The Benefits of Property Investment for Retirement Income
Property is considered to be a relatively secure, low-risk investment for those attempting to generate retirement income.
Whether through direct investment or through a self-managed super fund, investing in residential and commercial properties has a number of distinct advantages.
There are a number of tax deductions that can be claimed on a residential investment property, including:
- Cost of ongoing repairs and maintenance.
- Rental management fees if an agent is used, or travel costs associated with managing the property if self-managed.
- Rates, levies and taxes associated with the property.
- Insurance costs.
- Building depreciation costs.
- The interest paid on the loan.
As long as you are able to keep your property tenanted, you will receive a regular income from rent that can go towards paying off the mortgage
Rents rarely go down; they usually go up in line with inflation and demand, so you can be reasonably sure of a long-term source of income from your rental property. You can also expect your property to increase in value over time.
Compared with the stock market and other forms of investment, property investment is much easier to understand and is a tangible bricks-and-mortar asset. This makes it very attractive to average mum and dad investors with limited expertise.
Investment property has a high leverage capacity. It can be bought at 80% LVR (loan to value ratio).
If you’re like most people and have trouble saving, paying a mortgage is a form of enforced saving that will pay dividends in the long term.
Positive asset base
Once you have bought your first investment property and have a record of solid repayments under your belt, you can use the property as security for further loans to purchase more property or assets.
Property investment has historically been seen as a more secure form of investment. While the property market can and does go down, it often recovers quickly and is generally more likely to go up.
Rental income from commercial properties is generally guaranteed for longer periods of time (several years) than residential properties (6 to 12 months).
No maintenance costs
Unlike residential properties, repairs and maintenance of the premises are generally paid for by the commercial tenant.
Higher rental returns
Rental rates on commercial properties are traditionally higher than residential properties (partly because they are seen as a higher risk than residential property).
Those with self-managed super funds can buy ‘business real property’ (property that is solely for business purposes) from related parties (often family members) as an effective means of estate planning.
As well as benefits, there are also risks with any form of investment. However, when compared with other more volatile areas — such as the share market — property offers a relatively secure investment that delivers long-term gains.
Naturally, you should seek professional advice before making any investment decision and ensure your portfolio is diversified and contains a good mix of other investments as well as property.
This information is intended to provide background information only and does not purport to make any recommendation upon which you may reasonably rely without taking specific advice. In particular it should not be considered financial product advice for the purposes of the Corporations Act 2001.