So you’ve decided you want to retire through property investing in 10 years or less?
You’ve also decided you’ll start by replacing your current income and then see how far you can go after that.
Every week I have investors touch base with the goal of ‘retiring’ from full time work within the next ten years.
When I ask how they plan on doing achieving their goal they go silent.
That’s why today’s article will focus on 3 different strategies to retire through property investing in 10 years or less.
Before we begin it’s important to note the key to your financial independence depends entirely on the size of your asset base.
Robert Kiyosaki discusses this concept in his book Rich Dad Poor Dad, but in essence wealth is create through the accumulation of assets (property, shares, businesses, precious metals, etc), rather than income.
1. Build a large asset base and live off your equity
In the past property was said to double in value every 7 to 10 years. While this is not the case anymore (due to the law of compounding interest) it is still fair to say that property values should (based on 100 years of historical data) continue to rise in value over the longer term.
Therefore one strategy investors use to retire early is to access the additional money in your property portfolio (created through capital gains) by getting a loan against the equity in the property.
Let’s take a look at an example:
Say you buy 3 properties worth $1,000,000 and they increase in value by 50% over the next 10 years. Your asset base is now worth $1,500,000 and you have made $500,000 in equity.
Based on these numbers you should be able to go back to your bank and borrow a small percentage of this extra equity to live on.
Each year you obtain a new equity loan from the bank to cover you for that year and as long as the value of your property portfolio continues to rise over time you can continue to fund your retirement tax-free.
If you use this strategy sensibly, and only borrow a small percentage of the increase in value each year, your loan to value ratio will continue to reduce as your asset base continues to increase quicker than your draw down’s reduce it.
The benefit of building a large asset base and living off your equity is:
- You do not need to sell your assets to fund your lifestyle / retirement
- The money you borrow is tax-free
- You can increase your rent to cover the addition interest charges on your loan
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2. Build a large asset base and live off your passive income
The second strategy used by investors to retire through property is to build a large asset base and live off the passive income.
There are two ways to implement this strategy:
- Build a positively geared property portfolio from day one
- Hold your property and gradually increase your rental income
Either way your goal is to create a passive income stream which replaces your income or provides the lifestyle you aspire to lead in retirement.
Let’s take a look at a case study:
Say you buy 5 properties over a ten year period.
At the beginning of the ten year period your properties cost you $100,000 a year to hold, while providing you with $90,000 a year in rental income.
Towards the end of the ten year period your properties cost you $100,000 a year to hold, while providing you with $150,000 a year in rental income.
As you can see, you now own a property portfolio which provides $50,000 a year in passive income.
To achieve this goal you did not need to pay down any of the debt or sell any of your properties.
3. Build a large asset base then sell a number of properties to repay debt and live off the passive income
A third strategy used by investors to retire through property is to build a large asset base then sell a number of properties to repay debt and live off the passive income.
This strategy has been incredibly effective for many investors as they end up owning multiple properties out right.
Let’s take a look at another example:
Say you can accumulate 6 properties over a ten year period.
You do not focus on repaying the debt, but instead focus on accumulating more property.
Over the 10 year period your $2,000,000 property portfolio increases in value by 50%. Your asset base is now worth $3,000,000 and you have made $1,000,000 in equity.
At the end of the 10 year period you decide to sell 4 of the properties for $2,000,000. After you pay your capital gains tax, agents fees, etc you may have a small debt, but are still receiving $50,000 a year in passive income, through your rent.
At the end of the day there are many ways to retire through property investing in 10 years or less.
The key is to accumulate assets and properties which will help you reach your goals.
If you are just starting out, don’t put too much pressure on which of the 3 strategies you will use in year one. It’s suffice to know that if you invest in a number of well-researched investment properties over a number of years you will be in a strong position when the time comes to retire, and you will be able to review the options and decide on the one that is most appropriate for your circumstances at the time.
Are you looking to develop an investment strategy but don’t know where to start?…then book one of our obligation FREE Strategy Sessions here and learn how you may be able to retire through property in 10 years or less.
Warning: Pumped On Property are not investment advisers. This article is intended to provide general information of an educational nature only. It does not have regard to the financial situation or needs of any reader and must not be relied upon as financial product advice. All readers should seek independent and qualified investment advice before purchasing a property.