Why most People with Only Property Retirement Income will Struggle?

Hi Guys/Gals

I have spent a lot of time...analyzing the optimum retirement income mix. Based on my analysis...property is an excellent vehicle to drive growth buy may not the best or most stable means to generate a passive income in retirement. This includes also high return US properties..some reasons why?

1. Property requires maintenance over time it may require rejuventation of even knocked down and rebuilt. When these costs are factored in typically you can only rely on 50-60% of the actual property income.
2. As we get older...we will have less ability to run around to get the maintenance issues sorted. If you don't have kids nearby it becomes even harder.
3. People tend to buy properties in their own local..thus less diversification. If there is a hit in one market that could impact revenue.
4. Property is illiquid and it takes tome to sell.

Based on my analysis....people who just rely on property will lose more of their capital than people have more than property as the main game.

Here is my thoughts (not advice DYOD)....I feel that ideally you should have a comibnation of the following - Super, Property, and Shares/ETF/LIC, and some fixed income products.

Here is what I plan to do:

1. Property - continue to slowly divest our of property but consolidate my holdings to easier maintained properties - i.e. quality properties, new properties, and maybe also develop a set of units/villas in one block. I am still not a fan of commercial properties. The plan is to get 80-100 coming in regularly.

2. Super - I wish I paid more attention to this. Whilst, you can't access this now..but after 60...it is an excellent source of tax free income. I plan to get about $1.6m here...that should return about 65-70k per annum net

3. Shares/ETFs/LICs - talking to some of the guys on here..and excellent source to build wealth outside of super and be able to access when you have not income, My plan is to get $1-2m in this vehicle it is also tax advantaged. Ideally can see 50-90k coming regularly from this vehicle also.

4. Fixed interest - I call this as the cash buffer to fund short falls. Ideally I would like about 250k in here.

Additionally, by developing 1-2 properties a year till I am not able ...I can add another 60-200k income.

Something to think about. Don't get me wrong..I am big property fan...but can you do what you do now as you get older.....that is the million dollar question.

 

Good post @sash. Age (or timeframe) of the investor is another major factor influencing the strategy as well.

 

That is very true....don't get me wrong..property is an excellent vehicle for growth and capital.

But when you get older...it might be prudent to develop one block of units with shops underneath..some I have been thinking about. That can give you a blend of resi with some commercial...it requires quite a bit of capital.

 

5. Build up assets and then sell down slowly as you need the money because you're not going to live forever.

 

@sash, good post.

I have combined:

a) Items 1 and 4. That is, my cash is sitting in Offset accounts linked to loans. In this way, I am getting 4% to 5% return after-tax on my cash.

b) Items 2 and 3. All my shares, LICs and EFTs are owned in Super (mainly because I wanted them protected).

For me, the tough thing is trying to get the balance between property, shares and cash right. They keep changing the rules and I keep getting older .

 

If only...it will take me 10-15 years......... noice problem but still a pain ....never the less

 

REIT would be sub-component ...it is a investment vehicle so not a direct property investment...

 

Yes...the changin' rules are nutin' any can do about...

Noice work.....I will get a flurry of young disputers...now....

 

+1, via family trust for large growth assets e.g. property, to minimise CGT liability.

 

Too many variables, it will be dependent on many factors, what you hold, net worth, product, timing markets, whether you sell down, condition/age of properties etc etc

treat property as a business, trade stock and success will significantly increase.....

Mix it with property developing to create income streams, commercial property and get rid of high maintenance old stock.

 

Agree with that...part of what I intend to do...but what about when ya just want passive?

Active strategies a lot of attention otherwise they go off the reservation.....

 

If you have 3, 4, 5 million worth of assets and you're approaching 60 really what is the point of it? Your capital is your passive income. Passive income generated from assets so you can retire early is a young mans game.

 

Yep...that is what I am thunkin' but a combination move to passive by selling but initial sales will fund part of the lifestyle.

 

Yep, buy multiple high quality properties in multiple trusts and never sell. Never pay CGT.

... although your grandchildren will way down the track. If that is a problem for them, they can remive themselves from the beneficiary lists .

 

If you really want real passive property investment then just buy the land (lessors interest) not the building!

 

Yes I agree it is the obvious passive investment, except you have to get active do something with all that moula you get paid in advance if you want to ramp up returns.

 

I'm in the same boat @sash. Funds sitting in offsets, but it's all property. I can't do anything about the Super situation.....cause I don't have any, but interested to start moving some into shares. This is scarey, new territory for me, with the added complication that Hubby isn't keen on shares at all. At this stage it's all research, research, research. Thinking we may put some play money into a few different options just to see how comfortable with are with it, but still keep 95% property for the moment. I'd like to build it so that we have the income streams split more equally, but that will take both time & us both being comfortable with this new world.

 

Currently, our Total Assets are:

• Property (incl PPOR) 66%
• Shares (all in SMSF) 27%
• Other (cash, cars, etc) 7%

Our debt/loans is 30% of Total Assets or 45% of Property.

This makes our Net Worth:

• Property (incl PPOR) 52%
• Shares (all in SMSF) 39%
• Other (cash, cars, etc) 9%

The Property Portfolio currently results in around $10K negative after-tax cashflow (easily covered from our self-funded pension). Even if we do nothing, it will be positive cashflow within 5 years.

Once we complete our Property Portfolio restructuring (by the end of this year), our Total Assets will be:

• Property (incl PPOR) 58%
• Shares (all in SMSF) 34%
• Other (cash, cars, etc) 8%

Our debt/loans will be 12% of Total Assets or 21% of Property.

Of course, our Net Worth won’t change from above.

But the cashflow will. It will be well and truly cashflow positive. We don’t expect to be paying any tax as we have some accumulated tax losses to claw back and, then in 2 to 3 years time, we can earn $60K before tax kicks in.

Been living the dream (i.e. self-funded retirees) for over 7 years. And the dream is only going to get better.

One needs to remember that we started this journey in 1992, over 26 years ago.

It definitely takes time but I can tell you all the hard work, the education, the mistakes, the delayed gratification, ... is definitely worth it.

 

We are also in this same situation, 100% property although a decent chunk of Super which is just cash not having got around to doing anything with it yet.
Don’t see the need to change or diversify at all as even at lowish yield returns as this is what we feel comfortable with.
Without doing anything at all in the next decade rents should be 7 figures, or very close and debt would be in the single digits.