7 Steps to Start Investing in Property for Retirement

7 Steps to Start Investing in Property for Retirement

01 JULY 2020 | IN PROPERTY

Most Kiwis aren’t great savers and while the introduction of KiwiSaver has been effective, it is unlikely that KiwiSaver funds alone will be enough to see you through retirement on their own. While property investing is not the only way to prepare for retirement, it has proven very effective for many and with some education nearly every homeowner can do it.  

 

The questions you want answered is how, right?

 

Here are 7 main steps to starting a property investment portfolio to prepare for retirement. 

 

01 Decide if property investment is right for you.

 

Have a think about if you need to become a property investor. The main reasons for needing to become a property investor is because you want to make the most of your situation plus you want to provide financially for yourself and your family in retirement.

 

If you believe you’ll be rolling in cash upon retiring then you don’t really need to worry too much. But if you’d like to prepare for a time in your life when you won’t have your day jobs anymore, then property investment now is a great way to put money in your pocket later.

 

02 Decide how you want to replace your income in retirement.

 

You can get creative here, but there are two main retirement investing approaches. The first is to buy multiple properties and then at a later date sell half the properties (if required), to pay off any debt on the remaining properties. This means you now have debt free rental properties which will provide an income for you in your golden years.

 

The second approach is to purchase properties now and then when you need the cash in retirement you can sell off one property at a time as required and pocket the capital growth. The remaining properties will be taken care of by your tenants.​

 

To be successful in either strategy you need to start early as both recipes take time.

 

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04 Get advice from a mortgage adviser about lending.

 

Talk to a mortgage adviser to find out if you are in a position to purchase. They'll look at your equity, income and lending criteria and create competition for your business to get you the best deal.

 

Mortgage advisers who specialise in property investment, like Futurebound advisers, will also give you structure advice and how to pay off your mortgages as fast as possible in the best way for your financial goals. This advice will help you to build equity quickly and accelerate how many investment properties you can buy. 

 

Be aware that lenders will usually allow you to have the rental mortgage at interest only for up to five years and this means that the repayments would be low. For many investors the rental income covers the mortgage, rates, insurance and property management, so they don't have to pay any of these out of pocket.

 

It’s the closest that you’ll ever get to a free house. After the five year interest only period has expired you can either move to another bank for another 5 years or rent increases may make it viable to switch to principle and interest repayments.

 

The key is to start early so that the magic of capital growth can happen overtime.