Retiring on $500,000 per year with property is not only possible, it’s very doable. But you will need to give yourself time for your assets to grow in value.
Recently, a client came to us and wanted to build a plan on how to retire well in 20 years using property as the driving force.
The great thing about this type of approach is that this client understands that the longer you can hold your assets the better.
The approach that we are using here is to aggressively purchase properties over the next 24 months and then sit back and let the growth do its work. The plan is to purchase three properties and then stop buying.
This in and of itself is very conservative in that there will be every possibility of growing the portfolio down the track. But for now, the goal is to build up those base assets that will help do the heavy lifting.
The first property that we will buy will be $770,000 and will ideally grow at 7% per year and generate a rental yield of 4%. Only 12 months later, we can look to use the equity uplift that the first property has generated to purchase another property.
This second purchase will be an $800,000 asset which will also have a 4% rental yield that is projected to grow at 7% per year.
That solid early growth across the two assets should then mean that there will be enough equity just six months later to buy the final asset which will be slightly higher at $1 million. It will also be growing at 7% annually with a 4% rental yield.
Over 20 years, those assets are likely to grow to $10 million which will result in $500,000 in net income each year.
When it comes to growing wealth in property, there are a few key takeaways that we need to pay attention to.
The first is that time in the market is key. We see people ignoring this all the time, especially in the media. In reality, it doesn’t matter what happens in the short term with interest rates or property prices, if you are able take that long-term horizon you will see results.
Your job is firstly to do whatever you can to hold onto your properties for a long enough period of time.
The second takeaway is that you need to have good long-term growth. We made the assumption that the value of the properties will increase by 7% each year. That’s only slightly above the long-term Australian average.
To achieve that we simply need to buy assets that are better than average in locations that are proven to grow above the average. We see this regularly in many blue-chip locations.
Finally, and perhaps the most important thing here is to simply get started. If you want to grow your wealth with property, the time to start investing is today.
If you need a 20-year time horizon then you want to get started as soon as you possibly can to give yourself every chance of achieving your financial goals.
