Retirement comes with a mixed bag of emotions. The excitement to finally do the things you’ve wanted to do, stepping away from the 9-5 and enjoying freedom from work. However, it can also come with apprehension and feel daunting as our consistent and stable paycheck is no longer.
Relying on the pension and our super to retire has been the ‘’Australian Dream’, but things have changed over the years. With the ever-increasing cost of living, retirement seems further and further away for many. So, the solution is to have a retirement plan in place.
How do I do that?
Invest, invest, invest! That includes investing in property. Investing can help support or sustain your current lifestyle, plus extra additions 😏. Sure, investing doesn’t come without drawbacks; but if you lay out the pros and cons and come to the conclusion that it can help transition you into retirement smoothly, why not give it a go?
Need a pros and cons list to help with this decision?
Then, you’ve come to the right place! Below you’ll find the pros and cons of buying an investment property.
Pros
- Investment properties can be a reliable source of income.
- As we all know, Australia is currently in a rental crisis, and generally speaking, good rentals are hard to come by as it is. So, the likelihood of a shortage of tenants requiring a roof over their heads is slim.
- As long as you purchase an investment property in an area that tenants are after, you are always likely to have a consistent stream of rental income.
- Also, if you’ve paid off your mortgage by the time you retire, you can add this reliable income as a supplement to your super and pension each month.
- Leverage the generous tax breaks
- Investing in property is a long-term investment that can pay dividends when you retire.
- Negatively-geared properties can provide a tax deduction throughout the life of the loan.
- If you decide to sell your investment property and you’re able to sell it at a profit, you may be entitled to up to a 50 per cent discount on capital gains. This discount only applies if you’ve owned the property for over 12 months.
- The Capital Gains Game.
- Having an interest-only loan for your investment property over a principal-plus interest loan won’t pay off your mortgage; however, if done strategically, it will earn you a profit at sale through capital gains.
- As the saying goes: you’re in the driver’s seat.
- You have the choice of:
- When to buy
- When to sell
- What rent to charge
- Adding value to your home (through renovations, etcetera);
- You have the choice of:
These can all be done independently of the market too!
Cons
- Markets can be unpredictable.
- Even the most knowledgeable property investors are at the mercy of the market and its unpredictability.
- You cannot completely control how much you can make in rental income or how much your investment property appreciates.
- You can’t just sell portions of a property.
- As interesting as that idea would be, you cannot just sell a bedroom like you would sell some shares.
- In saying this, you could borrow against the equity you’ve accumulated within your home (circumstances dependent).
- You need to spend money to make money.
- Investment properties come with ongoing costs, and they always will. These can range from maintenance costs to insurance, extended vacancy periods, and land tax.
- With this in mind, apartments are the more cost-effective option for first-home buyers and retirees (keep in mind the strata levies, though).
- If you have paid off your home loan, this may mean that your property moves into positive gearing (this is where you’re receiving more rental income than you’re paying out). If this is the case, you will need to start paying taxes on that extra income.
Saving for your retirement is all about balance.
A mix of growth assets and cash-based income can create a healthy retirement portfolio. So, would you like to be financially free and sip cocktails on a beach somewhere? Then, get cracking on your retirement portfolio, and you could get there sooner than you think.
