Pros and Cons of Using Property Investment to Fund Your Retirement

They don’t call retirement your ‘golden years’ for nothing; retirement can be a wonderfully fulfilling time in your life. Most Aussies work hard to afford a comfortable retirement in their later years, so it’s little wonder that many put conscious effort into ensuring they have sufficient funds to retire on.

In this article, we take a snapshot of some pros and cons of using property investment to fund your retirement in Australia.

Is investing in property for retirement the best retirement strategy?

There is no cut-and-dry strategy that fits every single Australian’s retirement objectives. Saving for retirement and deriving an income in retirement is incredibly complex, often requiring years of forethought and strategical guidance by a qualified retirement planning or financial planning specialist. If there were a one-size-fits-all approach to retirement income strategies, financial advisers would essentially be put out of a job!

In Australia, superannuation is typically the main savings vehicle for retirement, however, some people do fund their retirement using investment portfolios, super funds, personal wealth or other means (such as the age pension). There are a number of ways to potentially fund your retirement using property, such as through rental income, using equity or selling properties.

While seeking professional advice from a qualified financial adviser is generally always the best approach, we are happy to cover some of the pros and cons of using property investment to help fund your retirement income.

Pros of using an investment property portfolio for retirement income

Here are some potential benefits of using an investment property for retirement income.

Opportunity for multiple incomes

With a property portfolio consisting of multiple properties, investors’ income stream in retirement isn’t solely reliant on one property. Holding multiple investment properties may potentially reduce the risk of income fluctuations if a property is untenanted and therefore receives no rental income for a period of time.

Similarly, you may also have the opportunity to invest in multi-income properties, such as Specialist Disability Accommodation (SDA) properties.

Capital growth

While living off the rental income that a property (or group of properties) provides, your property’s value may increase over time. When your assets grow in value over time, this is known as capital appreciation. Property investors who initiated a property investment strategy in their earlier years may have already experienced a large amount of capital appreciation in their property portfolio.

Property assets are generally considered to be growth assets, which means they are typically used as long-term investments.

Potential to reduce outgoings

Owning a property portfolio does come with maintenance costs and property management fees. If you’re handy or have handy adult children, you may be able to reduce your outgoings by performing maintenance, minor repairs, or managing the property yourselves.

Useful to help loved ones

Particularly in such a tight rental market, owning investment properties may allow loved ones to secure a rental property. If you purchase an investment property in a holiday location, you may also be able to travel and use your own property to holiday in!

Some of the downsides to using property investments to fund retirement

Below, we outline some potential cons to relying on a property investment portfolio for retirement funds.

Ongoing costs

The ongoing costs to manage and maintain an investment property (or collection of properties) may erode some of your retirement income. This may include property management fees, council rates, repairs or interest repayments on any debt held against the properties.

Market volatility may affect cash flow

In times of market fluctuations or a market downturn, your retirement cash flow may be impacted. This is referred to as market risk, and while market risk may be present across a number of asset classes, holding all of your ‘eggs in one basket’ may leave you particularly exposed to real estate market fluctuations.

Changes to living costs

Throughout retirement, your living expenses may change. If your property portfolio cannot generate income in line with your living costs, this may mean that you are not able to attain the level of income required to maintain your retirement lifestyle.

Tax implications

As with any investment, there may be tax implications to using property to fund your retirement. This may include needing to pay tax on your taxable income or capital gains tax implications.

Our top tip for retirement planning

At Apollo Investment, we understand the importance of utilising a qualified financial planner for retirement planning. Financial planners can consider your holistic personal circumstances and financial situation to formulate a retirement plan that will help meet your needs or identify gaps in reaching the required level of retirement savings.

A financial adviser can help you understand the actions you need to take now to have enough income to retire on, factor in whether you’ll be able to receive pension payments from the government and help you balance risk with wealth creation. Generally, advisers also work closely with accountants and legal practitioners to help source the most tax-effective investment options and retirement income strategy.

Including an NDIS property in your investment strategy

Whether you’re looking at purchasing your first investment property or adding an NDIS investment property to achieve a more diversified portfolio of properties, Apollo Investment can assist.

With extensive experience in NDIS property investment and a panel of industry professionals, we can help guide you through the investment process, including financing your purchase of a Specialist Disability Accommodation (SDA) home. With the potential for capital appreciation, strong income yield, multiple income streams and the opportunity to support Australians with disability, NDIS properties are one of the investment choices that many Australians are becoming increasingly interested in.

Contact the team at Apollo Investment to discover more about this socially-focused property investment opportunity.