How to design the back half of your decade

“Most people start without a goal in the end. They all have a fuzzy approach in terms of we need to provide X for ourselves. But there isn’t that clarity,” Mr Kumar said.

“Often, what you find statistically is most people end up selling their investments within the first five years of purchasing them because they haven’t started out as they were meant to. Therefore, they are unable to handle hurdles,” he added.

Mr Kumar said investors should focus on their financial plan, the overall goal and getting foundation properties correct during the first five years of investing.

The pair also highlighted the importance of not falling into the trap of purchasing a predetermined amount of properties.

“It’s about the outcome and how you hold onto these properties without impacting your lifestyle.”

“So, don’t get caught up in the number of properties you need to own and where they are. You need to get caught up in what these properties do from a lifestyle point of view and an income point of view,” Mr Kumar said.

The property experts pointed out that income gives investors a lifestyle, while the equity in a property gives investors the wealth. Despite this, many investors try to increase the portfolio’s value even if it does not help the investor’s goal.

Mr Waters said investors should add up their rent every month, annualise it and that is the gross income amount which should be what investors want to retire on. 

“If an investor wanted $75,000 a year unencumbered debt for the future, then year 10 is from a gross point of view, so that is the rent generated.”

“So, from year 10 onwards it’s how we retire the debt.”

“The 10-year milestone is the first major milestone, which is income replication,” Mr Waters said.

This means investors in six to 10 years should still be building their portfolios, with them constantly restarting the decade every year.

“The big picture scenario is to design your decade. But from an individual component, that may change every year.

“You might zero every year, it might be a new purchase, it might be a component of the portfolio you need to adapt.”

The continued assessment is paramount. Otherwise you have this moving beast with lots of different moving parts that you’re not intimate with,” Mr Waters said.

Mr Kumar explained how this is where most investors make the mistake of being too rigid in their planning.

“You do have two decades running parallel. One is the original 10-year decade where this is the gross income that we want to get to.

“Along with that is the adjusted decade because we need to adjust for the ability to borrow money because the 10-year plan won’t happen automatically,” Mr Kumar concluded.