Most common property goals. How do you compare?

Have you ever wondered what property goals the average investor is striving to achieve?

And whether your goals are conservative or ambitious by comparison.

Well, I’m going to give you a peek behind the scenes into the most common property goals I hear from beginning investors and real estate goals I hear from experienced investors.

An open question that I always ask my clients during initial strategy sessions is:

What is your end game?

The reason is that I want to understand the client’s long-term goals, their risk profile, whether they are being conservative or ambitious, whether their goals are realistic based on their timeframe and financial circumstances and of course whether or not I can assist.

The end game for most if not all clients is a level of financial independence however in probing further I most commonly hear one of the following goals.

The most common beginning investor goals are as follows.

1. A property portfolio that generates $100K in passive income per year

This is by far the most common property goal I hear from my clients and it is fair to say that close to 60% of clients I see, express that they aspire to have $100,000 in passive income to be financially independent.

Perhaps $100,000 is a nice, round number.

Perhaps they are keeping it simple for the purpose of the exercise, but there is no doubt that this is the most common goal I hear. 

So, what are my thoughts on this goal? Is it realistic? Is $100,000 enough? Are they being conservative or ambitious?

Let’s start from the beginning, is this goal realistic?

Yes, as long as you have allocated enough time for your investment-grade assets to grow and compound.

And as long as you have the financial capacity to begin and continue this journey safely.

Is $100,000 enough?

Well, how long is a piece of string? (If ever asked that question, the answer is ‘twice as long as half its length -  thank me later ').

Note: The worst-case scenario for any Australian is that they end up on a pension upon retirement.

The pension equates to approx. $32,180 per year for individuals or approx $48,516 per year for couples living together.

This is certainly not enough for financial independence, let alone day-to-day expenses, and will only ever allow you to live a basic lifestyle.

It is fair to say that the average mortgage-free Australian couple needs substantially more than to live in retirement.

Notice I said to ‘live’, this is not living comfortably or living with luxuries.

You may be earning slightly more than your pension, but you would still be living a very modest lifestyle with low-cost activities.

So, back to $100K, is $100K enough? Yes, if you are a mortgage-free couple with generally conservative spending habits and lifestyle, then $100K will allow you to cover your day-to-day expenses with a few small luxuries thrown in such as travelling once or twice a year.

Tip: If you wish to channel your inner Mariah Carey upon retirement and live your days sipping champagne by the pool, shopping on Rodeo Drive and calling everyone around you ‘darling’, then you may want to think about being a little more ambitious.

It’s also important to determine if your goal is $100K gross or $100K net, as they are very different goals and accordingly would require different asset base targets.

2. 4-5 investment properties by retirement age or financial independence age

I must be direct: I never agree with a property goal tied to owning a certain number of properties.

It is important to note that the number of properties you own doesn't determine your wealth or net worth and, accordingly, it is irrelevant.

What is important, however, is the size and value of your asset base and the quality of assets within your portfolio.

I could tell you that I have 10 properties worth $100K each, or 10 properties worth $1M each.

They are two very different propositions that yield very different results.

I would prefer your goal be an asset base target as opposed to ‘x’ number of properties.

For example, I would much prefer your goal to be a $3M - $4M asset base of investment-grade properties by retirement age.

This is a much more relevant goal as you can then equate it to wealth or your net worth.

3. A property portfolio that generates $200K in passive income per year

Given that the average mortgage-free Australian couple needs $70K- $80K per year to live, then $200K is a very healthy passive income goal and will allow you to live a very comfortable lifestyle.

Again, it's important to determine if this goal is gross or net.

Tip: Keep in mind, that when calculating the passive income you may need upon retirement, you should not be comparing yourself to others but be looking at your current income and lifestyle.

How much passive income you need to live comfortably is only relative to your existing lifestyle and spending habits.

If you are currently earning $400K+ and living an extravagant lifestyle, then no, $200K isn't enough for you.

My suggestion is, when determining your passive income goal, you should be attempting to supplement your existing income and then aim a little higher – if time and finances allow, of course.

4. Complete a development project or purchase a block of units

Now it’s important to note that most experienced and sophisticated investors have already achieved their passive income goals and accordingly should only be investing like they do not need to.

If you do not need to invest, then you should only be buying blue-chip investments that are the absolute highest and best use of your funds – investments that would return incredible results.

There is no doubt that, at the upper end, the two most common property goals are either completing a development project of a side-by-side townhouse (duplex) or purchasing a well-located boutique block of 4 units or 6 units with potential for value-add via a large-scale renovation.

I won't be getting into the details of these strategies; however, I intimately know the numbers and potential for wealth creation in both strategies.

I agree with both goals and would recommend them to high-net-worth clients who have the capacity to fund these investments.

Note: Property goals are not as simple and clear-cut as they appear to be.

There are a number of different variables that must be considered, including: your income or joint incomes, timeframe, serviceability, spending habits, lifestyle, risk profile, future plans, and knowledge of property or investments, to name a few.

Yes, the above has given you a point of measure or comparison, but you should only be comparing yourself to yourself, as everyone has a unique set of circumstances.

About Joseph Ballota Joseph is a Senior Wealth Strategist at Metropole. He focuses on ensuring all clients grow, protect, and pass on their wealth by assisting them in the strategic selection, financing, acquisition, and management of their investment properties. Being an investor himself for over 20 years, Joseph is able to give clients a detailed perspective for their strategic property plan