Will I have enough to retire comfortably?

Do you ever feel that you might never have enough money to retire in the way you’ve always dreamed?

Let’s face it, there are a lot of work days when the only thing that gets you through the day is imagining relaxing on a yacht moored off a tropical island, with a martini in hand.

It doesn’t hurt to daydream, but what if you could create a realistic plan to have that dream retirement?

More and more Australians are finding that they reach retirement age and haven’t accumulated enough wealth to live the secure and comfortable lifestyle that they have worked so hard for.

Especially with improving health outcomes, people are living longer and needing a larger nest egg to see them through their golden years. One way to attain that security is through astute property investment, but it’s important to note some common obstacles for people wanting to retire on property investment.

Property Investment Hurdles to overcome

Many people enter the property market unprepared. They overlook the preliminary research and relationships that need to be formed before sinking large amounts of money into property. They also fail to attain an understanding of property cycles, profitable development types, and other lessons that can make or break a deal.

However, savvy investors that invest in property with open eyes can be generously rewarded for spending time and effort setting things up properly and truly enjoy their retirement.

In this next section, we’re going to walk you through one tried and proven strategy to achieve financial security and enjoy the fruits of your labour.

Reaching financial freedom

1. Develop a strategy

Your retirement years should be wonderful, stress-free years, so it’s imperative that you prepare carefully so your properties replace your income. Don’t leave it up to chance.

We have seen issues time and again when investors are sure they’ll be able to retire on rent earned from properties without crunching the numbers.

According to Ian Hosking Richards from Your Investment Property Mag, even a property portfolio of over $6 million wouldn’t be enough to fund a comfortable lifestyle.

Still not convinced?

Ian points out that the combined mortgage of those properties would be $4 million, and while rent would be significant, once the outgoings are paid there actually wouldn’t be that much left for a great retirement. The truth is that it’s too difficult to grow a large enough portfolio of cash-flow positive properties to replace your income.

Time for a better strategy.

2. Build your property portfolio

Consider building a strong collection of high growth properties and lowering your loan-to-value ratios (LVA). Here’s how it works:

Michael Yardney from propertyupdate.com.au explains that what matters is the value of your asset base, and that could be a small number of well-selected properties. Just because someone has a large number of properties doesn’t mean that they’re performing well for the investor!

In Michael’s example, the investor has accumulated $5 million of well-located properties over 10 or 15 years, plus they own their own home. If you had a typical 80% Loan-to-Value Ratio, you would be negatively geared.

However, if you had no debt against your property portfolio and had positive cash flow, you would give up the benefits of leverage. If you had a 50% LVR, your property portfolio would be self-funding, and while you may gain some cash flow, it would not be enough to live on.

While the idea of a $5 million property portfolio without debt sounds good, it’s better and more realistic to accumulate a $5 million portfolio with $2.5 million of debt. It would permit you to go to your bank and secure an additional $100,000 loan, as you could prove you have a self-funding portfolio that isn’t reliant on your income and has some cash left over for serviceability. In this way, you’re slowly increasing your LVR.

After paying interest, you’re left with around $93,000 per year to live off, and that’s money you don’t pay tax on as it’s not income. Now that image of a beautiful retirement is coming into focus.

3. Cash machine

The people who are able to successfully retire on the earnings from their investment properties have had to be smart about how they’ve accumulated their wealth. They haven’t just followed the pack – most people never get past their second property.

We advise building your information network and making it diverse and finding out what strategies are working time and again. Find the right properties with the right amount of scarcity and demand, and grow your property portfolio.

Next steps

The last thing you want is to be worried about is whether you have enough funds to live comfortably once you’ve finished work. Therefore, before you clock off for the last time, know the steps you’re going to take to ensure you can have a great retirement.

If you’re interested in making a maximum return with minimum risk, talk to Adpen about your property investment and development goals. Contact us here.

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