Most Australians have an idyllic retirement situation, but many fail to plan for the years without income, a property investor has suggested.
On this week’s episode of The Smart Property Investment Show, head of research at Propertyology Simon Pressley outlines the key facts property investors need to know to invest better and retire with more in their pocket.
Fact one: ‘Make hay while the sun is shining’
The main motivation for property investors should be long-term financial security. With the aged pension being just $35,568, couples who want to maintain a comfortable lifestyle need to look outside of benefits.
“If you’re not already motivated to invest, just keep repeating to yourself 35 and a half thousand dollars for myself and my partner. $35,000,” Mr Pressley said.
The property investor explains how working adults, who start contributing to superannuation and savings at 20 have 45 or so years to make a lifetime’s worth of income.
He also emphasised that superannuation, which many rely on, might not last as long as people would hope.
“And if you think superannuation is going to be a lot of money, even if you’ve got a million bucks in super, just divide that by however many years you expect to live off it, and it won’t last very long,” Mr Pressley continued.
Fact two: ‘7.4 per cent’
Don’t be afraid to look at regional areas or invest outside of capital cities as property outside of the capital cities also grow over time, Mr Pressley said.
“And then if we look at the yield for each of those locations: our oldest regional city, 5.4 per cent; and our oldest capital city, 3.1 per cent; over the last 20 years,” Mr Pressley explained.
Fact three: ‘22nd’
Brisbane is Australia’s third-largest city, yet it ranks 22nd on the property ladder of Australia’s most expensive cities.
Mr Pressley emphasised that population size does not mean everything, with Brisbane being an example of a large population that has not boomed.
“But from a median house price, it’s ranked number 22. Number one is Byron, which is our 73rd largest town or city. By no means our biggest city,” Mr Pressley said.
Fact four: ‘$840 per annum’
Mr Pressley advised investors to take advantage of record-low interest rates.
In the current market, a typical investment property bought for $450,000, with a 90 per cent loan-to-value ratio, would return investors $840 per annum in pretax cash flow profits.
“You’ve got 10 per cent, stump it up, put it in, take advantage of the low interest rates, and you are cash flow positive from day dot, even before you put your tax return in,” Mr Pressley said.
Fact five: ‘70 per cent’
That is the portion of Australians today aged 65 or over that are already relying on the aged pension today.
“I think there’s a general myth, which is wrong, that all the Baby Boomers are rich and retired and squeezing people out of the market,” Mr Pressley continued.
Only 18 per cent of retired adults are financially independent. “We don’t teach financial literacy. Most people are good, hard-working, honest people, above-average intelligence. But it’s what we do with the time we’ve got that works for us,” Mr Pressley said.
“And 45 years, and back to point number one, 35,000. That’s the number you got to think about,” host Phil Tarrant reiterated.
Fact six: ‘1 million’
As a nation, we’ve changed quickly, from a country that was the white picket fences to apartment living, Mr Pressley said.
“In Australia’s 230-year history, our current 25 million people, we have built 10 million dwellings to accommodate all of them in just 16 years, the last 16 years. And in just our eight capital cities, we’ve built 1 million apartments,” Mr Pressley explained.
Fact seven: ‘90 per cent’
Australia has between 2.1 and 2.2 million property investors above the age of 65. But 90 per cent of them own 1 or 2 investment properties, which while is better than none, but does not allow for investors retire through property.
“But in most cases, one or two investment properties will probably still leave you on that age pension in some way. So everyone’s goal should be to avoid the aged pension,” Mr Pressley concluded.
The total number of investors with six or more properties, which is more than enough to retire off is just 20,000, Mr Tarrant concludes.
To hear about the remaining 13 facts not mentioned here, tune in to The Smart Property Investment Show podcast.