How Many Properties Do You Really Need To Retire?

It's everyone's dream to retire early with oodles of cash in their bank accounts, but how many properties do you really need to retire and live comfortably?

How Many Properties Do You Really Need To Retire?
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It’s everyone’s dream to retire early with oodles of cash in their bank accounts.

Unfortunately, the reality is very different for the vast majority of Australians, who generally have to rely on the pension in their twilight years.

This sad statistic is even more concerning because it means that many hardworking Aussies will struggle to make ends meet in retirement when they probably earned millions of dollars during their lifetimes.

Alas, too many people do little with the income they earn during their 40-year working lives, apart from buying and dutifully paying off their home. Of course, that’s generally because it is what generations of us have been taught to do.

The tide is slowly turning, but of the two million investors in Australia, about 70 per cent only own one property, which does improve their financial situation but not markedly so.

How to be financially free in retirement

The idea of financial freedom is probably on everyone’s radar, but it never gets past being an idea because they don’t understand how they can achieve it.

Those who make a decision to achieve that goal, either before or by retirement, are already halfway there.

Instead of dreaming about a day that will be unlikely to arrive without instigating a successful wealth creation strategy, they choose to take control of their financial futures and develop a plan.

All of our clients are different because they have different lifestyles as well as incomes.

The one thing they have in common, though, is the desire to be financially different to the masses.

They don’t want the last few decades of their lives to be spent on Struggle Street and are prepared to put in the work to achieve something financially different.

Our strategy – which is personalised for every client – is to build a property portfolio that will eventually pay itself off and provide significant cashflow in the future.

And contrary to some alarmist ideas, you don’t need to own dozens of properties to get there.

In fact, most investors only need to own $2 million worth of property today – say five affordable $400,000 homes – to retire early or to achieve financial freedom in just 15 years.

How does it work?

The goal after just 15 years is to achieve an annual $100,000 income from a portfolio that is conservatively growing in value by six per cent per annum.

In 15 years’ time, the portfolio would be worth $4.793 million, which means a net worth of $2.793 million that is providing four per cent cash flow of about $9,300 per month.

The thing to understand with the above example is that it’s the worst-case scenario because it’s based on interest-only repayments as well as 100 per cent debt due to some clients leveraging from existing properties.

Not only do most of our clients have more time on their sides than 15 years, but they also often adopt a strategy of paying principal and interest repayments, which means their cashflow will be higher still at four per cent due to their net-worth increasing to $3.372 million or $11,240 per month.

After 15 years – remembering that many of our clients hold their portfolios for longer periods of time – they could either:

  • Live off the monthly cash flow of between $9,300 and $11,240 while retaining the portfolio on interest-only or partial principal and interest terms;
  • Sell half the portfolio to pay down debt and live off a five per cent net return of about $12,000 per month.
  • Sell the entire portfolio to reinvest in other asset classes that can obtain four to seven per cent annual returns.

So, as you can see, living comfortably in retirement doesn’t require you to save every penny you earn – inside or outside super – during your working lives.

What it does require is a desire to be financially different and to develop a strategic plan that will see your monthly cashflow in retirement be many times more than it would have been if you had done nothing at all.

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