It pays to have a property plan

Careful strategic planning and time are the key ingredients for success, writes

PROPERTY investment has long been a financial backbone of self-funded retirees, delivering rising asset values and growing incomes.

But many Australians are unsure how many properties they need for a comfortable retirement, and fail to plan for tax, costs, superannuation and other issues that can affect them.

WealthMart property consultant Steve Smith said it was important to know your end game early. “Is it to fully fund your retirement with passive income? Work out how many properties you need to acquire to generate your income, taking into account tax and maintenance costs,” he said.

“The longer you hold your investments, the more capital growth you will achieve. It takes a bit of time to get your portfolio together.

“We find people procrastinate. But people who have a plan will generally stick to it. It makes them act.”

Mr Smith said most people did not think about retirement until after age 45 “but they could have done a lot more before then”.

One investment property won’t be enough. Mr Smith said a $600,000 asset earning 5 per cent would deliver about $30,000 a year before holding costs. “That’s well below people’s expectations of what they are going to be retiring on.”

For a retirement income of $80,000 — close to the current average wage — retirees needed assets of $1.6 million and to be debt-free, he said.

This could be from three properties plus your own home, but you might need to own more properties so you can eventually sell some to pay off the debt of the others.

Mr Smith said using selfmanaged super funds to buy investment properties delivered great tax benefits — including no capital gains tax if selling after age 60. But property should not be the only asset they owned, he said.

Author, investor, TV presenter and renovation specialist Cherie Barber has calculated that people need $2 million of property assets to deliver a passive income of $1000 a week.

“That’s four properties valued at $500,000 each and all fully paid off by retirement,” she said. “Property one is the home you’re living in. Property two and three generate the rental income you live on, and property four pays all the costs on your property portfolio.”

Ms Barber said 15 years was a rough guide for a property plan to work, but this varied depending on property market cycles.

“You need careful strategic planning right at the outset, mapping it all out financially, calculating how much money you’ll need to do those deals over time and making sure you can comfortably service the loans,” she said.

“People often don’t reach their financial retirement goals, simply through a lack of longterm planning. Once you reach retirement, it’s too late. The sooner you start planning, the easier it will be.”