How Property Investment Can Lead to a Financially Secure Retirement

Nov 19, 2018 | Property Investing

No matter how old you are, planning for retirement should be close to the forefront of life planning. When thinking of retirement, most of us want to have enough financial capability so we can relax and enjoy it. We don’t want to think about working again or being a financial burden on current or future children.

This can be easier said than done, however. Fortunately, property investment offers us a great way to reach that goal of a relatively worry free financial future. When chosen carefully and managed correctly, your investment properties can become the most lucrative element of your retirement plan. True, the financial obligations associated with property purchases are nothing to laugh at, but the facts below show that property investment can truly lead to a financially secure retirement.

Real Estate Appreciates in Value

According to the Switzerland-based Bank for International Settlements, the average Australian property value has risen by over 6,500% in the past 55 years—an annual growth rate of 8.1%. The reason for this is simple: property is a finite resource; there’s only so much of it to go around. As our population grows, the amount of available land for purchase remains unchanged, making property investments a great buy-and-hold option for the long-term. It doesn’t seem to matter that Australia has oodles of land available for a small population, in the end Australia has so few cities that the land around them is too desirable for it to not increase.

Rental Income Can Provide Predictable Cash Flow in Retirement

Aside from appreciating in value, investment properties can also provide you with a stable source of rental income. Income stability is one of the most important elements of a financially-sound retirement, and in this respect, property investments are superior to stock market exposure.

It’s important to choose wisely when considering an investment property; location matters, and not all property investments are created equal. You can read our recent blog on which markets in Australia have performed the best in the past 20 years for key insights that can help you with your location decision.

You Can Get Exposure to Significant Assets with Relatively Little Starting Capital

Property investments are one of the few opportunities where you can access significant market assets (a $500,000 home, for example), with relatively little starting capital. You’ll need to save for a down payment (recommended to be at least 20% of the total property value to avoid lender’s mortgage insurance), but you can finance the remainder with a mortgage. When combined with rental income, this offers a way to begin building equity. However, you need to be aware that lenders are becoming stricter with borrowers over 50, which is an apt lesson in planning for retirement sooner rather than later.

Property Values Can be Improved

Unlike stock investments, property can be improved with “sweat equity” or the practice of increasing property values through manual labour (e.g. repairs and renovation). If you’re handy (or have some friends or relatives who are), you can invest a bit of time and energy into making improvements to your investment properties without taking a big chunk out of your bank account.

Any time you choose to undertake an improvement yourself, be it painting the walls, ripping up old carpeting, or running new electrical wiring, you’re improving the value of your investment (though visual improvements will always net you more than non-visual ones). This will have a net positive effect to your ROI in the long run, benefitting your financial retirement strategy.

Property Investing Offers Diversification

Stock market investing is an important element of your financial plan; since 1900, the average annual return of the Australian share market has been 9.96% per annum. The share market can be volatile, however, and this is where property investing provides a valuable counterbalance.

Rarely are both the stock and real estate markets down at the same time over the course of any given year. In fact, according to data from Trading Economics and, it’s only happened once in the past 16 years, during the global financial crisis of 2008.

Because the two investment strategies often don’t move in the same direction and according to the same market forces, keeping investment properties in addition to stock investments can be one of the best ways to smooth out your investment performance, which is an important element of a solid financial retirement plan.

Ready to Get Started?

Have you decided if property investing is right for you? Interested in expanding your existing portfolio? If you need expert guidance, we at Clever Finance Solutions can help you reach your goals. We have various services to help you get the most out of property investment and make the right financial decisions towards a more secure future. Get in touch with us today for a more personalised, human approach to securing a loan that’s right for you.


Disclaimer: The content of this article is general in nature and is presented for informative purposes. It is not intended to constitute financial advice, whether general or personal nor is it intended to imply any recommendation or opinion about a financial product. It does not take into consideration your personal situation and may not be relevant to circumstances. Before taking any action, consider your own particular circumstances and seek professional advice. This content is protected by copyright laws and various other intellectual property laws. It is not to be modified, reproduced or republished without prior written consent.

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