Property Investing in Your 50s to Increase Your Wealth for Retirement

What I'll be doing In Retirement

If you’re in your 50s like me, you’re probably thinking about retirement. Do I have to wait until official retirement age or later to retire, or can I finish up work earlier? And what do I have to do to reach my goals?

I preface this article to say that it is not financial advice. It is based on my personal experience and the experience of my clients by investing in property. Please speak with your accountant for tax implications of any investment strategy and if it fits with your retirement goals.

You may be in one of two camps:

·         You have teens or dependent uni students still living at home and you have a sizeable mortgage. That mortgage may expire at or close to retirement, or it extends past your retirement age. Your plan may be to pay out the remainder of the mortgage by using some of your superannuation when you are ready to retire.

·         You bought your home in your 20s or 30s and/or your children may have left home, so you no longer have a mortgage, or one that will be paid out in the next few years. You will retire debt free but would like additional savings to rely upon in retirement.

Having a Mortgage At Retirement

If you will likely have a mortgage until you retire, or your retirement plans are based on paying off your mortgage first, you may consider purchasing an investment property to create wealth to pay out the mortgage.

Buy an investment property in the next 12 months and hold it until you are ready to retire. Historically, house prices double in 13 to 15 years, while apartments are sitting at 17-18 years. If you were to purchase a property in your early 50s and retire at 67, depending on where and what you buy, there may be good prospects for the value of that property to double or be close to doubling during that time. Once you sell that property, after selling costs and taxes it may pay out your existing home loan. This strategy could minimise or eliminate your need to use your superannuation to pay out your home loan. This means you would have more superannuation funds available as you enter retirement.

If you have a larger loan, or you are hoping to bring forward your retirement age, purchase a second investment property in the next few years and use that growth at retirement by selling both investment properties to pay down your mortgage debt.

Increasing Wealth Prior to Retirement

If you are now mortgage-free or will pay out your mortgage in the next few years, you may choose to buy an investment property to increase your cash position at retirement.

Purchase one investment property, hold onto it until you are ready to retire and you use the profits of its sale towards your retirement savings.

If your plan is to have a second income stream into retirement, buy a second investment property in the next few years. When you are ready to retire, sell one of the investment properties to pay down the mortgage remaining on the other investment property. You will then likely have a fully paid off investment property and you will receive the rental income on that property as an additional income stream. You can then choose to sell that property when you are ready to take the profits as cash.

Do I Need to Have a Deposit to Purchase an Investment Property?

Assuming that you have some equity in your home, you can use that equity as your deposit and fees.

Using the most common percentages as an example, you would determine the purchase price of the investment property and take out 25% of that figure as equity from your current home. This would cover the 20% deposit and the stamp duty and other fees associated with purchasing a property. You would then obtain an investment property loan for 80% of the purchase price for the remainder of the funds. This 80% loan ideally would be with a different lender to the one where your home loan is held.

The equity used against your home is deemed investment funds. Ideally a separate loan split is opened for those funds so that your existing home loan debt is clearly separated from the investment debt. You can then continue to focus on paying down your original home loan while minimum repayments are made on the investment portion. When you sell the investment property, you then pay out the investment property loan and the loan/s against your home.

If you have sufficient equity and income to consider a second investment property purchase, the deposit and fees can also be sourced from your home equity in the same way.

Like to Find out More?

Contact me for a free, no-obligation strategy meeting to discuss your goals and to determine if your current income supports additional lending for an investment property purchase on jennifer@jblhomeloans.com.au, 0414670151 or JBL Home Loans on Facebook or Instagram.