How To Retire By Investing In Property

Property investment is a great way to generate an income for your retirement. This is because you can generate a full time income without having to do much work. The best thing is you don’t have to wait until you are 65 to start enjoying the benefits of property investment.

If you begin investing in property early in your life then you can begin to scale back your workload as the income from your property portfolio increases. You might decide you don’t want to work 5 days and week and you cut it back to 3 or 4 days because your property portfolio pays you enough money to stop working those days and still be comfortable.

So how can it be done? How can you retire by investing in property?

There are 2 main ways people use property to retire.
1. Rental Income
2. Capital Gains

Most books and magazines will tell you that the ONLY way to retire from property is through capital gains. This is completely untrue. On this blog we focus on how to invest in positive cash flow property and retire through rental income. In this quick post I want to cover how you can retire using both rental income and capital gains and some steps you can take to get started.

1. Rental Income

I recently read a story about a 65 year old lady who didn’t need a pension because she owned just 2 properties and the rental incomes more than paid for her lifestyle. She owned two homes and she had turned both homes into dual occupancies.

In one property she lived at the back and rented out the front of the property. And he other property she rented out the front of the house and the back of the house separately. All up she had 3 rental incomes paying her over $900/week. As the properties were fully paid off and she had no rent to pay she was living a comfortable life and didn’t need to draw a pension.

This lady’s investment strategy was conservative. She sold off most of her properties and used the gains to pay off her debt. You can follow in her footsteps or use a similar but different strategy to generate an income from your investment properties.

How can you do it?

Buy positive cash flow investment properties (or almost positive cash flow). You can find these properties all over Australia and they are the properties that generate you more in rental income than they cost you in expenses.

Often the so called ‘experts’ will say that you have to sacrifice capital gains if you are going to invest for positive cash flow but this certainly doesn’t have to be the case. If you get educated (read these books) then you can invest for both positive cash flow and capital gains.

Positive cash flow property generates you an income from day one (above all of your expenses). You can immediately use this income to pay down your debt, invest in more property or add to your lifestyle. Over time rental incomes will increase while your main expense (your mortgage) will stay the same. This means that over time the income from that property will increase. When the mortgage is paid off it will increase even more.

If you can buy multiple positive cash flow properties then you can easily generate enough money to retire on. The secret is to start early and to have multiple properties generating you a positive cash flow. This way if one property is empty you still have income coming in, and you can maximise your income.

Investing in positive cash flow property gives you unlimited earning potential. Your income is only limited to the amount of positive cash flow properties that you decide to buy.

2. Capital Gains

The other way to retire is by investing for capital gains. This is where the value of your property increases above what you paid for it. You can then access this money by either selling the property or by getting a loan against the equity in the property.

As property values tend to double every 7-10 years then (if you own multiple properties) you can retire by drawing on the equity in your existing properties. Each year you obtain a new equity loan from the bank to cover you for that year and the next year you get another loan to pay for your lifestyle that year. Or you can do what the lady I mentioned earlier did. Sold off some of the properties and paid off her debt and made her properties positively cash flowed.

Many investors begin investing for capital gains when they are starting out so that they can grow their portfolio quickly. Then as time goes on they try to turn these properties into positive cash flow properties so that they can draw an income from them. This is because negative gearing only works well when you have an income to pay for all of the expenses.

What would you prefer? To invest in property that strips you of your cash flow now, so that you have to budget excessively just so you can scrape by and hold onto your property. Or invest in property that instantly generates you income above and beyond what your job pays you?

Even if you obtained fewer capital gains you could still use that income to save for a deposit on another property and grow your portfolio that way.

There are two ways to retire off your property portfolio and even thought the majority of people invest for capital gains, at the end of the day most people want to generate a positive cash flow from their properties. They do this by selling properties and paying down debt.

But what if your property was positive cash flow in the beginning? Then you wouldn’t have to sell properties to pay down debt. You could potentially end up with more properties and more income.