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Building your retirement on property

There’s a lot to love about investing in property, and bricks and mortar can be an especially rewarding asset in retirement.


There's a lot to love about investing in property, and bricks and mortar can be an especially rewarding asset in retirement.

The sharemarket woes we've seen since the start of 2016 have been a stark reminder that equities can be a highly volatile asset.  For all investors - retirees in particular, it can be enormously unsettling to see the value of equity investments decline by as much as 8% in a single month. And that's exactly what happened to Aussie shares in the first three weeks of 2016.

No wonder many Australians turn to bricks and mortar to fund their retirement.

It turns out, a rental property can have a lot of pluses for retirees including potential long term capital growth, regular rental income and an abundance of tax benefits including lightly taxed profits on the sale of a property that is held for longer than 12 months.

Even better, there is a range of ways to add a rental property to your retirement portfolio.

  1. Invest now to take advantage of negative gearing

One key plus of investing in property is the ability of landlords to offset loan interest charges plus other ongoing expenses against regular rental income. Where these costs exceed the rent return the property is said to be ‘negatively geared'.

Moreover, the ongoing losses generated by the property can be offset against a landlord's regular wage or salary income to generate valuable tax savings. It means the tenant together with the tax man can help you pay off the property during your peak income earning years.

Ideally, by the time you retire, the loan will be paid off and the property will generate a positive cashflow, giving you money to live on.

  1. Invest in your retirement home now

Here's one possible option for retirement that you may not have considered. Invest in the property you'd like to retire to, rent it out in the interim and sell your current home for a tax free capital gain when you're ready to hang up your work boots.

It's a tax-efficient strategy that can boost your retirement savings and provide you with a retirement home purchased at today's prices.

Your Mortgage Choice home loan specialist can provide more details about how this can work.

  1. Put home equity to work

If, like many home owners, you have built up equity in your property, you may not need a cash deposit to invest in a rental property. Talk to your Mortgage Choice broker about using home equity to fund an investment property for retirement.

  1. Add property to your self-managed super fund

Not everyone has – or wants to have – a self-managed super fund (SMSF). But if you do have your own SMSF it is possible to borrow funds to add a rental property to your SMSF portfolio. This is a specialised area and it pays to seek advice from a professional financial planner.

Downsides to be aware of

Ongoing costs

Buying an investment property involves a lot more than the initial purchase price, and landlords need to be able to manage the cost of rates, insurance, maintenance and repairs on an ongoing basis.

As a retiree, the rent your property generates should adequately cover these expenses while still providing a worthwhile source of retirement income.

Yield versus capital growth

Consider what sort of returns matter most to you in retirement.

Properties located in large metropolitan areas, notably our state capitals, tend to deliver high rates of capital growth though rental yields may be low. By contrast, regional properties often generate strong rental yields though with lower rates of capital growth.

Your local Mortgage Choice broker can help you crunch the numbers to discover what sort of property you can afford, and pinpoint the investment loan best suited to your needs.  Call us today on 13 77 62 to start building a property portfolio that supports a fulfilling retirement. 

Posted in: Home loans

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