Читать книгу The 3+1 Plan - Brett Alegre-Wood - Страница 10
ОглавлениеWHY THE 3+1 PLAN WILL WORK FOR YOU AND BECOME THE BASIS OF YOUR NEW RICHER LIFESTYLE
The 3+1 Plan is my answer for anyone who wants to plan their finances and achieve greater wealth. It is not complicated. As you will have read in the Introduction, I believe that with three extra properties, in addition to your home, you can face the future with confidence.
The 3+1 Plan was born out of a conversation in 1999 that I had with Peter James. We were discussing what it takes to ‘practically’ retire - not fully retire, necessarily, but to have the money to stop working quite as hard, take a look at your future and decide what you want to do for the next part of your life.
He argued that you only needed your own home and three other buy to let properties to get into a position to fund any retirement. At first, I thought that it seemed far too easy - only three buy to lets and your own home. So I ran the mathematics on some of my own properties and found that the numbers fitted! Actually, it worked out to be more money than if I had kept working.
I wrote about our conversation in my Financial Partners newsletter under the name ’The 3+1 Strategy’ and over the years developed it as I met with thousands of people who wanted exactly what The 3+1 plan offered.
Most people wanted to achieve a self-funded retirement and a supplemented lifestyle without having to spend a huge amount of their life creating this extra wealth.
I have always believed that a successful financial portfolio should be based on three things:
•You must know precisely why you are doing it.
•You must be clear about what you want and when you will want it.
•You should choose a strategy that gives you more time for living and less cause for worry.
Once you decide the first two - and only you can do those - then The 3+1 Plan can give you the third.
How does The 3+1 Plan work? There are two basic steps at the start.
STEP ONE
By the time you retire you should own your own home with no mortgage.
I was brought up to believe that ‘an Australian’s home is his castle’ - in fact, we even made a hilarious comedy about it. It was called The Castle and it was a very funny look at the lengths that Aussies will go to to save their home.
When I moved to England I found a similar philosophy - ‘an Englishman’s home is his castle’ - and with around 70% of people owning their own castle, the statistics are similar to Australia.
This is why homeowners in the UK can have so much equity. They’ve paid off their mortgages and have seen considerable increase in the value of their homes.
It is an important part of the success of The 3+1 Plan that you aim to own your own home outright. Why? Two reasons.
First, because you don’t want to be funding home mortgage payments at a time when you may decide to work less.
Second, because you may need to use your equity in your main property to raise money for your investment properties. Of course you will still have mortgage payments to make, but these will now be funded by your tenants, not by you.
Owning your own home is not enough anymore to achieve your dreams, but using your home to produce a new income is what many choose as one of the best ways to fund the building of their 3+1 Plan.
STEP TWO
By the time you retire, you must own three Buy to Let properties.
Let’s move to the 3 in The 3+1 Plan. The second part of the plan is to own three buy to let properties. You may ask ‘Why three?’ My reasoning is this.
In the UK, as in Australia, the average person spends one-third of their income on taxes, another third on living, and the final third on rent or mortgage payments.
So imagine that you have three buy to let properties, all without mortgages, so that all the rent is yours to keep. Obviously you are going to have to pay about one third in tax back to the government - which you would have to with any income - leaving you with two thirds of the rent.
You, on the other hand, don’t have to pay rent or a mortgage, because you have your own home paid off in full. So the full two thirds is yours to spend as you wish. It really is that simple. Ending full-time work would not mean a savage change in lifestyle; you now have a replacement income from your 3+1 Plan.
Let’s check the numbers in case you are a bit sceptical
Assume that you earn £40,000 per year income and have bought 3+1 properties at around £200,000 each. If you were working, you would be paying around 33% tax on the £40,000 - about £13,200. You would be paying around £13,200 in rent or mortgage payments, leaving you with about £13,200 for living.
So the numbers below must get us at least £13,200 per annum in income. If you are wondering, these are three real properties in my own portfolio.
So, we have around £1,300 left over after all costs and taxes. That’s £1,300 x 12 months, which is £15,600.
