I had a conversation with a woman this week. Who was smart enough to see retirement on the horizon and decided she wanted to use a property to pay off her mortgage.
She had been to a seminar and coached in a strategy to buy a property to achieve her financial goals. The problem was, the strategy was negative gearing and the property was overpriced. For someone approaching retirement, this is a disastrous thing to do.
In reality, the guru who sold her the property was feathering his own nest and had no interest in her future. She took money from the equity in her home and bought a property that was immediately worth $40,000 less than she paid for it. Most of the debt on her home is as a result of this property.
This makes my blood boil and unfortunately, we hear these stories day in, day out.
What really freaked me was that I had an encounter with this same company several years ago pushing a property in the same suburb that this woman did. That could have been me but thankfully my due diligence processes saved me.
Negative gearing has its place but not in this scenario.
“So, what does work?” I hear you say.
Before I set you up with 5 brilliant ideas, I want you to completely understand where we sit in retirement. I mean this is supposed to be the time in our lives, where we can enjoy the fruits of the seeds we have planted by working hard for most of our life.
I have inserted a little graph to showcase a snapshot of the financial position, of intended retirees over the next 12 months. According to what “comfortable living” means, these retirees will have enough money to last 5 years which entitles them to eat out occasionally and enjoying basic activities.
Wow, how exciting does that sound?!
The truth is having time without the money to do what we want to do is boring. So that traveling you had planned for retirement… Nope, you can’t afford that! The house you love needs to go, yes you still have a mortgage. I mean I hate to be the bearer of bad news, but it is the truth for so many Australians and at one stage it was for me too.
So, I can carry on all day about the lack of sound information retirees get, how saving every dollar you earn from now until you retiree still won’t be enough, how most financial planners have a product to sell that puts more money in their pocket than your retirement and so on… but I’m going to finally give you the best news. If you love renovating (which I know you do because you are reading this) then you need to start thinking about the next 5 strategies I’m about to share with you very seriously.
1. Renovating Your Family Home
A lot of so-called gurus say that your family home is not an asset but I would argue that for many it represents the bulk of their wealth and if leveraged carefully is a powerful asset to launch your wealth building activity.
It definitely can be a liability if it is a money trap that is sucking your cash and distracting you from the important task of creating wealth.
This is a strategy I have used to solve lots of problems. Funding future projects, lifestyle, holidays, our favourite charities, our kids. It is important to understand that flipping is a short term strategy to create cash flow, it doesn’t build wealth per se unless you invest the profits into longer-term investments. It definitely has its place in making lump sum cash to pay off your mortgage, or get a deposit together to buy an investment property.
3. Renovating Investment Properties
This is a student’s favourite for a few reasons. By adding value to a property you get to increase cash flow in two ways. You increase the rental income but you also increase depreciation. Recently the federal government changed the taxation laws. So that investors, in most cases could not depreciate plant and equipment that they haven’t purchased. This is where renovators have an advantage by being able to depreciate plant and equipment because they purchase themselves.
4. Joint Venture To Ramp Up Your Savings
Many renovators getting close to retirement find finance more difficult to secure. Joint ventures are a powerful way of overcoming this problem, they also make a renovation project way more fun.
5. Understanding The Share Economy – Why I Earn Double Than The Average Landlord.
I’ve got to say the sharing economy, particularly Airbnb is God’s gift to investors. It generates magnificent cash flow that you can use to fund your lifestyle or pay your investments off faster.
When you are getting closer to retirement age, you need to choose your strategies carefully.
What works in your 30’s won’t work in your 60’s. So you do need to be strategic in how you navigate the investment from here on. There are plenty of sharks out there ready to prey on your vulnerabilities and stitch you up in a deal that feathers their nest and not yours.
Next week, I will write about my experience with said “Guru” and how I escaped a $2M disaster.
But for now, if retirement is on your agenda, I would like to invite you to join our webinar. It’s called Renovating in Retirement – where I will deep dive into what it takes to recreate your retirement through renovating. See you there and have your questions ready as I will be live!