While property investment may be all the rage in Australia, investors with multi-property portfolios are a rare breed.
According to CoreLogic’s analysis of data from the Australian Taxation Office (ATO) and the Australian Bureau of Statistics (ABS), just over two million Aussies held an interest in investment property in 2015.
Of that two million, 71.6% owned just one property, while 18% owned two properties.
Just 0.9% of the total investor population (over 19,000 people) owned six or more investment properties two years ago.
Statistics aside, how many properties does one need to acquire in order to retire comfortably?
According to Margaret Lomas, author and property investment consultant, a portfolio of seven properties is enough to retire comfortably.
“It’s really a value more than a number, but because people like numbers, I always think seven is about it — but we’ve got to understand how that seven then rolls out over a lifetime,” she said.
If you have the means to buy all seven properties at once, then good for you. But for the vast majority of investors, a coherent long-term plan is needed.
“If you’re like the normal, everyday person, you’re going to start with one and it’s going to take you a couple of years before you’re ready to buy a second,” Lomas said. “They might reach the fourth year with three [properties] and then by the time they get to year five and six, they’re at that point where they probably can buy two at once, and they’ve got more of an appetite for risk,” she said.
“To have a $100,000-a-year lifestyle, you need to have a clear [debt free] $2 million worth of property. If you’ve bought seven and you’ve given those 15 years [growth], there’s a chance you’re going to get there, but I don’t want people thinking they’re going to make millions and millions out of property very quickly, because it doesn’t happen that way.”
Lomas said investors are encouraged to acquire too many properties by unscrupulous advisers with vested interests.
“I blame the spruikers for that because obviously it’s in a spruiker’s best interest to have a client come on board and buy as many properties as they possibly can, and we all know a spruiker will make their money out of a property sale,” Lomas said. “For every sale that goes through, they’re probably in for [commissions of] anything between $20,000 to $40,000, and the more they can get a particular client to buy, the more that client is worth to them over their lifetime.”
Lomas advised real estate investors to pay little heed to the capital growth versus cash flow debate when selecting an investment property, because you can have both.
She said to look for areas with price-growth drivers like infrastructure development, growing numbers of families, diversity of industries for jobs, and limited development to keep supply in check.
“Your aim as an investor is to spot growth drivers. Once you’ve done that, you’ve got to find the kind of property in that area that’s going to appeal to both buyers and renters,” she said.
Over the long term, the right properties will see good growth and achieve a comfortable 5% yield to help service the debt.
Once you’ve acquired the target number of properties, you should hold off the action for as long as possible. Smart investors will even dip into their superannuation first during retirement, so that the portfolio has time to rise in both rent and value.
“When you get to the point where your superannuation is starting to wear a little thin, then your property should be good to go,” she said.
Depending on your circumstances, you could either live off your portfolio’s positive rental income, or choose to sell down some holdings to reduce debt on other holdings. This in turn will boost your total returns.
“The longer you can keep them past that retirement phase and use other sources of income, the better because if you can even add five years to the 15 years you’ve already waited, that five years will make a big difference,” she said.