I’ve had conversations with plenty of discouraged folks who are in their 50s (or even older) and they’re wondering how they’re going to survive in their retirement.
They start to question if it’s too late to invest in property.
Is there ever a time when you’re just too old?
In general, my response would be no, but there’s a caveat: you’ll be far more limited and your strategy will be very different the later you start.
That said, I certainly don’t believe anyone should ever think that generating income from real estate is out of their reach.
I explain to these clients that if they’re looking to enjoy financial freedom during their twilight years, they will need to grow a significant quality asset base which is likely to include their home, their superannuation, and investment properties.
The thing is, to achieve financial freedom, they will need to do things differently from what they have done in the past.
They will need to invest in high-growth properties that generally have negative cash flow as they don't have a lot of time on their side to see the wonders of compounding growth work its magic.
This means they will need to budget and sacrifice a little now so they can enjoy their retirement later.
If they don't, the alternative is their golden years will be defined by money worries as they struggle to make ends meet on the pension and their inadequate superannuation balances.
The hurdles can be higher when you’re older
Banks are likely to be warier of handing out loans to baby boomers because they know that at some point, you’ll stop working and begin to live off your retirement funds.
Many loans work off a 30-year term, so a shorter loan term might mitigate your risk enough for lender approval.
Of course, you’ll need to be sure you can meet the higher repayments.
Another option is to look at purchasing through a Self Managed Superannuation Fund, which is becoming a popular choice with many investors.
The 3 Phases of developing financial freedom
All investors go through three stages of building wealth, which are:
1. Accumulation Phase
Clients who start investing later in life don't have the luxury of time to make mistakes meaning they must own the right assets being “investment grade” high capital growth properties.
2. Consolidation Phase
The consolidation phase involves slowly reducing the debt on their properties, which conversely increases their cash flow when they need it the most – in retirement.
3. Lifestyle Phase
The lifestyle phase is all about enjoying their golden years as well as managing and protecting their assets to make them last the distance.
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Of course, any investment strategy involves some level of risk and this is especially true for investors starting later in life who only have a shorter period to grow a sufficiently large property portfolio to help fund their retirement.
Some of the many risk mitigation strategies I discuss with clients include:
- Having a financial buffer in place which will allow them to cope to with any unexpected maintenance or vacancies.
- How to purchase their properties to in the most tax-effective manner and in the correct structures.
- Income protection and life insurance as well as landlord’s insurance to protect their interests.
- Estate planning because, while we never like to talk about it, it's important to plan how we’re going to look after our family. This will include seeing a solicitor and preparing a will, chosing executors and organising a power of attorney.
- Finally it’s important that our clients treat their investments like a business and regularly review their portfolio with their property strategist to track its performance, ensure they have the right loans and best interest rates, and assess when they're ready for their next acquisition.
What kind of strategy can older people use?
In my mind, the aim of purchasing property is to build an asset base through long-term capital growth, which only happens over a period of many years or decades.
Investors in their 30s have three or so decades before they need to sell.
If you’re older, there’s less time for capital growth to work its magic.
But the real estate market is a bottomless well of dwelling values, yields and growth potential – and there’s a multitude of strategy options for you to create a wealthy retirement, even at an advanced age.
You need to consider a number of factors, which means asking yourself questions like:
- When do I want to retire and how many years do I have left in the workforce?
- How much money do I need to sustain my lifestyle in retirement?
- What is my family situation and how will that impact my finances in retirement?
Don’t try doing it on your own
I would stress at this point that it’s imperative that you use the guidance of a knowledgeable wealth creation expert, to help you plan your strategy for optimal results.
They will be able to help you work through the above questions and create a plan of action to achieve your goals.
Just as importantly, a good property investment strategist will have your best interests at heart.
I’ve seen many investors chase quick, fast profits with the fear of ‘retiring poor’ weighing them down, and there are just too many sharks and scammers in this industry who are far too happy to take your money and line their own pockets by selling you a dud investment, which leaves you worse off than when you started.
With the right advisors on your team, however, you could then consider some of these strategy options for people aged 50 and over:
A mix of property types: Your strategy could include investing in a blend of higher-yielding properties such as commercial properties alongside high-growth properties that you can use to build your asset base.
Creating your own capital growth: If your budget and risk appetite allows for it, you might look at generating your own equity by renovating an established apartment or townhouse or even considering getting involved in a small residential development like a duplex to manufacture growth.
Joint ventures: If you can’t afford to invest in a quality property portfolio on your own to create enough wealth to retire on – or if you can’t satisfy the loan criteria of the banks to buy your first investment – maybe you could team up your children or siblings.
Most importantly, stay encouraged.
Even if you’re in your 50s, a property can still have a good 20 years to grow and mature in value before you sell for profit when you’re 70.
Of course, the old saying is true: the best time to invest in property is yesterday.
But without the benefit of a time machine, the next best time to invest is now.
A properly thought-out and well-managed portfolio, built with the guidance of professional advisors, can still work for you, regardless of your stage in life.