Q Magazine - - Wealth -

Can Prop­erty Help You Re­tire More Com­fort­ably? Whether you are close to re­tir­ing or you have years ahead of you, in­vest­ing in prop­erty could be a way to re­place or at least sup­ple­ment your other re­tire­ment in­come. Some re­tirees have al­ready set them­selves up with a port­fo­lio of prop­er­ties that can pro­vide for all their in­come needs. Oth­ers have got maybe 1 or 2 prop­er­ties un­der their belts and use the rent re­ceived to en­hance their re­tire­ment life­style. And of course, many re­tirees don’t own any rental prop­erty at all or de­rive any in­come from their prop­erty hold­ings.

How do you know if prop­erty in­vest­ing might be right for you? To help you make this de­ci­sion, you are likely to want to know ex­actly what prop­erty in­vest­ing in­volves, who's ac­tu­ally do­ing it and what sort of money can you make from it.

Be­low we an­swer these three most fre­quently asked ques­tions by peo­ple con­sid­er­ing in­vest­ing in prop­erty to help them re­tire more com­fort­ably.

1. What ex­actly is prop­erty in­vest­ing?

Prop­erty in­vest­ing can mean dif­fer­ent things to dif­fer­ent peo­ple. Firstly, there are dif­fer­ent sub­sets of prop­erty in­clud­ing broadly res­i­den­tial, com­mer­cial (re­tail, of­fice, ware­house), in­dus­trial and/or agri­cul­tural. Then on top of that, within each sub­set there are dif­fer­ent ways to in­vest. For ex­am­ple, with res­i­den­tial prop­erty you might ap­ply a ren­o­va­tion, sub­di­vi­sion, or de­vel­op­ment strat­egy or sim­ply use a buy and hold ap­proach. Ob­vi­ously, the in­vest­ment re­sults (or out­come) are go­ing to be dif­fer­ent with each strat­egy, as will be the amount of skill, time, risk and re­ward re­quired to suc­cess­fully im­ple­ment each strat­egy. Ad­di­tion­ally, whether you pur­chase the prop­erty in your own name(s), a com­pany or trust name or through your self-man­aged su­per­an­nu­a­tion fund (SMSF) will make a dif­fer­ence to how the re­turns are taxed – par­tic­u­larly when it comes to Cap­i­tal Gains Tax (CGT) post-re­tire­ment.

2. Who is typ­i­cally in­vest­ing in prop­erty?

If you look at data from the Aus­tralian Tax Of­fice (ATO) you will see that for the fi­nan­cial year 2014-15 just over 2 mil­lion Aus­tralians claimed an in­ter­est in an in­vest­ment prop­erty. This equates to around 8.6% of the es­ti­mated res­i­dent pop­u­la­tion of Aus­tralia, which is 23.8 mil­lion ac­cord­ing to the ABS as of 30th June 2015.

In­ter­est­ingly, the vast ma­jor­ity of Aus­tralians will only own one or two in­vest­ment prop­er­ties, and around two-thirds of in­vest­ment prop­er­ties are neg­a­tively geared with an av­er­age loss of $10,947 per prop­erty, while the re­main­ing one-third of pos­i­tively geared prop­er­ties saw in­comes of $9,075 per prop­erty.

An ar­ti­cle pub­lished in The Con­ver­sa­tion in Au­gust 2017 found that the av­er­age prop­erty in­vestor was a 42-year old male (men are twice as likely as women to in­vest in prop­erty) who was mar­ried (72% of the time) and had an av­er­age net monthly in­come of $6,617, ($79,404 per year).

3. What sort of re­turns can you ex­pect from prop­erty?

Ac­cord­ing to the 2017 Rus­sell In­vest­ments/ASX Long-term In­vest­ing Re­port, res­i­den­tial prop­erty was the top-per­form­ing as­set class in 2016 and, on av­er­age, for the last 10 and 20 years you could have ex­pected gross av­er­age re­turn of be­tween 8.10% p.a. and 10.30% p.a. How­ever, with the na­tional av­er­age gross rental yields in Aus­tralia be­ing just 3.69% to May 2018 ac­cord­ing to Corelogic, the bulk of these re­turns would be due to ap­pre­ci­a­tion in cap­i­tal growth rather than in­come. How­ever, the prob­lem with av­er­ages is that they will not nec­es­sar­ily ap­ply to your prop­erty pur­chases. For ex­am­ple, it is pos­si­ble to in­vest in higher yield­ing res­i­den­tial prop­er­ties such as dual in­come prop­er­ties, or to use on­line plat­forms such as www.Quick­ to ac­cess short-stay or hol­i­day let ac­com­mo­da­tion mar­kets to achieve up to 40% higher gross yields than tra­di­tional long-term ten­an­cies.

In­ter­est­ingly ATO 2015-16 data on SMSFs found that while SMSFs now make up 30% of all su­per as­sets, di­rect in­vest­ment in res­i­den­tial prop­erty only makes up 4.4% of all SMSF as­sets, and di­rect in­vest­ment in com­mer­cial prop­erty comes in at 10.4%. This may re­flect the fact that typ­i­cally com­mer­cial prop­erty pro­vides greater yields (with are of­ten lower cap­i­tal growth) than res­i­den­tial prop­erty and as SMSF trustees search for yield in the low in­ter­est rate en­vi­ron­ment we find our­selves in over re­cent years.

Now of course, these are gen­er­al­i­sa­tions, and it is pos­si­ble for savvy in­vestors to achieve yields range from as low as 2% p.a to 20% p.a or even more us­ing prop­erty-based in­vest­ment strate­gies.

We highly rec­om­mend that no mat­ter what your age, what your cur­rent as­set base is, and what­ever in­come you are aim­ing to achieve in the fu­ture that you have a clearly de­fined wealth plan, that you sur­round your­self with great peo­ple, and you start your in­vest­ment jour­ney as soon as pos­si­ble to give your­self im­por­tantly the time you need to achieve all of your life goals.

Matthew Bateman and Luke Har­ris are co-founders of The Prop­erty Men­tors, a Mel­bourne-based busi­ness com­pris­ing an elite team of prop­erty pro­fes­sion­als who ed­u­cate, mo­ti­vate and fa­cil­i­tate clients from all around Aus­tralia. Their new book, Let's Get Real (Ma­jor Street Pub­lish­ing $29.95) is now avail­able.

For more in­for­ma­tion visit www.lets­ge­tre­al­­away

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