Retiring on $200,000 by investing for 10 years in the right properties

Expert Advice with Cam McLellan 24/11/2015
Enjoy the life you are living and want to keep it up in retirement? It is very achievable to retire your household on $200,000 a year, but doing so depends on two things. The first is the amount of capital or unused equity that you have available for deposits. The second and perhaps more important factor is the need to invest across multiple capital cities.

The reason why investing across multiple capital cities is so important is that you need to take advantage of at least two or three growth cycles during a 10 year period. This is not possible if you are investing in one capital city alone.

Purchasing 5 well-chosen properties over 10 years is very achievable with the below assumptions:
  • $90k annual average household income with a 5% annual wage rise.
  • First property bought at $400k.
  • 8% annual property value increase.
  • Rental yield of 4.5% of the property’s value.
  • 7% interest rate.
You will hopefully be able to purchase property in years one, three, five, seven and 10. This doesn’t need to be the exact sequence, but is an ideal one, as you may for example, achieve some growth and buy three properties in a single year and then none for a few more years. The total asset value at year 10 will be approximately $5m with a net wealth of approximately $2.5m.

By acquiring five well-chosen growth properties, an investor will be able to live on $200k per year by accessing equity. Holding costs for your properties will be approximately $32k per year, now this seems like a large amount of money to cover and would be if you were to use earned income to cover these expenses, but that’s not how smart investors live.

If you factor an annual growth rate of 8% on your $5m property portfolio the equity growth per annum is above $400k. Keep in mind this growth won’t occur evenly each year, but once one of the cities increases and you have enough to live off and cover holding costs. Work then becomes an option and not a requirement.

Well-chosen growth properties is the only way to achieve this. You have a snowballs chance in hell of achieving this by buying ‘cash flow positive’ properties and they simply won’t get the growth required. I haven’t met anyone yet that’s achieve real wealth without growth properties. What you should be looking for are medium density growth properties located within infill areas in our four major capital cities.

A well-chosen medium density residential growth property located in our capital cities should cost you initially between $0 and $100 out of your pocket each week. They should then become positively geared within five years. Where earning capacity comes into play is the equity growth. This is how smart investors live. They access equity that is growing at a faster rate than their living expenses.

Smart investing is about following a process that continually delivers the best performing growth properties in each city, time after time. Best performing comes down to two things: 1) excellent growth and 2) low cost to hold. The pit fall that most investors hit is changing their strategy. Buying good investment properties is actually pretty boring, as you should be using the same strategy each time, but it’s super effective for building wealth.

Just remember, all you need to do to ensure you can live the way you want to in retirement, is follow a proven strategy that continually allows you to pick the best capital city market at any point in time. Then find the best area for growth and yield and finally the optimum size and quality property for that area.

Learn a system that works and simply keep repeating the process.

Cameron McLellan
Director of OpenCorp, Cam McLellan is committed to sharing his passion and property investment knowledge with everyday Australians. After thriving in the telecommunications, technology and recruitment sectors and making the BRW Fast Starters list twice and the Fast 100 list three times in 8 years, alongside accomplished OpenCorp entrepreneur and brother-in-law Allister Lewison, founded OpenCorp eight years ago.

Cam started investing in real estate at a young age and quickly mastered the art of building sustainable wealth. He has used the same wealth building strategy to develop a multi-million dollar business, sharing his knowledge and skill with ordinary Australians. Cam has personally bought, sold and developed numerous properties and has an extensive residential and commercial investment portfolio. 

Disclaimer: while due care is taken, the viewpoints expressed by contributors do not necessarily reflect the opinions of Your Investment Property.

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