Let me add a little bonus to the above table. I have not even factored in the capital growth aspect. Any capital growth over and above inflation adds to your wealth.
Considering that property doubles around every 7-10 years, or about 9% annualised, you can also add at least 6% per annum on top of this. 6% of £620,000 is about £40,000 extra wealth. It doesn’t take long for the numbers to add up.
So what type of properties should you buy?
You will generally buy a similar type of property that you would live in yourself. So if you live in a property worth £200,000, then you will buy properties worth around £200,000. If you earn £150,000 income, then you will probably live in a £850,000 house and buy properties around that price range instead of the £200,000 house. So it all becomes a relative game.
Now let me add another thought. This book is titled The 3+1 Plan. That is because I believe that this is the basis for a changed and richer life sometime down the road.
But I must be honest with you. 3+1 is fine, it works, and thousands of clients have stopped there. Equally, thousands have seen no need to stop there, but have gone on to building their portfolios, with more properties to let, more income to come in.
I will go into that later, showing how your portfolio can be built up, one by one, if that fits in with your plans.
But at the start, focus on having a small portfolio, and you will very quickly realise how easy this plan is to achieve. Once you own three properties, owning seven, ten or even fifteen, is not that much more of a step!
The simplicity of this plan means that you don’t need to change jobs to achieve it, or even give up nights and weekends while you build and manage your portfolio. I am not offering you another way to spend your time making income; I am offering a proven method to build a portfolio with very little time commitment on your part.
Don’t ever think that you’ll have to invest a huge amount of extra hours running a portfolio. Keep that job you love - or if you don’t love it, give it a bit of time and you’ll find that your portfolio will give you the freedom to sack your existing boss and find a better one. Who knows? That new boss might be you!
I have always been a hard worker and I have always been a very passionate person; that is, as long as I am enjoying what I do and learning new things all the time. For me, The 3+1 Plan is not something that I would ever use to retire early; I simply use it as an emotional pillow.
You see, now that I have achieved the plan, I can rest every night in the knowledge that if I weren’t enjoying what I do, I would have the freedom to choose something else. Luckily, I absolutely love what I do.
One of my clients, Martin, used to spend about 50 minutes per day driving to work in traffic and 50 minutes per day driving home from work. He started at 9 a.m. and finished at 6 p.m. meaning that he would miss taking the kids, Thomas and Anna, to school each day. Once Martin and his wife had their portfolio set up, they realised that they could change that life.
Martin approached his boss about reducing his working hours so that he could take the kids to school and pick them up each day. He would be working from 10 a.m. and finishing at 3 p.m. This would mean that it would take him 15 minutes to get to and from work and it also gave him a lot more time with the kids. Martin’s quality of life increased dramatically as a result.
The best bit about the whole 3+1 Plan is that it is indexed to inflation, so you don’t have to worry about living into your hundreds! As the property’s value and the rent increases over time, you will benefit from these increases, ensuring that you will continue to maintain and even enhance your fantastic lifestyle.
Initially, your investment properties will, of course, be bought with mortgages, but the final outcome is to achieve 3+1 properties with no mortgages. How can you do this? The paradoxical answer is that you buy more properties with more mortgages. I recommend to many investors that you aim at building up your portfolio to 7-10 properties, all with mortgages on them.
Madness? No. Forward planning. As the values of the properties increase, you can gradually sell some of them off and use the money to pay down the mortgages on the others. In this way you can achieve 3+1 without mortgages a lot sooner.
At what point do you pay the mortgages off? My personal opinion is simple: don’t be in a hurry to pay your mortgages off; all that will do is to decrease the speed at which you can ultimately achieve The 3+1 Plan.
You will know when the right time is for you to pay your mortgages off, but don’t be surprised if, once you are in a position to pay them off, you decide not to, preferring to keep them and letting the value of the portfolio increase while watching inflation wither away at the value of your mortgage.
Another of the joys of The 3+1 Plan is that the payoff time can be as flexible as you need.
