Buying Property For Retirement Income

Updated Sep 2020. 5 Minute Read. 

Are you financially prepared for retirement? It’s a question a lot of Australians should ask themselves. The financial wealth you’re accumulating now can have a big impact on your retirement lifestyle. Many Australians have backed themselves by investing in property as soon as they can. 


Establishing a property portfolio has been a proven strategy for people building their own wealth during retirement. A good buyers agent will tell you that it’s not always about the number of properties you have. Sometimes it’s the value of the house that can make it a more viable investment.

How To Start Buying Property For Retirement Income

It’s also important to look ahead and have a clear strategy in mind. You can’t just buy property after property and expect everything to work out. It takes years of careful planning. You need to know the right time to adjust your finances and make the transition to making your investment properties the primary source of your cashflow. 


With the right plan in place, you can set yourself up to use investment properties as the primary source of your retirement income. 

Crunch the numbers

To start your property buying strategy it’s important to establish your annual tax after income. How much do you want to make each year to lead the lifestyle you want? Find that sweet spot and stick with it. Once you have a number in mind, you can move onto the next phase of your planning.


The average gross yield for property in a good Australian suburb is roughly 4.5%. So if you own a property with $1 million, you’re likely to earn around $45,000 a year. But don’t forget there’s still plenty of other expenses to take care of for your investment property. There are council rates and commission rates for real estate agents. 


Maintenance and repairs can also set you back each year. Maintenance costs can vary depending on how old your house is or what condition it’s in. On top of all these expenses, you’ll need to pay taxes on your rental income. These taxes include income tax and capital gains tax. But keep in mind that there may be tax offsets that you could be eligible for. 


The total sum of your maintenance costs and taxes could end up leaving you $10,000 out of pocket. So if you were aiming to earn over $100,000 a year from a rental income, you would need a property portfolio worth over $4 million. 

Looking for great advice on buying property for retirement income? Ask the experts at Wise Real Estate Advice.

Plan for a steady growth in assets

Not many of us have the luxury to purchase millions of dollars in property in one go. It will most likely take you years to accumulate that many assets. Gradually adding to your portfolio is one of the safest strategies to follow. You can use capital growth to increase your portfolio over the years. 


Capital growth can make it possible for you to buy another property by using the equity from your previous one. For this strategy to work, it’s best to wait until the equity in your first property grows. In Australia, it’s fairly common for a house to almost double in value every ten years. You can use this figure to set up your timeline for buying investment properties. 


So let’s break this strategy down to its simplest form. A bank lets you borrow money based on how much you already have in assets. When you acquire more assets, you can borrow more money from the bank. So acquiring more properties over the years will continue to increase your capacity to borrow money from the bank. 

Property Investor Podcast

Looking for more solid advice on property investment? Listen in to the Property Investor Podcast

What are the risks with property investments?

So does buying property for a retirement income sound too good to be true? There are definitely some risks involved. First off you need to consider the fact that the costs of maintaining your investment properties will continue to increase. 


A market downturn could also have a serious effect on your investments. A perfect example is the effects of COVID-19 in Victoria. Imagine buying an investment property just before COVID-19. The average rent for your property’s suburb may have been substantial enough to cover mortgage repayments. But what if during COVID-19 you find it difficult to find tenants that can afford your desired rent for the property? 


A sudden rise in interest rates could also affect your ability to pay off an investment property. Raising the rent of your property isn’t always an easy fix that’s available to you. And imagine the financial stress you could be under if you suddenly had to pay a higher interest rate on multiple properties at once? These are worst-case scenarios but nevertheless, they are still possible.


So it’s important to be aware of all the risks involved with property investments. The more you know, the more prepared you can be in case anything goes wrong. Never spend beyond your means when it comes to buying an investment property. A good buyers agent can assist you with searching, inspecting, and assessing potential investment properties.

Set yourself up for success 

Is your dream to retire on the income of your investment properties? That dream can become a reality with a combination of time, research, and the confidence to take a risk. There are always going to be risks associated with property investments. So back yourself by being prepared.


It’s also important to note that buying property for retirement income isn’t something that happens overnight. It can take decades for everything to fall in place for you. You may ask yourself when is the right time to invest in property. The answer is knowing when you’re ready. When you know all the risks involved, you’ll be ready to make the right decision. When you have a carefully thought out timeline and strategy, you’ll know the right time to start investing.


So set yourself up with some realistic goals. Do your research and be confident in what the future holds for your investments and your retirement. Read articles, listen to podcasts, and don’t be afraid to ask for advice whenever you have the chance. Buying property for retirement income is a massive decision that’s likely to affect the rest of your life.

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