Exiting the workforce will sound different to each individual, and that doesn't always mean slowing down.
As a real estate enthusiast who has put in effort over the years, the time has finally come to live off the cash turbine of your real estate portfolio. But what if your property income isn't quiet where you want it to be?
What if you had started researching real estate investing options on the verge of retirement?
There is one thing to remember: there is still room to cultivate your wealth.
"I know some conservative financial planners are suggesting that you should retire with no debt at all, but in my mind, entering retirement with prudent leverage works well for well-established investors." , says Brett Warren of Metropole Property Strategists.
"What I have found is that they live off their retirement income and assets for the first 10 to 15 years of retirement, which helps their wallet real estate to double in value, allowing their already low loan valuation ratio to drop even more, allowing their real estate portfolio to generate even more cash flow. "
How an investor approaches his finances in retirement will ultimately depend on his personal circumstances.
Many investors decide to put one or two of their properties under the hammer to accelerate the reduction of their debt levels and strengthen their cash flow, and others might reinvest in commercial properties or funds that generate superior returns, explains Warren.
"While there is no exact formula, the end game I'd like to see is that you own your own home with zero debt as well as a portfolio of properties. investment grade with an LVR of less than 40%, as well as certain income-generating assets such as stocks or managed funds ”, shares Warren.
About five to seven years after retirement, it is recommended that an investor meet with a qualified and professional wealth advisor to formulate an exit strategy, says Warren, which includes a debt reduction plan.
Putting it into practice
It’s a nice feeling to assert more control over the amount of growth that an investment property will generate.
For investors who are closer to retirement and have equity to propel them forward, Warren says that a value-added project "speeds up the process a little bit."
"Rather than buying a plan or a new project, actually buy something where you can grow your asset base more quickly by undertaking a renovation or development," says Warren.
“They should be looking for something that is in a high growth place that they can add value to. That way, rather than relying on the market to do the heavy lifting, by adding value they can increase the property's value, they can increase the property's rent cash flow, and its value will increase. considerably faster. "
However, when it comes to a subdivision or development, Wayne Jessup of The Property Bloke says it's important to address the fundamentals.
"It's like starting a business, if you start a business and just want to do the riskiest thing possible, it's very dangerous … what I tell people is ; is you are in Chapter 1, so let's see a strategy that fits your Chapter 1, and you'll get to Chapter 10, Chapter 20 as you build your experience, ”says Jessup.
Beginner-friendly approaches like making another bedroom or building an apartment for Grandma can really help increase cash flow in the property.
Creativity can go a long way, says Jessup.
“Small changes in ownership can make it more valuable. For example, potentially an additional tenant that will only bring the cash flow to where you need it for your portfolio. "
Can you retire faster?
While substantial returns can be derived from a long-term approach to investing – and risks can be better mitigated that way, too – Jessup says there are strategies as well. short term that can provide faster returns.
“When I say short term, I mean within 24 months you can make a big difference. You can then reach retirement age or get the cash in a few years if you're ready to do the job, ”says Jessup.
"What we put in place is that we [call] a foundation first, and a foundation is pick two properties and normally with those two properties you have one capital growth and one cash flow, and with four properties you have two capital growth and two cash flow, so they basically pay for themselves and it doesn't affect your own finances. "
Jessup says it's important to make sure that when creating your portfolio you mix the style of the properties.
"Some properties are more dedicated to cash flow and some may be more dedicated to capital growth so as your portfolio gets older and you get older you really need to focus more on cash flow. cash flow than on capital growth. "
The next step up from the foundation is the Elite Membership Program, where The Property Bloke provides one-on-one mentoring for 'top level' strategies; like small sub-divisions, room sharing and other property options.
Jessup says this provides the opportunity for "a lot of growth within your portfolio because you are really active and have full support".
While days on the beach and the emerald stretch of a golf course might spring to mind, Warren of Metropole Property Strategists says most successful people want to keep working during their retirement, but in another capacity.
“They just want to keep doing things. They want to slow down but they just want to do things at their own pace; they can choose to work a few days a week, they can have a passion project where they can give back to the community or something [similar] but they have that passive income that comes in [from their properties] that allows them to do these kinds of things and they don't have to work full time, ”says Warren.
Investors have a level of courage and bravery, he adds.
"It takes a long time to get out of your comfort zone, but the only way to get to where you need to be is to seek professional advice and do it," says Warren.
