It seems a pipe-dream for many Property Investors to have enough equity to retire young. 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.
So how do they do it?
Firstly, if you are investing in property to build wealth for the future, then it’s worthwhile having an exit plan in mind from the outset. That exit plan for most is retirement. This plan can and will change over time – it doesn’t need to be set in stone – but a plan is always a good thing.
With life expectancy rising, many people under-estimate how much it is going to cost to live as well as they would like, once they retire. And there are serious costs to consider that come with Property Investment such as capital gains taxes, interest rates and property portfolio management costs. Having a close understanding of, and being able to monitor and keep track of your investments, costs and returns, is the first step to success.
For many people in Australia, building a portfolio of income generating properties means at some point, their investment returns can replace their main incomes, and they can leave the daily grind.
A massive amount of Australia’s wealth is tied up in Property Investments, with the vast majority of Australians still wanting to own their own homes, and in many cases, second properties, such as holiday homes, even if they are not serious investors. With huge interest in Australian Property from off-shore investors, a growing population, increasing immigration, a relatively low population, and a solid, stable economy – many Australians who invested in Property when they were young, are now reaping the benefits of a richer and more comfortable lifestyle.
Preparing for an early retirement means setting goals. Life events happen, children, work, illness and changes to the economy – but having goals around your financial security will help you structure your investments and give you numbers to work towards.
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 young investors share.
Picking your properties well.
Retiring at 40 doesn’t have to mean taking huge risks. Say for example, you found one good investment property every year for ten years, and spent $400,000 on each, then after ten years of purchasing you actually end up with over $4 million dollars’ worth of property. Whilst your debt on that could still be high, depending on your debt reduction strategy, your equity position could be about $1.6 million dollars. Now that may not be enough for your ideal retirement – but it is a lot more than the average superannuation payout.
Buying properties that allow you to recycle your deposit quickly, is a great way to speed up your retirement.
Using equity that develops in well-chosen property investments, you can finance and leverage into the next property – and in this way, you can build a portfolio of carefully selected growing assets, that speed up the growth in your total portfolio value, as you benefit from the right combination of capital growth and rental yields to suit your particular situation and plans.
This is really about understanding the property market, and the numbers, and the best strategies to use to add value to your portfolio as you go. For more on this, see our article on working your portfolio harder.
Diversifying your investments helps to minimise your risk, and having the right specialised advisers keeping a close eye on the market, and keeping you up to date with data and insights is also critical.
Young investors don’t have to be super aggressive and highly risky in their approach – but they do need to have a clear 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.
If you are ready to get started, and want good advice, give us a call – we are on your side and here to help.