Fast-tracking your retirement through property
Creating a comfortable and fulfilling retirement plan is a goal many strive to achieve.
But with more people working longer to achieve financial stability, the average age of retirement is on the rise.
The scary truth is most Australians won’t retire with enough super to see them through. In fact, 65% feel they won’t have enough funds come retirement and 54% wouldn’t give retirement a serious thought until they’re 50+.
Property investment can be a safe way to build wealth and finance a happy retirement. But it’s a long term strategy that isn’t without risks. As a general rule of thumb, the younger you start the more effective it’ll be. Getting to know the market is also crucial.
Early retirement is a pipe dream for a lot of people. But retiring early to live off property profiles can be a manageable solution.
Here’s how to fast-track your retirement through property investment.
Find your number
Early retirement is about balancing spending and income. Learn to master current finances, as well as future expenses that’ll come up.
To do this, you need to find your retirement number. Pay off debts, check your assets and income to determine a game plan. Consider personal costs, such as spouse/family, health, bills, daily care and lifestyle needs. Factor investment costs, like repairs, upkeep and taxes, in too.
Your number is what’s ‘enough’ for you to retire comfortably and includes four factors:
- Annual spending and spending trends
- Contingency plans; for example, what happens if you retire in a recession, need to replace your car or finance a major home repair?
- Income source, which will fluctuate over time
- Projection method(s); after you calculate spending, extra contingency money and where your income will come from, choose a method to calculate projections and make sure to factor in inflation
Invest in high-growth properties
To achieve financial freedom, invest in high-growth properties with negative cash flow.
Typically, positive cash flow properties are the best way to avoid losses. But negative gearing offers more choice. This enables you to secure properties in high capital growth areas where positive cash flow homes are limited. These growths allow you to earn more money than what you’re spending through property loses.
There are also valuable tax savings from negative gearing. Any losses are offset against income to reduce your taxable income. Costs you may claim include interest payments, council/water rates, building/renovation costs, strata fees, property management fees and repairs/maintenance.
Buy investment properties first and your home last
If you want to fast-track your retirement, consider ‘rent-vesting’.
First home buyers purchase their home and live in it, waiting until later to buy an investment property. But first-time investors usually buy a rental property first and continue to rent elsewhere.
The latter offers more flexibility and benefits.
Instead of being tied to a mortgage and unable to change location, there’s flexibility to move while gaining future capital growth and stability.
Tip: Choose to buy in an area that offers high capital growth even if it’s not where you want to live short term. The advantage of rent-vesting means your investment property can help leverage you into a home later, giving more freedom to live in your dream location.
Increase rental returns with quick ‘add value’ opportunities
One of the best ways to boost cashflow is to increase rental returns with small, cost-effective renovations.
Look for properties you can immediately add value too. New homes sacrifice this potential to manufacture capital growth. Whereas older homes can increase your equity to grow your property portfolio quicker. Minor cosmetic renovations or adding energy-efficient technology are good places to start.
Tip: Renovate smart to avoid over capitalising.
Follow the 4% rule
The 4% rule is a method used to determine how much you should withdraw from your retirement account each year.
It states 4% of your portfolio should be withdrawn each year. Experts consider the rule to be a safe and effective way to maintain a comfortable retirement.
Early retirement requires a lot of earning, saving and investing.
There’s a movement in personal finance with a simple logic behind it. FIRE; Financial Independence to Retire Early is about building enough passive income to cover expenses so you don’t need a job to pay bills. It involves placing a value on spending and ditching traditional 9-5 jobs to earn money from passive investments such as property.
Using property to achieve FIRE spreads money over multiple income-producing investments that offer tangible value.