Real Estate Investment:Today

How your tenants will dictate your retirement

Key takeaways

When looking to build wealth, the perfect property is the one that gets you into your next property faster. Cash flow properties are not the way to go, as they come with greater risk or are in locations where there is an insignificant amount of capital growth.

Incomes are important to understand when investing in property. Typically, incomes in outer suburbs of capital cities track the average or inflation, whereas incomes in inner to middle ring suburbs are above the average and growing at a higher rate.

Investors who target cash flow initially fail to look beyond the first few years and most importantly understand the end game – retirement. By planning ahead, they can increase their asset base much faster and have greater choices in retirement.

Are you considering investing in property to fund your retirement?

There are many factors to be considered here, but perhaps one of the most crucial, may not be on your radar.

In the short term, it may be your salary, your ability to borrow money, and growth that will play a role.

But as you go along, I believe it is also important to understand who will be paying your bills and ultimately, funding your retirement.

The answer of course is your tenants.

With that in mind, it is important to understand right from the beginning who the perfect tenant is.

What characteristics should you be focussing on now, to ensure you will be able to fund your retirement on your terms.

In my mind, there is a very simple approach to ensuring you get this right.

Here are my thoughts:

The Perfect Tenant

There are many factors that can define the perfect tenant and you should strongly consider their income.

More specifically, we are looking for tenants who have a higher disposable income, above and beyond the average.

They may be professionals, highly paid executives, business owners, or people with multiple streams of income,

We target a higher weekly income-earning demographic and want to ensure their incomes are above and beyond inflation and the suburb average.

Many investors make the mistake of targeting lower socioeconomic cheaper areas where properties and rents are more affordable.

Unfortunately, in these locations it is the reverse, as incomes are well below even the average and wage rises barely keep up with inflation.

With the right demographic locked in, you can then begin to focus on other important factors you must consider.

You can read here about How to Pick the Right Tenant.

The Right Property

You can make a list a mile long but when you are looking to build wealth, the perfect property is the one that gets you into your next property faster.

It is primarily about accumulating assets and then compounding and leveraging to grow your wealth faster and then live off the cash flow at the end.

Mistakenly, there is a misconception that buying properties for cash flow initially is the way to go.

But I have dispelled this myth in a previous blog.

Rent

While the thought of additional cash flow is appealing, it will not you any closer to your next property and more importantly your retirement.

These cash flow types of properties either come with greater risk or are in locations where there is an insignificant amount of capital growth or both.

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