I'm semi- retired with a super balance of $210,000 and wish to invest $200K in a 12 unit housing complex in Esk in SE Queensland. I own the land (value $150,000). I own 4 other houses valued at $1,300,000 with a $600k mortgage. I have $75k saving, have access to $250k cash in a few years and can access $150k if I sell a house now. I also have other income of gross $36,500 p.a. and no dependents. I'm looking to get an income from this investment to help fund my retirement. I consider myself low-risk and would like to see a return in 5 years. Is this a good investment or is there a better way to secure retirement income?
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Glenn, thanks for the question.
I am not clear if you intend on purchasing the block of units within your superannuation fund or external, or is it a $200,000 construction on the existing block of land you own ($150,000)?
Conceptually there is no problem with the investment. You have not indicated what the potential rental yield is on the property so to provide a more detailed response the yield would be of assistance.
One of the key messages we give to our clients is to have a well-diversified investment portfolio. From what you have provided in your question it would appear you would have a very high exposure to residential property if you were to proceed with the block of units investment. The main reason for the diversified portfolio strategy is to assist the investor during any downturn in a particular investment sector i.e. share market, property market, bond markets, etc. You state that you see yourself as a low-risk investor. In my opinion, if you were to proceed with the proposed strategy you would be investing as a high-risk investor as you have high exposure to one asset class.
Over the many years we have been advising clients what we have found is that property can be a very good investment vehicle to accumulate wealth, but may not be the best asset type to fund retirement. Reasons being: that in retirement the main focus needs to be income and some growth (which is normally the opposite of when you are building your wealth), and in addition, as you move into retirement your taxable income tends to reduce, which means the value of deductions relating to property investments will also reduce, having an effect on the overall return on the property investment. I note that the proposed property is in rural Queensland so additional consideration and research would need to be undertaken to ensure the type of dwelling suits the local rental needs. This, in my mind, is also increasing your investment risk to a "high" level.
If you are ultimately trying to move into retirement you need to focus on the use of superannuation as a vehicle, due to its tax concessional status. You appear to be in a strong financial position and I strongly believe that your best strategy would be to consider the structure of your investments, first.
In summary, I would suggest there would be better strategies for you, moving into retirement, mainly due to your high concentration in residential property, and also the rural nature of the proposed property.
I hope that has helped.
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