I N V E S T M E N T O R

9 out 10 investors get started but either stop, give up or do not hold on long enough to enjoy the long term benefits of property investment. In order to retire financially free, we need to build a portfolio of at least 4 properties, but what does that actually mean, and why?

3.5% of investors own 4 or more properties.

According to the Australian Bureau of Statistics (ABS), out of the 25 million people in Australia, 1.76 million or under 8% of the population own an investment property – not including their owner occupied home.

When we look into these statistics in greater detail, the numbers become even more staggering. 91% of all property investors have 1 or 2 properties, 5.5% have 3 and 3.5% have 4 or more investment properties – that is to say only approximately 82,000 people in all of Australia own 4 or more investment properties.

What does financial freedom actually mean?

Financial freedom means different things to different people, but property investment is a journey of milestones and stages, two important stages of property investment is financial security and financial freedom (terms used by Tony Robbin’s book “The Money Game”). What is the difference between the two? For most, financial security can be achieved with 1 or 2 properties, the passive income generated might be enough to cover the basics in life like food, shelter and some bills, however additional income will be required for everything else.

Financial freedom is the ability to enjoy your life without the need to worry about cash flow – and how far you want this to extend depends on the number of properties you retire with. The top 3.5% of investors who bought and held more than 4 properties are closer to financial freedom, while the other 96.5% are more likely in the stage of financial security.

So why 4 properties?

Let’s use the average Australian income as our benchmark, which is around $75,000 per annum. To many people, the idea of earning a gross income of $100,000 per annum passively can be considered financial freedom (to others, this might merely be financial security, but we must start somewhere).

Now that we have a figure, the best idea is to work backwards. In order to generate $100,000 passively every year, we would require a future net portfolio value of $2M returning a rental yield of 5%.

To accumulate a net portfolio value of $2M by retirement (which could be 15-20 years away for some), we would need to find a way to accumulate $2M of property assets within the next 10 years, then wait for each property to grow enough in value until we generated an additional $2M in equity.

It would be difficult for many to buy 2 properties worth $1M each, however buying 4 more affordable properties over a 10 year period would be a more realistic scenario for most.

As you can see from the chart below, our $2M of equity would be generated sometime between your 15th and 20th year assuming a yearly growth rate of 4.73%.

Property investment is a long term wealth creation strategy. The longer you hold your investments, the more capital growth you will achieve. You also need quite some time if you’re aiming to build a large portfolio – putting together the money for each purchase will take time, whether it’s funded from savings or equity, so as long as you are financially ready, the best time to start investing is always “today”. Every year delayed is a year longer to financial freedom.

If you would like understand how to build a portfolio over the long term, this is precisely what Investmentor specialises in, jump on our next online workshop and check out what we can do for you.

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