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All over the world, people are working hard everyday to create a strong financial future.
The most ambitious amongst us are not just aiming to pay the bills, but we want to create lasting wealth – enough that will allow us to retire comfortably, if not able to live in abundance!
While others are keen to leave a legacy for their children and grandchildren.
When it comes to choosing what to invest in to boost your retirement nest egg, there are plenty of things to consider, from your projected superannuation balance and pension options, through to the ability to turn a profit in shares, index funds or real estate.
But when all is said and done, investing in property is a great way to build wealth and generate a passive income to live off in your golden years.
So why choose property to build wealth?
Ultimately, your decision on how you plan to invest for your future will depend on your own individual goals and circumstances – but generally speaking, real estate is a relatively secure choice.
If you’re already successfully building your property portfolio, or you’re looking at starting on this journey, you might be wondering how many properties is “enough” to become genuinely wealth in retirement?
That said: how many properties should you aim to own, in order to retire without lingering stress and worry over your finances?
I go into detailed calculations here, showing you exactly how you can work this out for yourself.
Interestingly, some of the numbers may surprise you.
For instance, many experts suggest that in order to build a nest egg that will be large enough to retire and live comfortably, you need to aim for around $2million worth of property.
This might be around four affordable homes, roughly $500,000 each in value, which is quite achievable for many Australians.
The thinking behind this is that, assuming you receive a 4.5% rental return or yield on investment, you’ll receive $90,000 per year in annual rental income to live off.
That might seem like more than enough to cover your cost of living, especially if you’ve already paid off your own home.
Here’s what many fail to consider, however
That $90,000 worth of income is pre-tax.
You will likely pay around 25% of that sum to the tax man.
You’ll also need to factor in costs such as property management fees, council rates, water, repairs and maintenance.
This could chew through another $10,000 or so, more if major repairs or upgrades are required.
This brings the return on your $2m portfolio down to around $55,000 per year.
While that’s nothing to be sneezed at, but it’s not quite the windfall you may been projecting.
And in the current low inflationary, low interest rate environment, yields on investment grade properties tend to be much lower than they used to be so you’re lucky to receive a 2.5% net yield after all your expenses
In my calculations, I’ve worked out that for the average Australian to live comfortably in retirement with few financial issues to worry about, they need to own their own home with no debt against it PLUS an unencumbered – that is, fully paid off – property portfolio worth at least $4 million, in order to earn that $100,000 income per year after tax.
How many properties will that require?
Well, I’m sorry to disappoint, but the truth is: there is no magic number
That doesn’t mean you can’t plan ahead to secure your financial future through real estate investing.
By taking a few different things into account, you can forecast your retirement funds and feel secure in knowing you’re setting yourself up to be financially comfortable, if not prosperous.
The no.1 thing you need to focus on, more than the number of properties you buy, is the quality of the properties you buy.
You can have ten separate investment properties, but if they’re of low standard and aren’t performing well, aren’t growing in value and consistently have vacancies or require repairs, then you might struggle to generate enough income to retire on.
Alternatively, you might have just two really well-located, high performing property assets – and it’s these two properties that pave the way for financial prosperity.
The secret to success is quality, which is why I always advise my clients to strategically invest in the best quality properties they can afford.
Quality over quantity is key as an investor; if you want to work towards eventually living off the income generated from your investments, then you need to set the right foundations by investing in low-maintenance, central properties that will stand the test of time.
There’s no set method to figuring out how many properties you’ll need to fund your retirement, because it is such a personal decision for each individual personal.
But to get an idea of what may suit your own circumstances, consider:
- How much money you’ll need each year upon your retirement? Taking into account everyday living expenses and lifestyle aspirations.
- Whether you plan to travel or take up hobbies once you retire? You’ll need to budget for this.
- Your current financial situation? Can you afford to pay for ongoing repairs, maintenance and vacancies in one or more investment properties?
- What is your risk profile? Are you okay with owning a large portfolio of properties, or would you prefer fewer, more expensive properties in your portfolio?
A matter of time
When trying to calculate the ideal number of investment properties to retire on, you also need to consider when you plan on retiring.
For someone getting into the investing world later than others, with plans to retire 10 years’ time, you’ll have a different set of target than investors starting out in their earlier years.
Take some time to think about your retirement goals and when you hope to reach them, to help you decide on a final target, as this will help you determine how many properties you’ll need to reach that number.
Then, it’s a matter of devising a strategy to help you get from A to B.
Regardless of how many properties you think you’ll need for your ideal financial future, you’re already taking the right steps towards empowering yourself by investigating the options in front of you.
You can feel confident knowing that, just by investing in even one property, you’re putting yourself and your prosperity first, by taking steps to ensure a more than comfortable future.
Now is the time to take action and set yourself for the opportunities that will present themselves as the market moves on
If you’re wondering what will happen to property in 2020–2021 you are not alone.
You can trust the team at Metropole to provide you with direction, guidance and results.
In challenging times like we are currently experiencing you need an advisor who takes a holistic approach to your wealth creation and that’s what you exactly what you get from the multi award winning team at Metropole.
If you’re looking at buying your next home or investment property here’s 4 ways we can help you:
- Strategic property advice. – Allow us to build a Strategic Property Plan for you and your family. Planning is bringing the future into the present so you can do something about it now! This will give you direction, results and more certainty. Click here to learn more
- Buyer’s agency – As Australia’s most trusted buyers’ agents we’ve been involved in over $3Billion worth of transactions creating wealth for our clients and we can do the same for you. Our on the ground teams in Melbourne, Sydney and Brisbane bring you years of experience and perspective – that’s something money just can’t buy. We’ll help you find your next home or an investment grade property. Click here to learn how we can help you.
- Wealth Advisory – We can provide you with strategic tailored financial planning and wealth advice. Click here to learn more about we can help you.
- Property Management – Our stress free property management services help you maximise your property returns. Click here to find out why our clients enjoy a vacancy rate considerably below the market average, our tenants stay an average of 3 years and our properties lease 10 days faster than the market average.
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