Table of contents
 - featured image
By Michael Yardney
A A A

How many properties does it take to be wealthy?

All over the world, people are working hard every day to create a strong financial future.

pencil icon

Note: 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 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 a 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.

Why?

Because it’s relatively low risk; accessible to almost everyone; has been proven to generate returns to everyday Australians, time and time again.

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 are “enough” to become genuinely wealthy 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 $ 2 million worth of property.

This might be around three affordable homes, roughly $700,000 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.

A key factor that leaves out

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.

Negative Gearing Tax

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, it's not quite the windfall you may be 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

pencil icon

Note: 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.

So how many properties do you need to be rich?

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.

bulb icon

Tips: The №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.

pencil icon

Note: 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 for figuring out how many properties you’ll need to fund your retirement because it is such a personal decision for each individual person.

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?
pencil icon

Note: 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 targets 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.

In other words...

You need to plan

Attaining wealth doesn’t just happen, it’s the result of a well-executed plan.

Planning is bringing the future into the present so you can do something about it now!

pencil icon

Note: Just to make things clear...buying an investment property is NOT a strategy!

It's important to start with the end game in mind and understand what you need and what you want to achieve.

And then you have to build a plan, a strategy to get there.

The property you eventually buy will be the physical manifestation of a whole lot of decisions that you will make, and they must be made in the right order

That's because property investment is a process, not an event.

If you’re a beginner looking for a time-tested property investment strategy or an established investor who’s stuck or maybe you just want an objective second opinion about your situation, I suggest you allow the team at Metropole to build you a personalised, customised Strategic Property Plan.

When you have a Strategic Property Plan you’re more likely to achieve the financial freedom you desire because we’ll help you:

  • Define your financial goals;
  • See whether your goals are realistic, especially for your timeline;
  • Measure your progress towards your goals – whether your property portfolio is working for you, or if you’re working for it;
  • Find ways to maximise your wealth creation through property;
  • Identify risks you hadn’t thought of.

And the real benefit is you’ll be able to grow your wealth through your property portfolio faster and more safely than the average investor.

Your Strategic Property Plan should contain the following components:

  1. An asset accumulation strategy
  2. A manufacturing capital growth strategy
  3. A rental growth strategy
  4. An asset protection and tax minimisation strategy
  5. A finance strategy including long-term debt reduction and…
  6. A living off your property portfolio strategy

Click here now and learn more about this service and discuss your options with us.

About Michael Yardney Michael is a director of Metropole Property Strategists who help their clients grow, protect and pass on their wealth through independent, unbiased property advice and advocacy. He's once again been voted Australia's leading property investment adviser and one of Australia's 50 most influential Thought Leaders. His opinions are regularly featured in the media.
No comments

Guides

Copyright © 2024 Michael Yardney’s Property Investment Update Important Information
Content Marketing by GridConcepts