News

February 25, 2023

How Many Investment Properties Should You Have to Retire Comfortably

For most Australians in the workforce, they rely on their superannuation contributions as the main vehicle to drive their retirement savings. However, for self-employed people, and those with a keen interest in property investment, superannuation only forms part of what is to become their nest egg.

Of course, whichever investment strategy you choose to save for retirement is going to come down to your personal preferences, financial needs and situation. If building a property portfolio is part of your overall retirement strategy, we discuss how many properties you may need to retire comfortably.

The benefits of property investment

The feeling of purchasing your own home is what drives the great Australian dream. For a lot of homeowners, once they’ve got a family home under their belt, they’re often keen to purchase another property as an investment.

Some of the benefits to property investing include:

  • Owning an asset that will likely appreciate in value over time.
  • Attracting rental income from tenants, which can go to pay the mortgage against the property.
  • Having a property ready for your children or another family member to move into when they fly the coop.
  • Claiming the expenses of the property against the income earnt.

How to make money from an investment property

We look at the two main ways that property investors attract financial returns from their investment properties.

Capital appreciation

The rise in any investment’s value over time is referred to as its capital appreciation. Most investors don’t set out with the intention of losing money on their investments over time, so selling a property when its value has risen substantially means you’re able to gain a profit (called a capital gain) from your investment and put that money towards anything you like (including purchasing other investments, or your retirement)!

Don’t forget: You’ll need to consider any capital gains impacts when you sell assets that have appreciated in value over time, such as capital gains tax (CGT).

Income yield

Income yield refers to the income that an investment earns. In the case of an investment property, this is very simply the rent that is received each year from your tenants.

In most instances, the income that you receive from your investments gets added to your taxable income. A positively geared investment property is one where the income that’s received exceeds all of the costs and expenses (such as any mortgage payments) against it. Meanwhile, negative gearing occurs when the income from an asset isn’t sufficient to meet the costs against it — this can come with tax advantages.

house in a scarf

How to know how many properties you’ll need to retire comfortably

There is no golden number for how many properties you’ll need to comfortably fund your golden years. This is because retirement looks different for everybody. Regardless of whether you’re building a portfolio of purely properties, or are looking to add cash, stocks, bonds or other investment options into your retirement plan, here are some ideas on how to approach investing for your retirement.

When would you like to retire?

If you asked the large majority of the workforce “when would you like to retire”? A common answer may be “tomorrow”. While it’s idyllic to think about being able to retire early, looking at a realistic age of when you’d like to retire helps lay the foundation for understanding your investment timeframe.

Property (whether residential or commercial) is generally considered to be a long-term asset, meaning that you’ll typically need to hold it for years in order to attract a decent financial return. When you consider that the average mortgage in Australia is between 25-30 years, it makes your investment time frame an important consideration.

Don’t forget

You’ll need to consider any capital gains impacts when you sell assets that have appreciated in value over time.

How much income you’ll need in retirement

If retirement is still twenty or thirty years away for you yet, it can be hard to know how much income you might need throughout your retirement years. However, knowing what level of income you’re likely to need in retirement is what will set the target amount for the level of assets required to generate a sufficient income, or capital that can be converted to a retirement income closer to your retirement date.

To get an idea of how to gauge the income you’ll need, consider:

  • Your ideal retirement lifestyle and retirement objectives. For some people, this means regular overseas travel, taking an extended trip around Australia, or simply heading out to dinner at least once a week.
  • Where will you live (will you downsize or potentially shift into one of the investment properties)?
  • Will you work part-time or casually in retirement?
  • Will you be living on the income from the investment portfolio, or will you be able to access your superannuation or other income streams?
  • What other assets do you expect to have at the date of your retirement? Inheritances can play a huge role when it comes to assets in retirement.

Diversifying your property portfolio with an SDA property

Building a property portfolio to be able to retire on doesn’t mean thoughtlessly purchasing properties and hoping for the best. Diversifying the location, property type and size can ensure that you’re not ‘putting all your eggs in one basket’.

While property has been traditionally categorised as either residential or commercial, the National Disability Insurance Scheme (NDIS) provides the opportunity for private investors to access a unique property investment in the SDA sector.

The benefits of NDIS housing for property investors

There are many benefits of including NDIS homes in your property portfolio, especially if you’re looking to leverage your portfolio for retirement.

Unique market

Specialist disability accommodation (SDA) is a form of specialised housing designed to support Australians with significant disability. This means that SDA homes operate in a market that is uncorrelated to either the residential or commercial property market and are in incredibly high demand.

Positive cash flow

Thanks to financial backing from the federal government, the income yield for SDA properties is between 10-15% pa, meaning that investors often experience positive cash flow from their properties. If you’re looking for your property portfolio to generate a strong income to support your golden years, the cash flow from the SDA properties could be a terrific solution.

SDA participants receive SDA funding under their NDIS plan, and are also required to make a reasonable rent contribution.

Capital growth potential

Just because an SDA property attracts such a high income yield doesn’t mean that it’s without any capital growth potential. NDIS participants will always need appropriate accommodation through SDA housing, now and into the future.

Investing in the SDA market

When you invest in an SDA property, you not only access a positive addition to your retirement property portfolio, but also make a positive social impact to members of the community with disability.

To ensure that your investment is as meaningful as it can be, Apollo Investment provides a complete investment solution, taking you from start to finish, to ensure that you reach your end goal. Contact the team to discover how a golden opportunity can support your golden years.

Get in touch with our team for more information now.

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