How much could you make on a single buy-to-let investment property?

You really could be a property millionaire and retire early

When beginner investors sit down for their first investment strategy session at Gladfish, many ask the same question: “How much money can I really make on a buy-to-let property?”

As you can appreciate, the answer isn’t always easy. It depends upon what and where you buy. It depends upon your deposit, mortgage deal, and cash flow. It depends upon renovation and maintenance costs if you buy existing property, or discount to market value if you buy off-plan property. There are so many variables, quantifying the potential profit is almost impossible.

However, while we might show you specific examples, and tailor personal examples for you, mortgage lender Kent Reliance recently went one step further. They have declared what they believe the average total profit over 25 years on a single buy-to-let investment property. Mind you, their estimate may be way below the actual outcome.

Long-term investment in buy-to-let would quadruple your money

Kent Reliance’s calculations are based on the following criteria:

  • You invest with the average deposit of £73,908
  • Your deposit is 30% of the property’s value
  • You remain invested for 25 years
  • House prices rise at 1% above the rate of inflation each year
  • You pay tax at the basic rate

With these criteria, you would make:

  • A gross capital gain of around £269,000, as your property price grew to £516,000
  • Gross rental income of about £369,000
  • Rental income profit of more than £65,000

After taxes and all costs, you would pocket a net profit of £265,500.

To put that another way, allowing for inflation, you would increase your personal wealth by a cool £162,000 in today’s money – or £6,475 every year.

The fallacy of Kent Reliance figures

Remember that the Kent Reliance estimate is an average. You could do far better. But there is also another fallacy in their figures. You see, Kent Reliance may have been far too conservative in their approach.

They have based their calculations on house prices rising by just 1% above inflation for the next 25 years. This is way below their performance during the last 20 years.

Even over 2017, when most people would consider that house prices have lacked a lot of steam, house prices rose by 5.2%. Meanwhile, inflation, which many people thought was getting out of hand, turned out at around 2.6%. In other words, house prices rose by 2.6% above inflation in a poor year for house prices!

If such an outcome were to hold true for the next 25 years, the capital gain could be as high as £513,000. Your total profit could be around double the Kent Reliance estimate.

Can you become a millionaire by investing in property?

While the buy-to-let market is experiencing large change at present, the Kent Reliance report highlights just how attractive long-term property investment remains.

Despite changes to mortgage interest tax relief, the potential returns remain extremely attractive. And, of course, you can structure your property investment to mitigate the effects of tax changes – for example, by holding in the name of the spouse in the lowest tax band, or by investing in property as a limited company.

The buy-to-let market in the UK is likely to grow. The housing market relies upon the private rented sector, and demand for rented properties is forecast to grow around 20% in the next seven years. This would mean a million more households renting in 2025 than there is today.

But (there’s always a but, right?) gone are the days of speculation and flipping for profit. The property game now is being won by buy-to-let investors who treat their property as a business, plan to minimise the impact of the tax, and use strategies that keep costs and the effort needed to manage properties low.

Remember, the Kent Reliance profit forecast is based on owning a single property. Our 3+1 plan will take you to three properties owned – and that could make you a property millionaire in 25 years. Perhaps even sooner.

For a more personal look at the potential profits from property investment, book your property investment strategy consultation by contacting Gladfish today. on +44 207 923 6100 and we’ll discuss your goals, your financial position, and how property can help you reach your desired lifestyle faster.

Live with passion and fun,

Brett Alegre-Wood

Brett Alegre-Wood
June 20, 2018


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