8 December 2019

Can Property Investment Set You Up for Retirement?

Adrian Atelj
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To retire well you’ll need 60 to 80% of your pre-retirement income per year and to own your home mortgage-free, according to figures released by SuperGuide.

Saving this amount of money is a daunting challenge, so many people turn to property investment to make it happen. Could you do the same to set yourself up for a comfortable retirement?

Funding Your Retirement with Investment Property

It’s possible to fund your retirement with property, but it requires a little work and a lot of smart planning.

That’s why, before you look at a single property online, you need to decide what your goal is and develop a strategy to make it happen (it can also help to have an alternative strategy should any obstacles arise that block your initial plan).

So many investors skip this vital first step and as a result their property investments don’t provide them with the income they want, or worse they actually cost them money.

When creating a plan, you should consider what type of property and locations will help you achieve your goal:

  • Properties with potential for capital gains are often the best option to grow your wealth during the early stages of your plan. After buying you may be able to refinance and leverage your equity to expand your portfolio.
  • When you’ve increased your wealth with capital gains it may be a good idea to purchase properties with higher rental yields to provide lasting cash flow throughout your retirement. High yielding properties may include commercial properties and residential properties in smaller regional centres.
  • Owning more property isn’t necessarily better. Your portfolio’s potential for capital growth and its ability to eventually provide you with an income are far more important. If you’re a little lost when it comes to planning your property empire, speak to a registered financial advisor with experience in property to get started.

How Much Property Do I Need to Own?

That depends entirely on the type of property you buy and what sort of income you want in retirement. Let’s say you want an income of $80,000 per annum when you retire so that you can afford little luxuries and the occasional overseas holiday. The average yield of residential property in both Sydney and Melbourne is 3.4% and between 4% and 5.1% in other capital cities, according to CBRE.

Let’s assume you buy residential property with a 4% yield, which returns 3% after expenses. You’ll need a portfolio worth $2,664,000 to completely cover your retirement income. With a portfolio of this size you’ll be able to live well, then either sell your property or tap your equity with a reverse mortgage during your later years. You might even be able to leave your kids with a decent inheritance.

Retiring on income and equity from property investment is possible, but it’s not easy. You’ll need to plan meticulously, know the market and get expert advice to help guide your strategy and your purchases. Put in the work now and it’ll all be worth it when you’re living it up in your golden years.

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