What could a £1million investment in Chichester property earn you?

I was asked this exact question recently by a couple of retirees who were weighing up the pros and cons of investing £1million of their retirement fund into property.

They said they’d like to keep the properties local to them (Chichester) and were happy to take out mortgages. They only wanted to buy freehold houses and didn’t want the hassle of HMO’s (Houses in Multiple Occupation).

Using some very quick and crude calculations I set out to give a rough answer to their original question - how much could a £1million investment in Chichester property earn them?

I worked on the assumption of acquiring properties at £250,000 that would let for £1,000 per month (a 4.8% yield). Taking a 60% mortgage would mean for each property they’d need £100,000 for the deposit, £10,000 for stamp duty (post April 1^st) and £1,000 to cover the legal fees.

At £111,000, they would be able to buy nine of these properties with their million pounds, giving them a property portfolio of £2.25m.

So, how much could those nine properties earn them?

Whilst each property would achieve £1,000 per month, that wouldn’t unfortunately all go straight into the landlords pockets. A 10% management charge and 10% set aside for maintenance would bring it down to £800 per month, per property. The £150,000 mortgage would cost £375 per month (based on a five year fixed rate of 3%).

This means each property should net around £425 per month, giving a total income from all nine properties of £3,825 per month or £45,900 per year.

As a slight aside, I did a cursory check on annuity rates and found that a 60 year old with a £1m pension pot would get a remarkably similar income (but without inflation).

What an annuity doesn’t provide is the ability to retain the assets and pass them onto your estate. This would prove extremely valuable, particularly once we consider the capital growth the portfolio may see.

In the last twenty years, property in Chichester has increased an average of 11.5% per year. If we forecast that property in the future only does half as well, that would be an annual increase of 5.75%. On the £2.25m portfolio this could be worth £129,375 per year, effectively bringing the total annual return to £175,275 (a 17.5% ROI).

This relatively simple, low risk strategy in a well-proven area with strong tenant demand sure beats money in the bank, which is perhaps why more people have chosen property as being part of their long-term retirement plan.

If you’re thinking of investing in the local property market and would like some free advice from someone actively investing in property themselves, please get in touch.

(This article was featured in the Chichester Observer's property section 

on 24th March 2016).

Clive Janes, CRJ Lettings.  

www.crjlettings.co.uk

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If you are looking for an agent that is well-established, professional and communicative in Chichester, then contact us to find out how we can get the best out of your investment property.

E-mail me on clive@crjlettings.co.uk or call 01243 624 599.

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