Building Wealth for Retirement

Investing in property can help build wealth for retirement in a way that superannuation, savings or the stock market cannot.

The number one advantage of investing in residential property is its potential for long-term capital growth. Well-located property has consistently doubled in value every seven to ten years, and historically has provided rental yields of around 5% per annum. This equates to a gross return of around 15 per cent per year on a well-purchased investment property.

By comparison, if you decide to simply build savings in the bank for retirement you may find that any gains you make are eroded by inflation and tax. Investing in shares puts you at the mercy of stock market fluctuations and could end in success or spectacular failure (as has been witnessed in recent times).

Once you have made the step to invest in your first property, the gains you make can be used to secure another high growth property. Similarly the gains from these two investment properties can then be used to acquire further property - a portfolio of two to three investment properties held for 15-20 years provides the perfect income stream and source of capital growth to enable you to comfortably see out your retirement.

If you are concerned about the costs involved in owning property, keep in mind that the rent from tenants pays the interest on your home loan. Also any costs that are greater than the income generated are tax deductible as expenses.

Self-Managed Super Funds

With the advent of Self-Managed Super Funds (SMSFs), it is possible to enter the property market later and still reap the benefits. In September 2007 the Federal Government changed superannuation legislation so that SMSFs could borrow assets, including investment properties. There are significant tax gains to be made when borrowing through an SMSF to invest in property, including:
Rent taxed at a concessional rate of 15%
Interest costs fully deductible to the SMSF
Capital gains tax is only 10% - or zero if the property is sold in retirement

You should seek professional advice when setting up your SMSF to ensure it meets the requirements of the Superannuation Act and Australian Taxation Office.

Many of us put off planning for retirement, hoping that it will sort itself out or that our super contributions and super growth will be enough. The sad truth is that superannuation can no longer be relied on as a sole source of funds, and it's now while you are still working and have equity in your home that you are in the best position to optimise your financial security through property investment.

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