to prepare is to consider your entire cash flow and how it may be affected – ask yourself how long you expect to be retired and whether you need to protect against long-term illnesses that may be hereditary. These questions, though uncommon and may be considered ‘sensitive’, are vital for painting a realistic picture of what you have and what you need.

How Much Income Will You Have?

The next step is to work out what income you are guaranteed to have in retirement. This will likely take the form of the state pension, any form of personal or workplace pension, any returns from an investment, your personal savings and the value of your home(s). 

From there it’s simply a matter of working out how much you’ll need to maintain your chosen lifestyle. Need to know how much you’ll want for retirement? Find out your retirement number here.