NEWS Two houses beats one
OUR love affair with investing in bricks and mortar shows no signs of ending, but the vast majority of Aussie investors limit themselves to one property.
The latest Australian Taxation Office statistics show that around 2.1 million individuals have an interest in a rental property.
Almost three quarters of them — about 1.5 million people — have only one.
While that gives them the title of property investor, it’s unlikely to be enough to fund their desired retirement lifestyle.
Real estate investment specialists say that four properties is a better target for many people.
While this plan varies dramatically depending on the value of each property and the attached debt, a rough idea is that you sell two at retirement to pay off the other two and then live off the rent along with other assets such as superannuation.
The ATO data shows that only 84,000 individuals own four or more properties. Among other multiple owners, 396,000 have two properties and 123,000 own three.
The biggest benefits of owning more than one rental property come from having a bigger asset base.
If you have $500,000 of investment assets increasing in value 5 per cent annually, that’s $25,000 profit in one year.
But if you have $1.5 million of assets growing at the same rate, you’ll get $75,000 annually — not to mention pocketing rising rental income as inflation pushes rents higher.
While four investment properties might seem impossible to a single property owner or someone just starting out, a long-term approach can get many people over the line. Here are three things to consider.
The biggest barrier to a rapidly-rising property portfolio is the rapidly-rising debt that comes with it.
As most of us don’t have a spare $400,000-$600,000 of cash to splurge on real estate, we rely on banks to lend us money.
Large debt requires large incomes to service it, and banks have recently become stricter about lending money — another big barrier.
Your income needs to be able to support your investments if there is a rental shortfall or tenant issues, and landlords insurance is vital. Avoid creating a potential financial hole that might swallow you up, which brings us to another thing.
Investors don’t need to buy a property every year.
It’s often a better strategy to wait for some capital growth in your existing assets before stepping up to purchase the next one.
Some investors might be waiting 5-10 years in some cases for property growth, but slow and steady is the way most successful people build wealth.
Consider diversifying in different suburbs and even different states.
Write down property investment goals.
Do some projections spanning 20 years or so to reinforce the long-term nature of investing.
This provides something to measure each year.
Be conservative with longterm forecasts. Go for about 5 per cent growth a year — so you don’t get frustrated by lengthy flat periods.
And have an exit plan, even if it’s decades away at retirement.
Written goals are a road map to a wealthier life. Anthony Keane is a
finance writer