Wealth Connexion outlines the advantages and disadvantages of using property as funding for your retirement.
When researching retirement planning strategies in Brisbane, investing in property can be an attractive option. Owning an investment property is an incredibly popular method of wealth generation in Australia – in fact, over 20% of Australia’s 11.4 million taxpayers owned an investment property in 2019-20. Below we outline the benefits and drawbacks of using this strategy to fund your retirement.
PROs
1. Appreciation in Value
Generally, the longer you own a property, the more you can expect it to appreciate in value. This provides the opportunity for more income through rental rates, or a better return if you decide to sell your investment property.
2. Access to rental income
Investment properties allow you the opportunity to gain passive income through renting. This is a reliable income source that can be used to supplement your retirement fund, even after you have ceased working.
3. Diversification
Having more than one income stream for your retirement is a wise decision, as it means that if one stream is not performing well, you have another option to fall back on. Owning investment properties along with your established super gives you this security. For an expert opinion on how you can effectively diversify your income streams, contact Wealth Connexion.
4. Tangibility
Investment properties are tangible, physical assets. This means they are obviously not susceptible to issues that other non-physical assets are. Non-physical investment options such as stocks and bonds are much more easily influenced by market fluctuations, making them more risky assets to rely on for your retirement. Furthermore, it can be more challenging to assess their actual value as compared to a physical asset.
CONs
1. Initial Capital Requirements
Purchasing property requires that you already possess a large amount of capital in order to acquire this asset, to begin with. Thus, this tactic for retirement planning requires much more planning and management than simply establishing a retirement fund or super account.
2. Maintenance and Expenses
Properties require ongoing maintenance and utility costs, which can cut into your income stream acquired from rent. This is also the case for any property that you are planning to sell, as maintenance is often completed when planning to go to market. It is absolutely essential that you factor in these costs when developing retirement strategies in Brisbane.
3. Market Volatility
Like any other, the property market is still subject to fluctuations and volatility. Property values can fluctuate widely depending on interest rates and environmental issues such as flooding, so this is an aspect you must keep in mind when planning your retirement finances.
4. Lack of Liquidity
As an investment property is a physical asset, you must factor in the cost and time that is required to sell if this is needed. This, therefore, cuts into the cash flow you can expect to receive from the sale of this property. Furthermore, property markets are very susceptible to ebbs and flows that you will have to take into account when planning your retirement.
Planning for retirement is a multi-faceted and complicated venture when it comes to organising your finances. For help with fleshing out your financial future, contact Wealth Connexion – we’re the experts in retirement planning strategies in Brisbane.
