How an Investment Property Portfolio Can Benefit your Retirement
Picture this: You’re at a family BBQ listening to your cousin talk about this house he has purchased. But he’s not living in it. He’s bought it as an investment. He’s cheerfully boasting about the tax breaks, the fluctuating market and ‘riding the wave into retirement’ (*whatever that means). Now, you and your partner head home: deflated. Until now, you thought you had everything under control, but suddenly the realisation hits that maybe you aren’t setting yourselves up for retirement. You have heard property is a reliable, low-risk investment that is sure to boost your savings heading into retirement. But what is involved in building an Investment Property Portfolio?
Defining a Successful Retirement
It is all well and good to say investment properties (and we are only talking about domestic properties, not commercial real estate) are the way to go to build wealth. But, what you view as wealth versus your neighbour (or cousin) considers wealth may be very different. With that in mind, there are some questions you need to ask yourself:
- How much money will keep you comfortable in retirement?
- If you do go down the property track, is the plan to buy a smaller property now, rent it out to pay the mortgage, then retire and move in?
- Are you looking to start a property portfolio for passive income to pay for your retirement travels?
- Can you use your superannuation to buy a property? **
It is essential to define your goals before you get started, so decision making is easier.
Where do you stand budget-wise?
The word ‘budget’ sends audible groans through most families. But, when you are looking toward retirement, analysing your budget becomes a ‘necessary evil’.
Recognising and appreciating all the expenses of an investment property, together with understanding where you stand financially are two critical steps to setting yourself up for a stress-free retirement.
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Remember that the house price will not be your only expense. There are stamp duties, lawyers, real estate agents, mortgage insurance, property repairs that are inevitable even with the best tenants, and that is when you do your research well. As accountants, we don’t want to scare you off this track, but to help you uncover the hidden expenses, so you are not caught unawares if they crop up.
If you can budget for these comfortably, investing in property may be a fruitful experience for you.
Research. Research. Research.
So, you have done your self–analysis and worked out your current and projected budget. Those were the easy parts. Now comes the scrutiny of where to purchase.
Where you invest will vary depending on whether you plan to move into it in retirement or keep it tenanted. Obviously, some things won’t change, i.e. buying on a flood plain is always a bad idea if you are chasing long–term financial gain.
We are not property experts, but we do have recommendations of points to consider:
- Liveability – how appealing with the house be (think council amenities, NBN, or even scenery);
- tenancies close to ‘good’ schools are always popular, as are those close to conveniences such as shopping centres or public transport;
- local crime reports or maps may be of use;
- property trends. Take these with a grain of salt because the property market is never certain. But the trends may provide some guidance.
Seek professional advice
Obtaining financial preapproval before starting your investment property search will reduce some of the stress of finding the right property. Knowing the ballpark figure will help you narrow the investigation, and it may be the difference between buying this month or waiting until you get a tax return, for example. Neither option is a problem, but if you fail to plan, you plan to fail.
When seeking advice, don’t limit yourself to just the bank. Like us at Synergy Accountants and Estate Planners, an accountant is guaranteed to have your best interests at heart. If you are establishing an investment portfolio as part of your self-managed super fund, then you will definitely need your Accountant’s advice for audit purposes. But, even if you are looking at property as a way of subsidising your income or maximising tax offsets, an accountant will guide you on what is best for your current and future financial interests.
Final Thoughts
Your journey through building an investment property portfolio will come down to you planning and researching. Ask yourself, what do you want your future in property to look like? Perhaps apply the ‘PLIM’ principle:
- Purpose – what does it need to achieve for you?
- Location – is it for your dream retirement or a long–term investment?
- Information – collect research from a realtor and financial advisor. You can never have too much information.
- Money – get preapproval so you know how much you can spend.
Remember, this is for your future and you get to make the informed decision about whether it fits like slacks or tracks.
**Purchasing property through your superannuation, falls into the realm of a self-managed superfund and comes with many Australia Tax Office hoops to jump through. Before looking too closely at this option, always consult an Accountant or certified SMSF expert.
All the advice contained in this blog is intended as a only guide only and is not be used in lieu of advice sought from your accountant or tax adviser.
