15 Ways To Retire Early Through Property Investment – The Investment Strategies You Need To Know About
You can retire early through property investment, in fact property investment is one of the best ways of securing financial freedom and an early retirement.
My dad used to say “there are many different ways to skin a cat” and that same is true for property. There are many different ways to achieve retirement through investing in property. All of these strategies work for different people and different people prefer different ways of investing.
We will outline 15 different methods you can use for achieving retirement through property investment. It will then be up to you to decide on your specific strategy and to go out there and achieve financial freedom and early retirement.
1. Positive Cash Flow Properties
This is where you purchase a property and from day one it brings in more money in rental income than you are paying expenses. Instantly you have increased your passive income and are that little bit closer to retirement.
Even if the rent doesn’t increase over time (which it almost always does) then you could still retire by simply acquiring more and more positively cash flowed properties. However, generally over time your rental income will increase and you will be able to pay down your mortgage. So your total positive cash flow could more than pay for your lifestyle just from a few properties.
2. Buy And Hold For Rental Income
Similar to positive cash flow property, however when you buy the property it is negatively geared and costs you money. You do this to secure a great property with good potential capital gains.
You then allow the rental income to go up and eventually cover the mortgage expenses and your property becomes positively cash flowed. Over time you leverage your equity to invest in more property and grow your portfolio but the eventual goal is to live off rental income.
Often people using this strategy will sell of some properties to pay down debt on their remaining properties and then live off the cash flow.
3. Buy And Hold For Capital Gains
This is where you purchase property purely for the capital gains. You rent out the properties, yes, but they still cost you money each month.
The goal is for the properties to double every 7-10 years. Then once you have purchased enough property and let them grow enough you can live off the equity. You borrow against the property to generate your income and you use your equity to pay for the difference between your expenses and income.
As long as your property continues to go up you should have enough equity to live off indefinitely. However, this relies on the banks lending you money and it can be hard to source this financing after retirement so research this strategy very carefully.
You can alternatively sell your properties to access the capital gains, however then you have to pay capital gains tax and you lose all future growth.
4. Buy, Renovate and Sell
With this strategy you purchase a property that needs some TLC and then you sell it for more than you paid for the price of the property and your renovation expenses.
If you can do this well there is a lot of money to be made. However, you need to be careful not to over capitalize so that you make the most money possible. Check out our eBook that shows you 50 ways to dramatically increase the value of your property instantly.
This strategy can be a great way to build equity quickly and you can make a lot of money. However, if you are spend your days doing handyman work to renovate your house, or you are managing renovations…is that really retirement?
You may want to use this strategy in the beginning and then hold the property for capital gains or increased rental income.
5. Vendor Financing Sales
This is where you sell your property, but instead of selling it for cash you are assuming a loan with the buyer. In effect you are lending the buyer the mortgage for the house.
In return the buyer pays you above market rate for your property (so you make money there) and they pay you above average interest rates (so you make money there. This can be a great way to generate passive income.
A property doesn’t have to be in a rural area to be made positively cash flowed. If you sell it using vendor finance then you can do this with almost any property.
Terms are usually 25 years, but they are almost always paid out early (giving you your profit early). A great strategy but it does require constant purchasing and selling of properties. However, probably a lot less work than you are currently doing at your 9-5 role.
For more info see the following post: How to Generate A Passive Income Using Sellers Finance
6. Commercial Property
investing in commercial property can be a great way to achieve capital gains and a great way to achieve positive cash flow.
Commercial property usually requires a slightly higher deposit (around 30% of the value of the property) but it can often deliver higher rental yields. On top of that many of the expenses (such as maintenance, utilities etc) are paid by the renter. This lowers your expenses and increases your cash flow even further.
7. Using Your Super To Invest
It is possible to access your super to invest in property. Self Managed Super Funds (SMSF) are funds that allow you to manage your own super and invest it however you would like.
You can even borrow against the value of your property to invest. This is becoming an increasingly popular strategy and the tax benefits can allow your to grow your portfolio much quicker.
I suggest reading the book How To Buy Property Using Your Super Money for more information regarding this topic. There is a lot to cover and it can’t be done in this post.
