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Most people leave it 'too late' when it comes to thinking about retirement, but are the amount of candles on your cake really a disadvantage when it comes to property?
If you’ve ever wondered when the best time is to invest in property, I have the answer for you: 20 years ago. The second-best time to buy property is right now, because it’s time in the market that will ultimately deliver the biggest profits.
But does that mean property investors who have blown out more birthday candles than they’d like to recall are at a disadvantage?
Not always – but it does mean you will need to change your strategy if you’re investing in property aged in your 50s or older.
Financing your investments as an older borrower
There are a couple of factors you need to consider when investing in your later years and the most important one is finance.
Most mortgages are offered for a period of 30-years and from the lender’s perspective, they want to be assured of your capacity to repay the loan over that period.
The older you are, the ‘riskier’ you are, because the bank assumes you’ll want to exit the workforce at some stage. They will therefore consider how you’re going to pay your bills and meet your financial obligations once your income stops, even if you’re receiving a strong rental income to support the investment mortgage.
As and older investor, this may require a different finance strategy to fund your investments. For example:
• Use bigger deposits. If you can save at least 20 per cent towards your property deposit, you’ll avoid lender's mortgage insurance (and the second set of lending criteria that goes with it).
• Finance the loan for a shorter period. A loan structured across a shorter period may help reduce your risk profile in the eyes of your lender.
• Make sure you have an exit strategy. Lenders want to see that in retirement you can easily divest of your property. They will be reluctant to allow you to use equity in your home to invest, as they would not want to risk having to repossess your home if you default. In other words, they want to make sure that you can safely face any challenges related to owning the property.
Manufacturing growth and profits
An investor aged in their 30s has several decades in the market ahead of them, which means they can afford to wait for a traditional property portfolio to grow in value.
However when you’re aged in your late 50s, your 60s or older, you’ll likely need to employ creative strategies to manufacture growth in your assets.
But before you jump headlong into property at this age, it is imperative that you consult a good financial planner. This is because all of your financial affairs change when you get closer to retirement, and there are complex rules and opportunities around taxation, superannuation access and finance.
Once your financial planner has given you the green light that property is suitable in your circumstances and given your age, then you can start to look at strategies that will fit accordingly.