It can be a daunting task to plan for future retirement. Most people always put off doing something about it. When you ask different people what retirement means, most will assert that it implies more time to do what they wish, as well as the financial freedom enhancing that. There are many, different ways to plan and save for retirement.
Considering property investment for your retirement financial security could be the start of something exciting, yet profitable for you. Property investment has withstood the test of time with regard to safely making money with lower risk for higher gains. Among the biggest attractions of property investment is that it’s a tangible asset which will always be valuable.
Live off Your Property Portfolio
The number of properties you own doesn’t really matter. What’s more vital is the specific value of your asset base, as well as how hard the money works for you. Most property investors are aware of they really want. They want their properties to serve as a reliable replacement for their income. However, most of them barely think about how they will actually attain financial freedom. Most have neither a strategy nor plan; they hope it’ll just happen.
Can I Live Off the Rent Alone?
Let’s assume you want an annual after-tax income of $100,000. How many properties would you need to attain that? How are you going to achieve that? If you’re planning to pay down your debt and then live off the rent, you’ll likely need properties worth at least $4 million without any mortgage to make a $100,000 annual, after-tax income. This takes into account the average gross yield for strategically located properties in Melbourne, which is around 4%.
So, how would property investment help with your retirement financial security?
1. Create and Control Capital
Most probably, you already understand why you need to create a substantial asset base. Some will build a business and others will grow sizeable share portfolios. What about growing a multimillion dollar property portfolio?
You need to know how to create, as well as add value to your properties using techniques such as development and renovations. Such add value through your ability and smart negotiations. Ensure to control your asset base as safely as you can by borrowing and leveraging against appreciating assets.
2. Transform your Capital into Passive Residual Income
The successful investor grows money trees, recognizing that cash-flow is the fruit here. What does this mean? Once you’ve created a real asset base, then transition into the cash-flow stage of your investment life by lowering your loan-to-value ratios and borrowing against and living off your equity. Ascertain that you’re following these 4 rules of Capital:
- Concentrate your Capital- Instead of diversifying; focus your energy and effort on your area of expertise.
- Don’t Risk your Capital- You’ve already created a real capital base. It’s now time to invest, not speculate. Be prepared to forgo ‘potential’ future profits in order to not risk your current assets.
- Protect your Capital- Own your assets in the most appropriate structures to safeguard your capital. Have financial buffers in place.
- Value your Capital- A professional investor doesn’t eat away their capital. Rather, they convert that capital into cash-flow and live off the fruits of their tree.
3. As a Property Investor, You Should be Financially Fluent
A smart investor clearly recognizes that what matters is how hard his/her money works for them, not how much money they’re making. Get to learn how finance, legal and tax systems work. Learn how they favor investors who consider their properties as a business. Simply put, understand the language of accounting and assessment of different investment options.
4. Understand the Real Importance of Money
To be truly prosperous, you need much more than money. A wealthy person is one who has much more than merely money. Have the time to enjoy money, have relationships to share money with and have a sense of purpose with which to direct your money. Comprehend how contributing to the community brings meaning to your life.
In old days, living off equity wasn’t hard. You’d just head to the bank and receive a low doc loans. So long as your properties were increasing in value, it was smooth sailing. Today, it’s surely harder, but definitely doable. All you should do is lower your loan-to-value ratio (LVR) to show serviceability to banks.
Remember, you won’t achieve that overnight. It’ll take time to create a substantial asset base, along a comfortable LVR. Attaining financial freedom from property investment may sound simple, but requires time and smartness. Still though, it’s a greatly practical means to achieving your retirement financial security. When done right, it’s an ideal option. Learn, act then prepare to reap fruits of your hard work.