Hopefully you managed to take some time off over the holiday period. Perhaps you took the kids to the beach, or refined your golf swing or tennis game. Maybe you even had time to daydream about what life would be like if you didn’t have to go back to work.

Well with the new year underway, there’s no time like the present to start making the dream a reality.

If you’ve spent the last few years focusing on your career and working your way up the corporate ladder, you may have realised some of your financial dreams, but have you had time to sit down and plan for your future? Do you know how much you’ll need to retire on and have you made plans to ensure a satisfactory income long after you’ve left the corporate slog behind?

FAST FACT: The Reserve Bank reported that very wealthy people are more likely to be holding their wealth in income-generating forms, such as shares and investment property. Not surprisingly, the phenomenal surge in payments to CEOs of large companies in recent years has also flowed through into corresponding accumulations of wealth. The average executive remuneration level is now 74 times average weekly earnings, up from 22 times average weekly earnings a decade ago.1

Hence it is shocking to note that only 4.7% of Australian couples have a retirement income of more than $50,000. The majority (84.1%) have a retirement income of less than $30,000.2

These days with so many demands on your time it can be hard to focus on the future when what needs to be done today seems so much more critical. So it is important to set aside some time for planning your future and actively managing your investments, you could be missing out on higher returns or additional wealth building opportunities. How are you going to make sure you convert your current income into a post retirement income of over $50,000? This translates into $1 million dollars of equity (not in your own home) earning you 5%, how much are your investments worth now? Are you willing to depend on Superannuation to guarantee you this nest egg or is it possible by the time you retire the Governments attitude to pensions etc could have changed?

Is your home an active or passive asset?

If you haven’t got the time for more complex wealth building strategies, a good place to start would be to look at your existing assets and make sure they are working for you instead of sitting idle.

Your home for example, could be working for you as an active asset. Have you considered that your equity could be leveraged to gain a foothold into a margin loan or used as a deposit for an investment property to generate ongoing rental income?

FAST FACT: Approximately 66% of older couples are dependent on government cash pensions and 25% depended on superannuation and property income as their main source of income.3

If you own your home or have more than 20% equity in it, you could be using this property to build wealth and develop an additional income stream. Although this approach can be a fairly simple way to begin building an investment property portfolio, it is advisable that you speak with a professional (accountant, financial planner or mortgage broker) before deciding to use your existing equity to fund further investment.

Emotion out, pragmatism in

If you mean to develop a well performing portfolio (large or small) of property investments you need to consider the risks and the rewards. In doing this, you must take the emotion out of any purchase decision.

Unlike the purchase of a property you will live in – where emotional attachment to the property is often both necessary and unavoidable – a property investment is a business decision. As with any decision there are risks involved, but how well you manage these depends on how you approach the process.
You wouldn’t make a major decision at work without researching the potential challenges and obstacles as well as projecting an expected outcome, so make sure you apply those same principles when considering an investment property purchase.

HINT: Use the resources in the Investor’s Choice Investkit to help you clarify your objectives and requirements. You can access this by signing up for the newsletter

What is your strategy?

Not all properties have good rental return or capital growth. Determine your strategy before you begin. First, take the time to work out what you need from an investment and what you are prepared to sacrifice to get that.

Are you expecting:
a) negative gearing benefits?
b) positive cashflow?
c) capital growth?
d) all of the above?

Next, research the location you are interested in: check future development plans with the local council; investigate the suburb’s capital growth over the previous 12 months, 5 years, and 10 years. Take a look at local demographics; predicted population growth rates; and the potential rental income.

HINT: Review prices for other properties in the suburb at the Home Price Guide. For recent sales, go to http://www.homepriceguide.com.au/auction_results/ and type in the postcode of the suburb you wish to view.


Suburbs will also have different occupancy rates, and within a suburb properties will differ in their rates of occupancy and return.

HINT: Call real estate agents in the area as if you were looking to rent and ask about the availability and cost of renting in the area.

If there are a large number of vacancies, you may wish to consider another location.

Consider the tax implications

And finally, (as Benjamin Franklin once said) “Nothing in life is certain except death and taxes”, so make sure when you plan you investment property strategy that you consider the tax implications.

Any income generated by an investment property can and will be assessed for tax purposes. However any interest you pay on your loan; depreciation; or maintenance can usually be offset against this income and therefore lower the amount of tax to be paid.

If however the property is not your primary residence at the time of sale, you will also be assessed on any capital gain. Capital gain is the difference between the ‘cost base’ and sale price. (The cost base is the price you paid for the property along with any expenses when buying and capital improvements made during ownership.)

Of course before committing to an investment of any kind it is important you consult with your tax advisor to review potential outcomes based on your own personal situation.

Get by with a little help (from your friends)

Although you are busy, don’t let the thought of research and planning put you off. Property investment can be a very worthwhile wealth building strategy and provide you with ongoing income after retirement.

FAST FACT: Of those in the annual BRW Rich 200 list (Australia’s most successful people) property stands out as the most important single source of wealth. 48 'property barons' had a combined wealth of $16.7 billion last year, well ahead of services and manufacturing industries as sources of wealth.1, however a recent Australian Bureau of Statistics found only 0.5% of Australians have 3 or more investment properties.4

If you require rapid property investment; margin lending for shares; tax minimisation; finding a more flexible product to allow for a change in circumstances; or simply refinancing an existing debt for a better interest rate, you may need some help. Enlist a professional who will discuss a range of options with you and who will take into account your present and future circumstances and needs.

There are many lending institutions and many finance products available, all with specific terms and conditions, benefits and fees. Even if you’d prefer to take out finance with your existing bank, consider discussing your needs with an experienced mortgage broker who can do the legwork for you; this could save you many hours in bank meetings…and save you money.

So go ahead… make 2006 the year you begin making the dream of ‘not having to go back to work after your summer holidays’ a reality. Give Investors Choice Mortgages a call to discuss how we can help you, 1800 46 48 10.


Investors Choice Mortgages offer the services of professionals trained and accredited in over 200 products from more than 25 lenders. We work with each client’s individual goals to establish the right financing strategy. We may even know of new loan options before your local bank branch does…it’s been known to happen! Our friendly service is free, impartial and comes with no strings attached.

1 BRW Magazine @00 Rich List May 2004
2 Australian Bureau of Statistics; Catalogue 6523.0 Household Income and Income Distribution, Australia.
3 ABS Cat 6523.0.
4 ABS Cat 8711 Rental Investors Survey