How to Retire Using Property: Simple Steps to Structuring
Retiring comfortably is a goal many of us aspire to achieve. One of the most effective strategies is understanding how to retire using property. Many people make the mistake of putting two people on one property title, which can limit their ability to build a substantial property portfolio. Here, we’ll explore a better approach to maximise your borrowing capacity and grow your investments.
The Common Mistake
When two people buy a property together, they often combine their borrowing capacities. Let’s say each person can borrow $400,000. Together, they might take out a $600,000 loan for a single property. However, this means both individuals are each responsible for the entire $600,000 debt, resulting in a combined liability of $1.2 million.
As a consequence, both individuals exhaust their serviceability. Person A cannot buy more properties alone, nor can Person B. Although they have a combined borrowing capacity of $800,000 left, this is insufficient for substantial further investments.
A Smarter Approach
Instead of sharing one property title, it’s wiser to separate investments. Each person should use their borrowing capacity independently, through a structured approach.
- Individual Borrowing: Person A uses their $400,000 borrowing capacity to buy a property worth $300,000. They do this through a structure, such as a proprietary limited company. This leaves them with $100,000 in serviceability as a buffer.
- Repeating the Process: Similarly, Person B uses their $400,000 borrowing capacity in a separate company to purchase another $300,000 property, retaining $100,000 in serviceability.
By structuring this way, each person is liable for only $300,000. This is half of the $600,000 liability they would have if they co-owned a property. Now, each person retains some borrowing capacity and can continue to invest.
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Positive Cash Flow Properties
To make this strategy even more effective, focus on buying positively geared properties. These are properties that generate more income than the cost of owning them, including mortgage payments and maintenance. Positive cash flow properties not only help in maintaining serviceability but also provide additional income streams.
Building a Massive Property Portfolio
By repeating this structured approach, you can steadily build a significant property portfolio. Each new property purchased under a different structure allows you to maximise your borrowing capacity and minimise individual liability.
Conclusion
Understanding how to retire using property involves smart structuring and strategic investments. Avoid the common mistake of combining borrowing capacities on a single title. Instead, use separate structures for each investment. This method not only preserves your borrowing capacity but also enables continuous growth of your property portfolio. Start structuring your investments wisely today, and pave the way for a comfortable retirement through property investment.
Remember, the goal is to rinse and repeat this process, focusing on positively geared properties to ensure a sustainable and profitable investment strategy. Happy investing!