09 Mar 2018

How Many Investment Properties Do You Need To Retire?

Like many ambitious Australians, you’ve probably considered an investment property portfolio to fund a comfortable lifestyle when you retire. And ideally, whilst age and health are still on your side. But realistically, what does it take to retire comfortably and live off your rental income? How many properties do you really need to be able to cover your basic living expenses AND enjoy the finer things in life? Unfortunately, there’s no straightforward answers to these questions, but we can get a pretty good idea if we take a closer look at what’s involved.


How much annual income will you need?

The first thing you need to work out is how much money you will actually need. This amount will be different for everyone as it depends on the type of lifestyle you want to lead. A good way to work it out is to consider your current annual income and decide if that would be enough to live on per year once you leave the workforce. Keep in mind you must be able to cover your bills and living expenses, as well as any special occasions, holidays or other life experiences you wish to have. The amount you arrive at will determine how many investment properties you need to sustain an annual income. To give you some idea as to how much you might need, use the Retirement Standard from the Association of Superannuation Funds of Australia (ASFA) as a guide.


How soon do you want to retire?

The next thing to consider is when you plan to retire. Working out how long you have left in the active workforce also helps determine your investment property goals: the longer you have left, the more time you have to build a portfolio, which is good because saving for your next property purchase generally takes time. Another factor that often gets overlooked is inflation. You’ll need to take into account that as the cost of living rises, a hundred grand in today’s economy might not be enough to sustain you in 20 years’ time.


Investment costs

Buying an investment property costs more than just the repayments. You need to consider whether or not you can afford the extra costs such as rates, insurance, property management fees or body corporate fees, maintenance and repairs, and more. Tax is another issue that investors sometimes forget about. If your rental income is higher than your repayments you will need to pay tax on that income (conversely, you can also claim it on tax if your rental income does not cover the mortgage repayments). All these expenses add up.


Tips for generating a retirement income

There’s a few key things to remember for investors who are serious about living off their rental income through retirement:

  • There’s no ‘one-size-fits-all answer

The bottom line is that no two retirement investment plans will be the same. It all depends on your individual financial situation, how much you need to live on, and what you can afford to spend on the properties.

  • Don’t forget about capital growth

Capital growth is just as important as the potential rental yield. For this reason, choosing the right properties to invest in is critical, as capital growth builds equity and helps fund the deposit for future investment properties. Properties in certain areas will experience higher capital growth than others, so do your research and choose wisely.

  • The power of equity

The equity of a property increases with its value. This is a super handy tool for allowing you to not only purchase more investment properties, but you can also access a line of credit from your bank to help fund your retirement.

  • Make a plan

Set a time frame. Work out how long until you wish to retire then break down your goals into realistic, achievable time frames. For example, if you want to retire in twenty years and you need five properties to do so, then you’ll need to make a plan to purchase a new property every four years.

  • Understand the risk

Property investment can be exciting and rewarding, but it can also be risky. There are no guarantees that the property market won’t experience a downturn, in which case, you will have to bear a heavier financial load. You need to know how you would manage in this situation and understand the risks and how to protect yourself from them as best as possible.

  • Start early

There’s no quick fix in property investment; it’s a long-term strategy as building your property portfolio takes time, patience, and perseverance. But the earlier you start, the more capital growth you will experience, and give yourself more time to reach your retirement goals.



So, exactly how many investment properties do you need to retire? Well, the jury is still out, but some people estimate between 3 – 5 properties; others say more than 10. But ultimately, your personal circumstances will be the major deciding factor. Individual results will vary, but there’s no time like the present to plan for your future.


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