By Kate Hill, Adviseable
It can seem a real pipe-dream for many property investors to have enough equity to retire early. But there are plenty of young investors doing just that.
When we look at property prices these days, the costs of maintaining a portfolio, and the amount of net worth we’ll need to retire, it can seem a long way off to young investors. But if you want to speed up your retirement, and maximise your returns, as young successful investors show us, there’s no point waiting until tomorrow to get started with smart investing.
What are some strategies for retiring early?
It sounds obvious but GET STARTED, there’s no other way to put it. If you keep planning and waiting for the right time to do it, you’ll never get started. There’ll always be an excuse you’ll tell yourself, the politics aren’t right, the interest rates aren’t right, the weather’s wrong…. Seriously the list will go on. So you just need to get started. Getting started is more important than being the expert perfectionist. If you wait to get it 100% right then you’ll always be 100% doing nothing – and that equals 0% progress. Get started and build momentum. Form your habit of investing.
If you are investing in property to build wealth for the future, then it’s also worthwhile having an idea of the exit plan from the outset. That exit plan for most is some sort of retirement or slowing down. This plan can and will change over time – it doesn’t need to be set in stone, it doesn’t need to be perfect – but a plan is always a good thing. Even if it’s rough, make one. I’ve done a video about property investment planning, so have a watch of that.
Planning for early retirement
Preparing for early retirement means setting goals. Now life and world events will happen; children, work, illness, changes to the economy – but having goals around your financial security will help you structure your investments and give you numbers to work towards. Not flying blind, not hitting and hoping is so important to get to where you want to be. It sounds obvious, but you’d be amazed how many people just wander into this hoping for the best, without a plan, not doing due diligence and then have to sell before the property has had the time to do its thing and grow.
If you don’t have a clear picture of what you’re trying to achieve, then it’s hard to know when to act, when to do nothing, and when to cash in.
Keeping your eye on the prize and tailoring your strategy and plan as you go – in other words, being fully aware of the key data and numbers – and then setting yourself realistic goals that you can push yourself to achieve – is a system that you can be sure just about all successful investors share.
Pick your properties well
Retiring at 40 or 50 doesn’t have to mean taking huge risks. Say, for example, you bought one awesome $500K investment property every 2 years for ten years, (so you bought 5) then you’d have $3.2 mill worth of property if they’re growing on average 5% per year. You might still have all the debt in place in which case your net worth could be almost $600K.
If you wait another 5 years, (even if you don’t pay any of the debt off which I always recommend you do once you’ve paid your personal debt off) then your net worth would be about $1.5mill. A 5% return on that is a probably taxable amount of $75K per year. So imagine if you start when you’re 30. This could be your situation when you’re 45. And the sooner you start the sooner your properties will have the chance to start growing. Of course that growth won’t be exactly the same every year, and some years it might go backwards a little. But that is more money than most people will ever get to retire on and it will certainly give you some options. And that’s just your properties. This would be on top of any pension fund money, or other investments that you have.
Buying properties that allow you to recycle your deposit more quickly, is a great way to speed up your retirement.
Using equity that develops in well-chosen property investments, means you can finance and leverage into the next property – and in this way, you can build that portfolio of carefully selected growing assets, that speed up the growth of your total portfolio value, as you benefit from the right combination of capital growth and rental yields to suit your particular situation and plans.
Diversifying your investments helps to minimise your risk. You do not want all of your property eggs in one basket. You don’t want them all in the same town or suburb, you want to spread them out – this spreads your risk. A lot of people make mistakes here, because they buy locally to where they live, because it’s what they “know” and they can keep an eye on it. Don’t do this! It’s one of the biggest mistakes you can make.
Don’t assume that the area you live in is a great capital growth area. It might be lovely to live in, but not be the best investment choice. You may not be able to afford to buy an investment property in the area you live, which means you won’t do it because you think you can’t afford it, and so you don’t get started. Think further afield and buy in areas you CAN afford with expert help of course.
Having the right specialised property adviser with a close eye on the many property markets, and keeping you up to speed with data and insights is also critical.
With life expectancy rising, many people under-estimate how much it is going to cost to live as well as they would like to live, once they stop work. And there are serious costs to consider that come with Property Investment such as capital gains taxes, interest rates and property portfolio management costs. So have a close understanding of and be able to monitor and keep track of your investments, costs and returns. This is another step to success.
Building your portfolio
Building a portfolio of income generating properties means that at some point, your investment returns will replace your main incomes, and you can get off the hamster wheel and leave the daily grind.
In Australia a massive amount of people’s wealth is tied up in property Investments, with a majority still wanting to own their own homes, and in many cases, second properties, such as holiday homes, even if they are not serious investors. But there is a growing swell of people (rentvestors) who don’t want to own where they live. They want to stay flexible. As a country we need those people to be flexible. They move around to where the work is and COVID has changed that whole not living where you’re working lifestyle. These people and many more will want your rental properties. There will continue to be a demand for rental properties.
Investors don’t have to be super aggressive and highly risky in their approach – but you do need to get started, have a clear plan and positive strategy, the right data and advice, and be very focused.
As always, be sure to get advice from licenced and experienced professionals before making any investment decisions. The right information will help you maximise your chance of success in any market.
