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25: How do I become financially independent?



I find most visitors to are keen to increase their personal wealth with a view to becoming financially independent, through property investment. With this in mind, I thought I would give some guidance and insights into expanding your personal wealth, which I hope you find helpful.


There are two key ways to increase wealth – by:


Whilst asset prices have risen strongly in the UK, many investors have merely aimed to “break-even” – meaning, their monthly costs such as mortgaging, maintenance, tax and professional fees equal rental and other income from a property. However, when prices are flat or falling, or rental income falls and/or mortgage costs rise, this becomes a very precarious business model – is not sustainable. In fact – it is not a business. A business is commonly described as an entity that makes a profit! So if you don’t make a profit, an accountant would say you have a liability and not a business!


With this in mind, taking a disciplined approach, you should aim to maximise your cash-flow and profitability. This is commonly done by purchasing high yield rental property with good rental demand, low mortgage costs and low maintenance & service charges.


Investment FlatsPurchasing property in an “up and coming” area will benefit both the rental income growth and capital value (or asset) growth. So properties close to rail, tube, road and other infra-structure links in areas with lowering crime rates and unemployment, and areas with increasing earning incomes (e.g. close to major service centres) should reduce your risks. An example is purchasing a 2 double bedroom flat within five minutes walk of Stratford station in East London, at say 10% below true market value. The rental yields with two sharing couples is likely to be high and you will probably find void periods are minimal, the area is improving all the time and capital values in the 5-10 year timeframe should rise – probably outperforming the average UK area.                 


To get the highest rental income, you need to consider entering the “Homes of Multiple Occupancy” market. This is purchasing say 5-8 bedroomed houses and large flats – and renting them per room. You need to make sure you have all the relevant authorisation to do this, and get loans from a mortgage company that agrees to such lending. Skipton Building Society are particularly good with this type of property. Your yield, that is – the gross rental income divided by the price you paid for the property, could rise from say 8% for a two bedroom flat to 13% for a home of multiple occupancy. Yields higher than 15% can be found in some parts of northern England and Scotland – albeit the risks of high void periods is probably a bit higher in these areas, because in many cities the populations are not rising very strongly (some are declining), and there is not such a big housing shortage as in the south of England.


Bedrooms in houses with shared facilities will become increasingly popular because of the:



Neighbourly streetProviding such accommodation can help communities as well as being profitable for landlords – the key is to provide good quality, safe and secure accommodation for tenants. Also, be careful which tenants you allow into the house – you have a duty to the other tenants to make sure troublesome tenants do not live in their home. Of course, be prepared that such property can be more management intensive – either for yourself or your letting agent. You can normally persuade a smaller letting agent to take on such property – but the fees are likely to be higher reflecting perceived (and probably actual) greater risk and time/management required.


Also consider that - for example in the USA - about 90% of millionaires live within 10 miles of where their business is located. This general model is also true for property investment. The bulk of the best investments are made locally to where you live for the following reasons:



RooftopsAll the above criteria make investment in your local area lower risk. In essence, wherever you live, you should be able to turn a profit by selecting the correct micro-area, type of property, investment opportunity and price you would like to bid.


If you have an investment portfolio which focuses on a particular area, when you come to retire, you might find it easier to manage either yourself or by out-sourcing to one or two local letting agents. The downside of this focused strategy is:



This brings me onto general planning and goal setting. I advise the following:


I found it fascinating when I then started doing a financial spreadsheet – calculating how many properties I needed to buy a year and how much rental income they would produce. I rapidly came to the conclusion that “cash-flow is king” (as they always say!) – the more cash or income you make, the faster you will be able to buy the next property and then the more cash-flow you will earn on top. The numbers speak for themselves – try it and see! The curve does NOT rise like a straight line, instead it goes up exponentially! So the higher the income, the more income you will make in the future because you will be able to buy more high income properties. And it won’t even matter too much if the house prices fall – in some respects, this will help since you will be able to purchase property at lower prices and get an even higher yield and earned income. As long as the local and/or national economy is doing well, you should benefit as well.


You might have noticed I have restricted this discussion to the local market (UK as an example) so far. International property investment is very different – and you need to consider these issues before entering:



Most people believe the rewards – mainly increasing asset values – out-strip the risks. But please note, if you buy off plan in Spain for instance, you need to see a capital value of at least 13% to pay for taxes and fees – then find a buyer to sell on to. I personally still think southern Spain is a good place to invest in, but it’s probably a higher risk strategy than buying an ex-council flat in west London with good yield and year round rental demand.


The final point I think one should consider is – your vision and exit strategy. Do you want to hold the properties well into retirement – manage them or outsource and pull on the earned passive income? Or do you want to sell up one day and cash in. If you wish to sell up one day, you need to consider tax planning up-front. If you sell up, but have mortgaged up to gearing of say 80%, you might find a capital gains tax bill of 30-40% means you cannot afford to sell (it would make you bankrupt!).  I understand for instance if you move to Spain before exchanging contract on your UK investment property, you will not be liable for capital gains tax in the UK. In Spain, they have different rules and you might find your tax liability reduced significantly if you migrate at the right time (note, you will not be able to spend more than 90 days a year in the UK if you are resident in Spain for tax purposes). These tax planning considerations are important to think of well in advance, otherwise you might get an unexpected bill from the Inland Revenue that is high enough to fold your business. You need to take it very seriously and of course abide by the law. If you are interested in me putting you in touch with a tax planning expert, please email - . Please also note, as part of regulatory requirements, I do not and cannot get commission on any such referral or reference.


My final comments I will expand on in future special reports. Financial independence is not just about making serious money (value and income) from property investment – its more holistic than that.


Some key principles to financial independence are:


 Hope this has been helpful. Any feedback on this article can be sent to:

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