It shouldn't be too surprising when Wayne Jessup, real estate investment coach and director at The Property Bloke, says that about 80% of people who contact him want to take control of their finances before retirement.
"The average age they meet with me is probably 40 years, but some come earlier and others a little later," says Jessup. "It would be the highest percentage, however: around age 40, when they start to realize that they have been adults for 20 years and that they only have 20 years left until age 60 years."
Having to create a new game plan for future wealth can make a borrower "nervous," he adds, explaining that it can sometimes happen when the person's biggest mortgage has been around. $ 300,000. When the time is right for them to expand their portfolio, they focus on the level of debt and "don't look at the asset side".
"You can buy a set of properties, but how do you make them pay?" This is the biggest question. There are different strategies, such as real estate options, room sharing, different ways to bring cash and capital, as well as cash, "says Jessup.
If you are 40 and want to retire at 50, it is possible, but he says you have to be willing to make an effort to make it happen.
"If you value property, and want to work in real estate investing every day, I teach people how they can do it and, essentially, quit work as quickly as possible" says Jessup.
"It all depends on how aggressively you would like to be … some people like to buy only a few properties and others want to become full-time real estate investors"
But for those who want to continue using a traditional job and use property as a tool for wealth creation so that they can enjoy a solid retirement, he says that the time you have for working toward your retirement goal will largely determine the strategy you use to reach your goal.
"Let's say you're 10 or 20 years from where you need to be. You need to add inflation to that, so [you calculate] the number or size of the portfolio you have need for that period, then you work backwards from year to year – depending on how many years you have to get there ¬ – adding what kind of property in what year, "says Jessup.
For example, if you have a 20-year investment schedule and want to end up with a portfolio of properties worth $ 2 million in today's dollars today, then you could decide to buy four properties worth about $ 500,000 each.
"It all depends on the aggressiveness that you would also like as a real estate investor. Some people like to buy only a few properties and others want to become full time real estate investors. »
Investors' appetite for risk also shapes their approach.
"We could focus more on cash flow, rather than capital growth. It always comes down to whether you have a mortgage or not, how much equity you have and, obviously, as you get older, we focus a lot more on cash flow, ”says Jessup.
"You need cash to retire and you need it to pay off your debts," he adds.
Take advantage of regional opportunities
The time is there for the taking, but it is also limited. Exploring more affordable markets can be the difference between buying an investment property this year and buying one in a few years, as Simon Pressley of Propertyology says.
"If you have enough deposit to buy a property, think about" what markets can I afford to buy a property with that money today? "Rather than saying," I have a deposit but it's not enough to buy in Sydney, Brisbane, Melbourne or Perth today. " These cities represent a very, very small percentage of this massive and massive country, "says Pressley.
If an investor continues to work hard to accumulate a larger deposit, capital markets can also continue to outrun them – that is, to grow in value and stay out of their reach – at over time.
Alternatively, a smaller depot could get them into a non-capital city, allowing them to plant the seeds for retirement sooner – and in a market that could most likely have greater potential than some might think. said Pressley.
"Each year, there will be many non-capital sites that will outperform the capitals," he said.
"Investors should always remember this, because there are dozens and dozens of locations outside the capitals and only eight capitals; this does not mean that these are all good investments, but it is in our interest to have an open mind and explore where we can potentially invest. »
Construction work
When working nine to five hours, an investor may not have the time to pay as much attention to his portfolio as he would later in life, when he would have more free time in his day. In fact, for some, engaging in property can become an exciting project during their retirement.
Brett Warren of Metropole Property Strategists says: "Most of the time, it's a different strategy from here: they have an asset base and they might want to chase cash flow for retirement; they may be trying to diversify; they may have significant stocks or funds and may want to correct their assets for something that has a little more cash flow, such as [moving into] commercial property.
"So later in life, once you are over 55 or 60, the strategy is very different from 35 or 40."
If an investor has the right assets, he can also see them double in value during his retirement years, which allows him to create more wealth during this period.
Warren says it is the value of the asset base that matters most, because it is what will give investors choices in life.
“We had a client who had a real estate portfolio of $ 10 million. He owned a property. He was 70 years old, and he had bought an old cabin in Sydney Harbor near the water for probably about $ 25,000 or a small amount and he held it, "says Warren.
“No matter how many properties you own; that's the value. If someone has an asset base of $ 10 million, you will be impressed; the fact that they own 10 properties or one property is irrelevant. »
The proposed calendar
The less time an investor has to invest before retirement age, the more concentration, attention and effort will be required, says Brendan Kelly of Results Mentoring.
"In an ideal word, you will probably want to start [investing] in the late twenties, early thirties, because it is a long and slow path where you can find time to work, and that doesn't require a lot of regularity, "says Kelly.
