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.

Residential property
Tax benefits

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.

Rental income

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

Long-term benefits

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.

User-friendly investment

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.

Leveraging

Investment property has a high leverage capacity. It can be bought at 80% LVR (loan to value ratio).

Saving program

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.

Lower risk

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.

Commercial property

Long leases

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).

Estate planning

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.