Building your property portfolio for your retirement

April 08, 2016
Ali Batten

There’s a lot to love about investing in property, and it seems that a lot of people turn to this when they are thinking of their future.
The share market 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.

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.

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 cash flow, giving you money to live on.

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.

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. We can help you determine if we can use the equity in your home to fund an investment property for retirement.

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 we can offer you advice from our in-house Financial Adviser – Chris.

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.

Contact either Owun, Suzanne or Costa on 02 9517 1818 or to discuss your options. Or, if you feel like dropping in at our office, we are located at Suite 106, Flourmill Studios, 3 Gladstone Street, Newtown 2042. Be sure to share our blog on Facebook and Twitter and let others join the conversation!

Posted in: Lifestyle

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