As I have mentioned before, as part of our ultimate dream, we require a passive income per year of approximately £25,000. In that post, I talk about having enough money in savings to just withdraw money as and when we need it, but recently I keep thinking about different options to make our dream a reality.
I have read some blogs which focus on real estate and, in particular, renting houses to tenants. They talk about the 1% rule and some of them have multiple houses that they rent out, and it has got me thinking about that aspect of income.
I ran some figures through a mortgage calculator online, just to see what they came up with. If I bought a house worth £40,000 and put down a deposit of £10,000 down, then I’d need a mortgage of £30,000. If I got this over 25 years, with unlimited overpayments, then the payment would be around £160 a month. The property could be rented out for approximately £380 a month, which means that each month, there would be a surplus of £190 which over 12 months equates to £2,280. Looking at the start of the post, we want to create an income/having enough in savings to live on £25,000 a year. Judging by those maths, we’d need 11 properties to do that. That suddenly seems like an awful amount of work to do!
But what happens if we look at slightly more expensive properties to begin with? So, I ran the numbers again with this in mind. This time, we’re looking at an £80,000 property with a deposit of £20,000. If this runs for 25 years, then the mortgage payment would be around £300 a month. The property could be rented out for approximately £520 a month, which leaves a surplus of £220 which over 12 months equates to £2,640. Again, using the £25,000 figure as a baseline, we would need 10 properties to do this, which isn’t much less!
There are also lots of things to consider, as I think there are both positives and negatives to do with real estate and renting. The positives are:
– you own a property, which means that (hopefully) once the mortgage is paid off, you get another slice of property ownership.
– income – the best part! You can paid every month (again, hopefully) and this is passive.
– You don’t actually pay the mortgage, as the rental income covers it.
– You can sell the property at a later date for income if necessary.
– Nightmare tenant – this is definitely one of the big things holding me back on this. Either someone who is really dirty, unclean, or who doesn’t pay.
– Property maintenance – another building where things can (and will) go wrong. More expense, especially if something needs doing in an emergency.
– Non-paying tenants – this is also a nightmare thought; you’ve got people living in your property that don’t pay the rent. Then what?
– The tenants cause damage to the property – yes, there’d be the deposit but what happens if it costs more than that to repair?
– Saving for the deposit – it took us quite a while to save for our own house deposit and you’d need to do it again!
So, definitely another avenue to think about in terms of our long term aims. I know that my husband is even less keen on the idea of becoming landlords, but I will keep that option open for now. I keep thinking that maybe, in the very long term, 5 rental properties would be a good income source, but would not be too over the top. Having said that, I can’t even imagine one at this point, never mind five!
Are you a landlord? Any tips on how to avoid nightmare tenants? I’d love to hear from you!