"If you start in your late thirties or early forties, it’s still a lot of time. You will need a little more focus, a little more of care and, generally speaking, a human being does not wake up to retirement or the need to retire before the age of 40. "
By the time you reach your end of your forties in your early fifties, Kelly says that a more concentrated effort will be required to achieve the financial result you want at age 65, if that is the case. goal.
Warren explains: "If you are 35 instead of 55, this is a huge advantage. A 35 year old man can potentially retire at 55 if he gets the right asset base and the right kind of advice and buys the right type of property. »
Whatever your age, he says that there are "three stages in the creation of wealth" (see box, opposite page) which can guide the investor on the path of creation. and molding a real estate portfolio that will give them more financial freedom when they need it most.
"The first seven or 10 years of investment should focus on the accumulation of assets – the accumulation of high-growth assets. Your asset base is leverage, composition and added value. It is not about buying seven properties in seven minutes; you can only buy three or four properties, but it's a question of quality rather than quantity, ”says Warren.
Once an investor has built his asset base, he may have $ 2-3 million in assets, he says, and the next seven or 10 years could become longer focused on debt reduction.
“You can add value, you can renovate, you can develop; your properties are likely to provide you with income, and now is the time to start moving from growth to reducing and consolidating your asset base and paying down debt. »
"No matter how many properties you own; it's value. If anyone has an asset base of $ 10 million … that he owns 10 properties or one property doesn't matter "
You may also consider selling a property or investing in commercial property when you begin the transition to retirement.
"You will obviously have the cash in your rent, but if you can diversify and get into commercial property or funds that will increase your income, you can reduce your debt more quickly and have money to also live. Says Warren.
"Right now, we're at record 3% interest rates, so it's not hard to find a positive cash flow property, but in five or seven years, when interest rates return to 5% or 6%, most investors may then end up with properties whose cash flow is no longer positive and which is no longer not increase in value or create enough wealth for them. »
The property tax on positive cash flow and the tightening of the lending landscape should also be taken into account, says Warren, suggesting that you "invest for the longer term and don't make scenario-based decisions." short term".
In addition, although there is the argument that an investor might need to be more "aggressive" in his investment approach if he has less In free time, Pressley adds that "if you are aggressive and something unexpected happens, you have no time to recover."
He explains that spreading your available capital and spreading it across multiple properties located in entirely different regions of the country can not only improve your cash flow but be a good form of risk mitigation if the market takes a bend.
"If it happens to someone and he is 55 years old, he has no time to recoup the investment losses in an underperforming market. S & # 39 they're diversifying into different markets, so with the [much lower] chances of it happening in three or four places, or whatever they are, they should be really, really unlucky for it to happen, "says Pressley
"I avoid expensive big cities and I intentionally target cities with diverse economies, specific industrial profiles and a body of evidence that gives me confidence in creating jobs – a key driver of growth in real estate prices. In our chosen cities, we are targeting standard homes in central locations, priced at $ 300,000 to $ 500,000 and with yields of around 5%. »
3 STEPS TO CREATE WEALTH
Brett Warren of Metropole Property Strategists explains how to secure future wealth by making your real estate portfolio work harder for you in the long term
1. The accumulation stage
Focus on expanding your asset base through leverage and the composition of high-growth assets.
YIP: How many years should you devote to growing your asset base?
Brett Warren : I would suggest seven to ten years in an environment of low economic growth.
YIP: Do you have any advice on expanding an asset base?
BW: Find properties where you can add value so you don't just rely on the market to do all the heavy lifting. Back off from your end goal and focus on the quality of the properties rather than the quantity.
YIP: What should be taken into account?
BW: Focus on the appreciation of assets on cash flows. Avoid getting rich quickly, as creating real wealth takes time.
2. Consolidation stage
Aims to gradually repay the debt and reduce the LVR of your investment properties.
YIP: Do you have any advice on reducing debt?
BW: Focus on repaying principal and interest and make additional payments to speed up the process. Now is a good time to add value – renovate or develop existing assets to increase value as well as cash flow.
YIP: How should you expect the composition of your real estate portfolio to change during this period?
BW: After 10 years, most low-yielding properties will likely become neutral to positive cash flows and provide you with income that should be spent on paying down debt. Maybe sell a property to reduce debt as you approach retirement.
3. Living with cash flows
Once you have built your portfolio and given it time to mature in value, you can modify your strategy to live on cash flow.
YIP: How does your concentration as an investor change after retirement?
BW: During the first 10 to 15 years, everything revolves around the growth of capital. Now the focus is on cash flow and receiving income from your portfolio. Encourage ownership of high-yielding properties at this point, as capital growth is not as significant
YIP: How can an investor branch out during his retirement to increase his cash flow?
BW: This is a good time to consider a commercial property with a higher return to produce more cash flow.
