As people age, their retirement planning needs to adapt. One key element of this is ensuring you have the right property portfolio. This means, ideally having enough passive income to cover your costs, as well as potentially helping your children onto the property ladder.
It’s important to think about how much passive income you’ll need in retirement. This is money that comes in without you having to work for it, such as from investments and or rental properties. You want to make sure you have enough to cover your costs, including any potential retirement village costs should you want to choose this lifestyle down the track.
You may want to help your children onto the property ladder by partially funding them into their own property. Or owning a rental property they can live in with a reduced rent while they save, thus providing a level of income for you simultaneously.
One of the biggest challenges for young people today is buying a house. In most cases you need a 20% deposit to buy a home (although banks can approve limited 10% deposits), so many parents want to help their children get onto the property ladder.
There are a few different ways parents can help their children buy a property. One option is to borrow 20% against the equity in your home. This means you would borrow from the bank and be responsible for the repayment. Banks are tricky with this type of funding as you need to prove you can repay the mortgage or demonstrate an acceptable exit strategy to the bank (such as selling your home to move into a retirement village and repaying the 20% at the time of sale).
Another option is to allow your children to borrow 20% equity against your home and 80% against the property they are buying. This means you would only have to be guarantor for 20% of the loan. In this case your children would need a combined income sufficient to satisfy the bank they can service 100% of the loan.
The third option is to be joint borrowers with your children on the property they are buying. This would require your children to have a deposit, and it would mean you will both be responsible for the repayments.
No matter which option you choose, by helping your children buy a property, you are giving them a great start in life. And, of course, you would be helping to ensure your grandchildren have a place to live when they are older.
There’s no doubt property can create wealth. In fact, Forbes report more millionaires are made through real estate than any other investment. It truly is a legacy to leave to your loved ones.
If you’re looking to build passive income and long-term wealth, then investing in property is a great strategy. The key is to focus on cash flow – that is, the amount of money coming in from rental income, minus the costs of owning and maintaining the property.
With the right property investment strategy, you can create a stream of passive income to provide for you and your family for years to come.
The need for providing a strong foundation for our retirement and our children is one of the determining factors that prompted me to write my best-selling book Property Quadrants.
In this book, I explain how:
- to find properties that generate positive cash flow from day one
- positive cash flow from day one, is your pathway to building wealth
- many investors leave themselves cash poor with the wrong purchase and end up struggling.
- analyse different types of properties and get the numbers to work for you
- minimize your risks and maximize your returns
Twenty years ago was definitely the best time to start investing in real estate and hopefully you did! The second best time to start is now, perhaps you can encourage your children or grandchildren to invest. Maybe even with your help.
When you retire, you may be considering downsizing and moving into a retirement village.
From a property investment perspective, retirement village living is not a good investment. It is however, a lifestyle choice that helps many people to enjoy their golden years.
If you’re looking at retirement villages, make sure you understand the costs and your exit options.
Banks will not lend money for the purchase of a retirement village unit, so you will need to have the full amount of cash available.
In addition to purchasing the right to occupy your unit, there are also fees payable every week for maintaining the village.
You also need to be aware you will not receive any capital gain when you sell the unit – it is simply returned to the village owner. You may, however, need to pay for the unit to be refurbished.
If you enter into a life lease agreement, you will pay an upfront lump sum, as well as ongoing fees. The agreement gives you the right to occupy the unit for the duration of your life.
Moving into a retirement village can be a great way to downsize and enjoy a more relaxed lifestyle in your later years. Just be sure to do your research and choose the right village for you.
Property Quadrants by Nichole Lewis, Best Seller Publishing, RRP $29.95