Real Estate for Retirement Income: Does It Work?

By November 14, 2023 No Comments
Real Estate For Retirement Income: Does It Work?

Real Estate For Retirement Income: Does It Work? - Header Image

Real estate has always been thought of as an investment that is less susceptible to market swings, making it an attractive retirement income option for many Australians. But can real estate really provide the necessary funds to retire comfortably?

With superannuation, investment shares, cash, and various other investments in the mix, there are a fair number of options for securing a comfortable retirement. That said, property has always been a favoured choice of investment for Aussies — seeing that there are nearly 2.22 million property investors across the country. 

Of this number, nearly 60% are aged 50 or over; which speaks to the feasibility of real estate investment as a source of retirement income. In this article, we will uncover how real estate can provide for your retirement income, and the options that are available for drawing from it for retirement. 

Table of Contents

  • Can real estate fund your retirement?
  • Investing in real estate for retirement income
  • How to retire with real estate investments
    • Using rental income for retirement
    • Borrowing against equity for retirement
    • Selling your investment property for retirement

Can Real Estate Fund Your Retirement?

The short answer is yes, investing in real estate can generate a steady stream of income after retirement. However, the question of how much these properties can provide for your retirement is a different question entirely. 

Retirement introduces different risks and tax obligations that can impact how much your real estate investments can provide in terms of income — if you dive into real estate investment expecting everything to work out without the right strategy, you may end up with a real estate investment portfolio that won’t be able to provide enough for retirement. 

Investing in Real Estate for Retirement Income

Investing in real estate with the goal of having it be a source of retirement income starts with making smart purchases. Given its inefficiencies, the real estate market holds great opportunities for exceptional bargains that can yield significantly high returns on investment, but it’s up to you to seek them out. 

Start by planning how much money you need to make your investment property purchase. Mortgage lending criteria typically requires applicants to be employed and show a consistent two-year work history within the same occupation, it’s a good idea to take one before you hit retirement. 

Once you have your property, you’ll have to decide if you want to manage it personally, or hand it over to a real estate agent. Doing it on your own is a great way to collect more income, but it takes time and may be challenging especially if you don’t understand the many requirements involved in owning or renting out a property. 

There’s also the matter of how your real estate investments are positioned in terms of gearing. Positively or negatively gearing your property investment can significantly affect how much you earn from your real estate income as well. 

All these factors tie into your overall strategy for how you want to grow your real estate investment for the long run, so that you can eventually rely on it for your retirement income. 

Real Estate For Retirement Income: Does It Work? Infographic 1

How to Retire with Real Estate Investments

Keeping the end goal in mind, there are several strategies that come with their own set of pros and cons when utilised as a means to fund retirement. When you’ve already built up a sizable property investment portfolio to draw from, these are your main options for using them as real estate income for retirement. 

Using rental income for retirement

At first glance, relying on rental income for retirement appears like a foolproof idea — collect a consistent amount of income from tenants, and use it as your retirement income! Realistically though, rental income is not always not as stable or as fruitful as most people think. 

Maintaining a property encompasses mortgage repayments, taxes, and maintenance costs, not to mention that there will be periods when the property might be unoccupied. Because of this, it’s important to realise that supporting your retirement lifestyle may require a diverse portfolio of multiple investment properties.

Of course, using rental income for retirement is still a viable option, it just takes some work. If you’re both healthy and adept at DIY tasks, you could cut down on maintenance expenses by managing your property and addressing minor repairs yourself. 

Just remember to keep in mind the ongoing costs associated with the upkeep of your property investment when calculating the amount of rental income you can get. 

Borrowing against equity for retirement

If you’ve diligently made payments toward your mortgage during your working years, you would have reduced the loan-to-value ratio on your property. In retirement, you can finance your needs by borrowing against the accumulated equity in your home (its value minus any remaining mortgage). 

The amount you can access through this strategy depends on factors like your age, home value, and the chosen equity release method, such as a reverse mortgage. A reverse mortgage allows you to borrow money using the equity in your property and use it for your own personal needs in retirement. 

One of the perks of borrowing against real estate equity for retirement is the absence of tax obligations on this ‘income stream,’ as it is officially recognized as a loan. You can also customise the amount of borrowed equity, whether as regular payments, a lump sum, a line of credit, or a blend of these options, according to your own financial needs, making it a flexible option. 

Real Estate For Retirement Income: Does It Work? Infographic 2

Selling your investment property for retirement

Lastly, there’s the option of selling your investment property to provide you with a sizable source of retirement funds. Having poured your own finances into owning your investment property, this option may seem less than ideal for many Australians, but it is still an open path towards getting a pool of retirement income to draw from. 

Opting to sell your property may result in an increased cash flow, giving you the ability to pay off debts or invest in shares or managed superannuation funds. This could potentially lead to additional tax advantages and improved liquidity throughout the rest of your golden years. 

That said, selling your property is not something that should be done overnight — selling hastily to support your retirement may mean having to enter the market at an inopportune time. If you are forced to sell during a market downturn, it can lead to a considerable reduction in your retirement income. 

Final Thoughts

When it comes to using real estate for retirement income, you’re better off crafting a tailored strategy that’s specific to your current financial circumstances and retirement goals. 

There’s no one-size-fits-all solution, and the earlier you plan it, the more time you’ll have to adjust and adapt to the ever-changing real estate market. 

Given the wide array of influencing factors it’s recommended that you not only conduct thorough research but also seek advice from a professional real estate adviser that can help create the ideal strategy for you. 

Our team of buyers agents in Sydney at Aus Property Professionals can give you the expert insights you need and guide you towards building a real estate portfolio that can set you up for a comfortable retirement. Work with us today!