If you’re just getting started with investment properties in Perth, retirement may seem like it’s a long way off. One of the more common questions we get here is “how many properties will I need to replace my income and retire?”
Sadly, there is no “one size fits all” answer. However what you need is an overall strategy and for most investors that involves growing your capital base initially either with market capital growth and/or by adding value to property. Then with increasing property and rental prices, you can pay down your debt so that your portfolio produces a good cash flow.
Using Leverage to Grow
Many people think they can wait for capital growth to raise rents and live off of rent, but it would take as much as $4 million worth of properties owned out right, just to attain a positive cash flow of $100,000 per year (based on typical rent returns of 5%).
So unless you win the lottery or a big inheritance you have to create this worth first by using leverage to control a lot of property with as little as possible, so you can benefit from capital growth and if you add value through renovation, development and subdivision you can speed this process up.
Your loans will initially be interest-only, and you will likely need other income from wages to support any negative gearing, while setting as much aside for your next deposit or to give you the money to improve the property.
Converting Your Assets to Income
Once you have established your asset base, you can stop buying properties and wait for appreciation to raise the value of your portfolio. You can also renovate or develop your properties to add value to them.
You can then choose to sell a few of the properties off to reduce your debt and go from a growth focused portfolio to a cash flow focussed one. Many investors also use their superannuation to pay off debt.
Remember, it all starts with a plan. Call 1300 472 427 to learn more.