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Friday, June 19 2015

For most clients we are working with we are developing a long term plan to build income and wealth in retirement. Clients often ask "so when I hit retirement do I sell all my investment properties"?

I ask "Why?". If that property has doubled in value since you purchased it isn't there a good chance that it's going to continue to do that into the future. And if it is increasing in value then haven't the rents also gone up over time? So won't they keep doing that as well?

Once you sell then you are converting a growth asset to a non-growth asset - CASH. Cash may be safe but only in the short term. Cash does not grow in value. $100,000 in bank is still $100,000 in the bank in 10 years time. But the actual purchasing power of that $100K has gone backwards each year by the rate of inflation. On average 3% per annum.

So as soon as you sell, you come to a stand still, and as many retirees have found, when rates are low your yields are pretty ordinary.

I have the same thoughts about flipping properties. The costs to get in and out of a property are substantial. 

  • Stamp duty
  • Bank fees
  • Legal fees
  • Agent commissions
  • Marketing costs
  • Capital outlays
  • Holding costs
  • Capital Gains Tax
  • And the one that is not often accounted for the dollar value on your time to be involved

The reality is in most cases to make money you will need a rising market. Why would someone pay above what you have put into a property in a flat or falling market?

And importantly you can make money in a rising market by just holding a property without all the effort. 

But let's say after all that you do make a profit and have some cash in the bank. What then? What is going to fund your retirement?

Posted by: Greg Carroll AT 09:51 pm   |  Permalink   |  Email