Many investors wonder if they're too old to invest in property. When is it too late to start buying – and when do you need to stop?
Blogger: Philippe Brach, CEO, Multifocus Properties & Finance
Investors in their 40s
This is not old! With 20 to 25 years to go in the workforce, there is ample time to make profitable investments in property. For the sake of simplicity, I will assume capital growth of five per cent per annum. At this rate a property will double in value approximately every 14 years – so if an investor starts at 40 and their property is worth $400,000 when they acquire it, then it will be worth $1 million after 20 years. This is the magic of compounding. The longer you invest, the more bang for your buck you get.
Investors in their 50s
There is usually no issue obtaining a 25- to 30-year loan, as most lenders will accept that a person is able to work until age 75. A long-term loan is important for cash flow. Monthly repayments on a 10- to 15-year loan would be unsustainable for most investors.
A typical property price cycle is seven to 10 years, so an investor can generally expect to go through an upswing in prices at least once. Remember that in general, property prices do not go up in a straight line fashion; they usually have longer flat periods followed by a shorter period of sharp price rises. This is not an absolute pattern, but it is a very common one. If an investor is in their late 50s, then I would ask this person to consult a financial planner to confirm property is a safe strategy.
Over 60 years of age
Generally speaking, at this age a would-be investor would be wise to consult a financial planner before making a move into leveraged investments. Financial priorities, super fund options and taxation change substantially at this age. However, there are many cases where investing in property can still be a smart choice.
We have just settled an investment property for a 65-year-old registered nurse. This is the fourth property we financed for her over the past few years. The difference with this one is that she intends to move into it when she retires in two or three years. She will then sell her current residence, where she has lived for the past 35 years. This will enable her to pay off the investment property loan. We even obtained a 30-year loan from one of the major banks because we put together a robust exit strategy. So in general terms, age is not an issue when applying for a loan, provided there is a solid and safe strategy in place.
Even as a retiree, it is possible to borrow in the right circumstances. We recently enquired about a loan with one of the majors for a retiree on an allocated pension. He had plenty of savings outside of super and an unencumbered residence. The bank will not use equity in the home to fund a new purchase but they had no issue with the pension income or the amount of savings. This client intended to buy a property as an investment, with the intention to leave it to his daughter in his will. This was only possible because of the very comfortable financial situation of the client.
In general terms, once a person retires, investing in property may not be the best investment vehicle because of the long lead time for a material return and the leverage, which makes an investment riskier. Again, a consultation with a financial planner about the suitability of a leveraged investment is a necessity.
Although age is not a barrier to investment, strategy and planning are a lot more important given the shorter timeframes.
The complex rules around superannuation and retirement income mean it’s important to involve a financial planner before making any move into a leveraged investment.