How many investment properties do I need? – Prepare to live for 100 years
A common question from our property investors is “How many investment properties do I need?” A new book now available is suggesting that children born now in western Sydney have a 50% chance of living beyond 105 years! Some really interesting facts and figures in the attached article but the information should not make much difference to how many investment properties you need for a happy, long life. Read on to find out why?
“A life well lived requires careful planning in order to balance the financial and the non-financial, the economic and the psychological, the rational and the emotional. Getting your finances right is essential to 100-year life, but money is far from being the most important resource. Family, friendships, mental health and happiness are all crucial components.
How many investment properties do you need to achieve your goals?
You can’t have a long and financially successful career if your skills, health and relationships are depleted. Similarly, without sound finances, you will not be able to afford the time to invest in those crucial non-financial matters. Getting the balance right is hard in a short life – and while it is more complex in a long life, there are many more opportunities to do so.”
All extracted from today’s article and all making perfect sense to me, so what is the answer to the question “How many investment properties do I need for a comfortable long life”. If this is a question you have pondered then there is a basic misunderstanding of why we buy investment property! A property investment is not an end in itself but a means or the vehicle you use to help achieve your end goal. Your end goal is not the number of property investments you own but the financial goal you have set yourself.
With most people it is sensible to aim for a retirement income of around 75% of your final income. If you can achieve this then retirement should not interfere too much with your current life style and you should have enough discretionary income to purchase the things in life that keep your life interesting. Basically, this means if you are earning $100,000 per annum, then you should be aiming for a retirement income of around $75,000 per annum. If two partners are earning $100K each, then the goal should be around $150,000 per annum joint income. To ensure the income you want, you can use the 20 times rule. This means if you want an income of $100,000 in perpetuity then you should aim for an asset base of 20 x 100,000 = $2,000,000 outside of the value of your family home. Why $2 million you may ask? Well in safe secure investment, we can’t expect much more than 5% of return on average on funds invested. This means if you have $2 million invested securely then you will have an average income of $2 million x 5% = $100,000 for the rest of your life.
So to answer the question of how many investment properties you need, you must look at your financial goal. If your goal is to accumulate $2 million then the number of properties that will achieve this amount all depends on initial value and time in the market. One median-priced Sydney property of $1 million value today will see you with an investment property asset base of $2 million in 10 years time (minus the $1 million of purchase loan you probably still owe). Give Lime property Solutions a call and we can discuss your personal plan and your personal goals in the timeframe you are considering.
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