Do bricks and mortar stack up at my age? With bank term deposit rates being at an all-time low, that’s a question that I’ve been asked a lot lately. Don’t get me wrong, residential property as an asset class to invest in, is still a great long-term investment. With leverage, investing $200,000 can mean capital gains on a million-dollar property, not just the original $200,000 you invested. But nearing or at retirement, is capital gains really what you need?
The capital gains, you can’t eat it, and it doesn’t pay a dividend. You can’t exactly saw off the back bedroom of that rental you own to take a holiday – I’m pretty sure the tenants would have some say in that one.
Yield, or income as we know it as, is the return you get from the investment capital you have in bricks and mortar. So how much is that? Well, as we see house prices hit new record highs, yields are on the way down, simply because the average person just can’t afford to pay higher rents.
The national average yield on residential property is 3.5% per annum (gross) minus maintenance costs. I’ll repeat that… 3.5% per annum (gross) minus maintenance costs, which include: gardening, hedges, lawns, painting (inside and out), roofs, carpets, cooling, heating, plumbing, insurance and of course, lost rent when the tenant does a run.
For many landlords recently that had to invest further additional capital to meet new housing standards with insulation and heating, that could have meant the whole 3.5%. So an alternative could be to look at deploying that same capital into liquid assets like the share market.
We do this through low-cost, broadly diversified managed funds that invest in 1000s of companies we personally use every day like Mitsubishi, Amazon, Tesla, Z Energy, A2 Milk, Google, Fletchers, to name but a few.
By doing so, we achieve the following:
- Diversification reduces risk while increasing return over time.
- Over the long term, we are able to achieve a return of 7% to 10% after fees (but before tax).
- We are able to consume both interest and capital to provide a far superior income stream for our clients.
Look, at the end of the day, retirement is all about you. The kids are all grown up and living their own lives. So what matters most is how to develop a strategy that provides a consistent long-term income stream to fund your retirement lifestyle.
So do bricks and mortar stack up at retirement? For many, no, but there are alternatives that you can rely on with the appropriate advice in place.
John is here to help you with years of experience and knowledge on hand. He can help you develop a strategy that caters specifically to your circumstances – ensuring that your retirement goes how you want it to go!
Whether you’re looking at real estate options or something else entirely, our team has got your back! Get in touch with John anytime, and he’ll answer any questions you may have about how best to secure your financial future.