Property Investment: Can Property Still Create Financial Independence?

Property investment has long been seen as a path to financial independence. There have been many changes since the heyday of buy-to-let and there are fears that property may not be the safe bet it once was.

That, at least, is the impression you might be getting from not only the mainstream press but also from some property-oriented publications. But is there any truth in it? Can property still create financial independence?

With years of experience in the buy-to-let property market, we’re going to look in this piece at the benefits of property investment and whether it can still deliver the sort of financial return so many investors are seeking.

That was then…

Let’s start at the very beginning, it’s a very good place to start… What is financial independence? Believe it or not, it has its own Wikipedia definition! In short, it’s a state where a household is not reliant on work to maintain its lifestyle.

So, financial independence is in truth freedom from work. If you’re lucky enough to have inherited a genuine fortune, you’re financially independent. Likewise if your investments deliver sufficient income, you’ll be financially independent.

Clearly, property can create financial independence, and for a number of investors, this is their principal goal. It follows that, if starting from scratch, unless you are seriously cash-rich, achieving this is going to require work on your part.

Properties will have to be found, finance arranged if necessary, properties brought up to standard, tenants found, licensing and regulatory requirements met. It’s quite a steep curve.

An option is to invest in a portfolio of properties from the start, something we covered in ‘Does Purchasing a Property Portfolio Make Financial Sense’. This way you should avoid a lot of the startup costs and start earning immediately.

How much you need to earn to achieve financial independence will depend very much on the individual, as will when you want to achieve that goal.

Owning a single rental property is unlikely to deliver 6 months a year in the Bahamas, but it might well ensure a comfortable retirement, free from money worries. That is financial independence.

Alternatively, you may want to find yourself in a position where you don’t have to ‘work’ at a much earlier age. In that case, you’ll probably have to put in a fair investment in time and money early on.

Return to sender

Whether or not your investment delivers sufficient returns to deliver financial independence will always depend upon some factors you cannot control.

To some extent a landlord can control, or at least anticipate, a number of their costs; maintenance, legal fees, administrative costs, but there are others which are outwith their influence entirely.

At the time of writing, mortgage interest rates have been attracting a lot of attention, simply because they have been rising after a long period of record lows. This has led to a lot of ‘landlords cannot afford to retain their properties’ stories.

When Buy-to-let mortgages became available, some 25 years ago, the Bank of England (BoE) base rate was 7.25%. That’s not the rate you would have got, which would have been noticeably higher.

By December 2008, the base rate was 2.00%, and following the financial crisis of 2008-2009 we enjoyed unheard of low rates – in December 2021 the base rate was 0.25%.

Our point here is that BTL has not only thrived during periods of very low interest rates, but also during periods where the base rate was actually higher than it currently is.

Surely you’re going to need loads of properties!

You might think so, and you would be wrong. In theory, one rental property could allow you to decide whether to work or not, especially if it’s a house in multiple occupation (HMO), after all, more tenants means more rent.

There are indeed additional regulations which apply to HMOs, and therefore greater costs, but the profits can be considerably higher as well.

Opinion varies as to just how many properties you need to achieve financial independence, some say one is enough, others suggest you need four, or three, or… Well, pick a number.

In truth, it really boils down to your circumstances. If you have two properties, one of which you live in, and both are mortgage-free, then one property might be all you need to give you the choices you want.

If summer in the Maldives, winter in the Alps and a couple of Ferraris are what you’ve set your heart on, it’s going to take more.

Advice from the property pros

Can property still create financial independence? Absolutely – despite rising interest rates and the increasing cost of living.

Key to this aspiration is being very clear about what financial independence means to you right from the start. What kind of life do you aspire to? Are you happy to work but only as and when you please?

Do you want to be able to forget the nine-to-five completely? Maybe you want to create something of real value for your family. Once you know the answer to that, you can set out a strategy to achieve that.

If you’re cash-rich and don’t have to worry about finance, that’s great, but even where finance is a necessity you can still reach your goals. And setting those goals is key to creating a strategy to achieve them.

Once you have clear goals and a strategy to realise them, it becomes a matter of making the numbers work. Don’t rush it, the right properties are out there, and there is no shortage of prospective tenants.

In summary…

The buy-to-let property investment market is enduring a difficult time at present. Mortgage rates, property shortages and new regulations have caused more than a little concern amongst landlords.

While we wouldn’t downplay the challenges, nor would we let them blind you to the opportunities which are out there. If financial independence is your goal, property investment can still help you get there.

Our knowledge of the market is extensive  and that means you don’t have to rely on trial and error to get you where you want to be. A consultation will allow you to explore all your options, and allow us to offer advice and guidance.

Between us, we can get you started on the path to genuine financial independence where your time is your own and you are free to decide exactly what you do with it.

Thanks for reading, and if you would like to know more, just pick up the phone or drop us an email.

Written by Ross MacDonald, Director of Sales & Cofounder of Portolio

Get in touch on 07388 361 564 or email to [email protected]