When compared with other instruments, property provides a level of consistency that far exceeds the rest.
There are very few truly proven investment instruments that can deliver consistent performance over a long period of time – something absolutely crucial to growing a retirement asset portfolio. Building a retirement plan on high volatility instruments is akin to building your house on shifting sand. Eventually a storm will collapse it. These instruments are better suited to speculative strategies than long term hold. Such volatile instruments will also require a significant amount of attention which many investors don’t have the time for.
Hence, most would delegate the responsibility to advisers and planners. In our experience, the results of such delegation have been mixed at best and more often than not, less than desirable, not due to a lack of competency, but more because of the increased volatility seen in today’s market.
The volatility of the instruments also leads to another major concern – inability to support significant leveraging. Without leveraging, the returns on investment will be too weak to build towards a significant portfolio over a reasonable period of time.
Suppose an annual income of $60,000 (inflation taken into consideration) is required in 20 years’ time for retirement, representing a 3% yield on a $2 mil portfolio. If you were to start with $200,000, a 5% consistent growth over 20 years will only get you to about $530,000. To achieve $2 mil, investors would have to take on higher risk/return instruments, put in a lot more money at the start or stretch the investment tenure – all of which are risky and unappealing options. While you may argue that 3% yield and 5% growth are low, remember we are talking about consistency, stability, low risks and over a 20-year period.
In over a decade of coaching investors, I have found that 9 out of 10 investors who are comfortably retired have done so through property.
PROPERTY – MOST STABLE
So are there truly viable retirement solutions for investors? I believe so. In over a decade of coaching investors, I have found that 9 out of 10 investors who are comfortably retired have done it through property. Whether local or overseas, their assets tend to be solid, stable, non-speculative properties that gained value over time producing consistent rental returns and requiring minimal management effort. While for most instruments, time often represents risk exposure, it is a friend to properties when bought intelligently.
The trick here is to invest purposefully and strategically, building a wellbalanced and risk-mitigated property portfolio. Over the years, our company has helped many investors do exactly that. For example, one of our clients is a professional engineer with a family of four that started with an old fully paid family home. I’ll do a quick summary of what he did and how he got himself to a 5- property portfolio today that is growing and looking to retire comfortably in another 5 years or so. Note that this investor is particularly biased towards Australia for personal reasons.
While some may argue that properties too are exposed to significant risks such as economic turbulences, policy changes and management issues especially when it comes to overseas markets, what we have found is that with diligent research, strong partnerships and a strong business model geared towards the interest of our clients, we have been able to provide a platform where our clients’ portfolio can be carefully and intelligently grown, optimised and managed.
Building and managing a property portfolio for long term retirement is certainly not a walk in the park. However, when compared with other instruments, it provides a level of consistency that far exceeds them making it, in our opinion, the best asset class for retirement planning.
With a starting capital of $350,000 sourced through the refinancing of his Singapore property in 2007 capped to his CPF contribution to avoid out of pocket expense,
He invested in 2 properties to the tune of A$1.1 mil while the AUD was 1.28 against SGD at a 75% loan LVR.
In 2009 with the AUD at par against SGD, he moved his loans from AUD to SGD to take advantage of the currency weakness and also the low interest rate thus increasing his yield.
In 2011, with the AUD having regained strength, he switched his loan back to AUD and this reduced his loan and increased his equity in the portfolio.
The gains due to currency movements, capital growth and rental income led to him being able to expand his portfolio with a further 2 properties in 2012 and another Malaysian property in 2013.
In 2015, with the AUD at a low again, he moved his loan back to SGD and with his Malaysian property having grown in value, he is now well positioned by 2018 to expand his portfolio to a total of 7.
His current income stands at SGD50K annually only because he is still in the expansionary mode hence he is maintaining an average of 70% LTV across his entire portfolio i.e. higher repayments.
By 2020, we are forecasting his portfolio to be approximately S$6 mil with a portfolio LTV of around 60% and an estimated annual income of between S$80,000-100,000.
In the entire process, the client had very clear goals and strategies, established and managed together with our portfolio consultants. His portfolio, with assets mostly located in established and growing economies, were managed through professionals providing exceptional stability and consistency. Through all the financial downturns in that period including the Great Financial Crisis, Europe meltdown and collapse of oil prices, his portfolio remained strong and profitable. We believe that he is well on his way to achieve retirement.