8. Buy, Add Value and Hold
This is where you purchase property that you can immediately add value to. It might be adding value to the rental income, or it might be adding value to the market value of the property. Many times it will be both.
You buy the property, increase it’s value (usually through renovations) and then hold the property. You can leverage the equity in the property to reinvest or live off and you can use the increased rental yield to create a positive cash flow property.
9. Maximize Your Leverage
By maximizing your leverage (especially in the beginning) you can afford to purchase more properties as you require a lesser deposit.
You will have to pay lender’s mortgage insurance, which is a fee to the bank for the increased risk, but it is likely that over time your capital gains will outweigh the cost of the lender’s mortgage insurance.
This strategy can help you get into the market quicker and can help you to grow your portfolio quicker. However, long term it can be a risky strategy. If interest rates go up or property values go down you may have trouble servicing the loans and the banks may force you to sell.
Most people focus on lowering their leverage as they get closer t retirement so that they have less risk. They go hard in the beginning and leverage to the max and then lower their loan to value ratio to 50-80% as they get closer to retirement.
10. Property Options
People by options in the share market all the time but many people don’t realize that you can also purchase property options. A property option usually gives the buy the right, but not the obligation to buy a property at a certain price. There are also property options that give the seller the right but no the obligation to sell their property at a certain price.
People make millions buying and selling property options in Australia, however it is a very niche market and I would suggest getting educated before investing using this strategy.
Subdivision is where you buy a property or a block of land and then legally split it into two separate pieces of real estate. There are multiple ways to retire using this strategy.
– Buy, subdivide and sell off all parts of the land/properties
– Buy, subdivide and sell one part while keeping another for positive cash flow and capital gains
– Buy, subdivide and keep all parts for cash flow and capital gains
– Buy, subdivide and build a new property on the new subdivision. Then either sell both properties, keep one or keep them all
Ultimately if you want to retire and stop working you may need to look at keeping some of the properties you subdivide so that you can take advantage of the passive income from rental yields and capital gains.
This is where you purchase a property or piece of land and develop on it. Usually development involves duplexes, town houses, blocks of units and other high density housing.
Similar to subdivision where you turn one property into two or more properties, development allows you to create multiple properties on one block of land.
If you manage the development well then the cost of building each property can be significantly less than the value of those properties. You can build a lot of equity and gain a lot of cash flow using this method. I suggest reading one of the following books of developing in Australia before you begin.
13. Buy, Hold and Sell
This strategy involves buying property, holding onto it for a period of time and then selling it to realize the capital gains on the property.
Generally speaking, almost all properties go up in value over time. By holding onto the property you get to take advantage of market growth. You then realize your growth by selling your property.
You then use the cash profit to live off, or to put in low risk (and generally low interest) investments like putting it into the bank.
14. Strata Titling
Believe it or not but there are still some blocks of units out there that are owned on a single title. It is possible to purchase these blocks of units and then create strata titles for each of the units.
Often this will help to increase the value of the whole block (as each unit can now be sold separately).
You can then sell of some of the units or all of the units to realize your capital gain and live off the profits. You could also access the equity through loan with the bank or your could just hold the properties for long term income.
15. Create Dual Occupancy
You can purchase a property (for example a 4 bedroom house) and turn it into two or more separate properties. You can turn a 4 bedroom house into 2 x 2 Bedroom Units. You can also rent out granny flats to create dual occupancy.
Doing so can significantly increase your rental yield and can make the property positively cash flowed.
Dual occupancy is generally a strategy for people who want to hold their properties while maximizing the potential rental income from the property. I recently saw an elderly lady who owned 2 dual occupancy propertied in Sydney. She lived in one part of one house and had 3 rental incomes coming in that completely supported her lifestyle.
Which Investment Strategy Is Best For You?
We have covered a lot of different investment strategies in this post, and not every strategy I’ll suit you and your needs. Read each different strategy and select that one that you think works best with you.
You can retire off each of these strategies, but depending on what kind of investor you are different strategies will take you to your goal quicker. Look for the one that you can use to achieve your goal of early retirement the quickest.
If you aren’t sure why not start by reading one of the books that we have reviewed. Simply check out Our List of Top 10 Property Books