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Our retirement income: property rental

Funding early retirement with rental properties

I've been doing some sums in readiness for our tax returns. Our finances are quite simple so it doesn't take long, although a complication is having to submit a tax return in the UK where our rental properties are, and another in France where we're resident.

In the UK, Sally and I have to submit separate tax returns, whereas in France we submit a joint return. It's interesting how different countries have different systems. Another difference is the tax year, in France it matches the calendar year which makes sense to me, while in the UK it runs from 6 April until the following 5 April. That weird date comes from a mishmash of an ancient new year date of 25 March, a switch from the Julian calendar to the Gregorian calendar, plus the effect of a leap year - I'm hoping that comes up as a Trivial Pursuit question one day!

Thankfully our taxes are relatively straightforward. We have:

  1. Rental income from our UK rental properties

  2. Dividend income from our ETF's

  3. A tiny amount of interest income

  4. Sally's income from her online teaching

Today I'm only looking at property rental income, in particular:

  • What we earn from our rental properties, and

  • Is property rental the best investment?

What we earn from our rental properties

Our rental portfolio accounts for 57% of our total investments. The remainder is supposed to be mostly in low cost ETF's, but the truth is that we are also currently holding a bunch of cash - a mistake I'm sure, but that's a whole different post.

Over the past 12 months, our rental properties have given us an income after all costs but before tax of £62,940 (€72,381 or $86,228 at today's exchange rates). Here's some more detail, along with figures for the previous few years, for those who are interested:

In 2020/21, our net rental income went down by about 10% compared to the previous year because we removed a property from the portfolio to convert into a second home for our own use.

I know that many people find rental property hard work, but we alleviate most of this by having letting agents manage the properties. They find the tenants, ensure compliance with the ever growing list of regulations, and attend to maintenance and repairs. It's not cheap, around 10% of rental income which knocks ∼0.7% off our returns, but it's a cost we're willing to pay.

So are our rental properties good investments?

  • Our rental return in 2020/21 was 5% calculated on the original purchase price.

  • Recalculating the returns based on current valuations, the return is 3.8%.

  • But including both rent and a conservative view on capital appreciation, the average return is 9.1% based on the original purchase price.

I guess that final bullet is the key figure, and an average annual return of around 9% sounds pretty good to me.

The other good news is that, over the four years of my early retirement so far, the after tax cash flow generated from our rental properties has covered our living costs. We haven't had to draw any other income or eat into the capital of our investments.

Is property rental the best investment?

No, yes,'s impossible to say as it depends on many individual factors. For instance, if I'd bought Bitcoin in the past and still had it today, that would dwarf returns from property, but would also have given me sleepless nights of worrying as it's not something I understand. If something keeps me awake with worry, is that really a good investment?

For Sally and me, we got into rental property because we'd been burned with other investments. Property was an investment we felt comfortable with, that we understood. It got us back in the investment game and so, by that measure, it's been a good investment.

But what about the FIRE community's preferred low cost ETF option, are they better than property rental? In financial terms, if we'd invested in the S&P500 instead of our rental properties, our net worth would be higher than it is today, by a not insignificant amount. Another plus is that ETF's are a very low effort investment. But there are minuses too - Sally doesn't really understand them, feels they are less secure than a property that she can physically see and touch, and also considers the income from ETF's is less predictable compared to the income from rental properties. So again, it's not as simple a question as one might first think.

Where do I stand? Our rental properties have served us well. They helped us return to investing after being burned, which was important. They also provide us with a reliable income stream to pay for our early retirement, which was helpful when I was trying to make my early retirement decision, and is still comforting today. But different from Sally, I have got myself comfortable with ETF's and feel that having 57% of our investment portfolio allocated to rental properties is too much, I would prefer it to be closer to 30%. Guess what, Sally doesn't agree...why does that not surprise me!

Related post: Early retirement passive income - property rental although as this was written a few years ago the values have since changed


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22 Kommentare

Hi David, forgive me if I've asked you this before. Is your BTL portfolio owned by you and your wife directly or via a limited or other company structure? Thanks 😀

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Antwort an

Hi Ian

We own the properties directly, so not via a limited company or other structure. The main reason for this is we bought one property initially, and really had no idea that it would grow to the multiple properties that we now have. With that original one investment, a limited company never entered our minds.

If I remember correctly, when we bought that first property, mortgage interest was an allowable cost for tax so the direct ownership route wouldn't have been particularly disadvantaged compared to the limited company route. I'm thinking that the main benefit of holding rental properties within a limited company structure is being able to have mortgage interest as an allowable expense for tax. There may…

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Hilton Sharp
Hilton Sharp
14. Apr. 2021

Hello David, I trust that you are well my friend.

Having a look at your returns raises a few questions;

Your rental return for 20/21 was 5% as you have indicated, recalculating the returns on current valuations is 3,8%, all very well.

I however have a concern that you suddenly have a number of 9.1%, so my question being - what have you estimated as a conservative view of capital appreciation % to get to this number.

I am interested as I am in the same boat however my numbers are not stacking up, maybe I've missed something.


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Antwort an

Hey Hilton, it's great to hear from you, it's been a long time. For the capital appreciation, I used a property website that gives a low, mid and high estimate of current value (for UK properties, the website I used is called Zoopla). I took the low value to be conservative and used that to calculate an equivalent annual percentage return for capital appreciation. I then added that to the average annual rental return to get to the 9.1% figure. It's not a perfect calculation, as I took a few shortcuts simply to save time and effort, but it ought to be close enough for my purposes. It would be good to catch up, to hear what you've been up to...I think…

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Hi David, another great article, thank you. I got into the property game late on, just before the various changes that made BTL less attractive for small investors. I’m glad we have it as part of our overall plan, and will probably not make any further changes until we decide to decumulate. I think it’s still possible to make really good returns here but only if you are prepared to work hard at it eg HMOs, premium holiday lets with the various tax and liquidity challenges that exist with these assets - not insurmountable, just extra things to take into consideration (vs funds you can generally buy and sell and have the cash a few days later). My strategy has…

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Antwort an

Your comment aligns with my thinking, including your 70/30 split which is where I'd rather be, just not what Sally wants. I understand Sally's point of view, but I also think she has tunnel vision about it and won't really look at an alternative - I guess it keeps things interesting😜

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10. Apr. 2021

Hi David, Another interesting article. Think we are approx 60% ETF's and 40% rental property, and will likely slightly reduce property further. Agree they are a good physical bricks & mortar investment and sit well alongside ETFs. And the combination of both allows flexibility for equity release during the decumulation phase of early retirement. Chrs

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Antwort an

Your planned split between ETF's and rental property seems to be similar to what I'd like to aim for - I suggested 70/30 in my post, although I can't seem to get Sally on board with that...story on my life🤣

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Are you able to say why rent received dropped so much in 19/20 vs 18/19 or is this some one-off exceptional effect as I noticed it also went up significantly in 18/19 vs 17/18?

I also note that 18/19 had the lowest costs too - but that is probably just a coincidence.

The point being that whilst you view the properties "as a reliable income stream" it has been quite variable, and - as far as I can tell - you have had no significant issues/problems with the properties/tenants to date either.

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Antwort an

I do not disagree with your conclusion re annuities - currently generating guaranteed income is very expensive. IMO this comparison possibly gives you a fairer view of the risk / benefit trade off than looking at equity based products. But, that is just my view.

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