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Research suggests that there are quite a few things that property investors often fail to do. This can have a negative impact on whether or not you will achieve your financial goals, so here are a couple of key things to consider if you are a property investor.

Have you developed a property investment strategy that is in line with your long term goals?

  1. Ask yourself, where do I want to be when I retire?
  2. Ask yourself, do my current property investments fit with my long term financial goals? What about my other investments such as super? All things considered am I on-track to achieve the lifestyle I’m hoping for in retirement?

Answering these kinds of questions is often referred to as ‘Goal Mapping’ and is something we specialise in at Omnia. Effectively, this involves establishing an end goal or financial destination and then mapping out a plan or track to get you there. This is actually a common sense thing to do. After all, if you don’t know where you are going, it’s unlikely you’ll get there.

 

So, how do you set a goal for retirement?

If you have done this already here’s a simple exercise that will help. It involves stepping into your dreams and imagining you’ve achieved financial independence and are ready to retire. Imagine you’ve achieved your goals in life and have reached a stage where you have no debt, your children (if you have them) have grown and flown and you’ve accumulated sufficient assets to live the life you’d like to live in retirement.

 

So, what would you do? What kind of life would you lead? And how much would it cost each year to live this life?

Well, here’s a simple way to work that out. Answer the following questions (remember, you are debt free so you have no mortgage or rent to pay):

  1. How much would it cost each month to live? How much would you spend on:
    1. Food
    2. Utilities
    3. Phones, internet, pay tv etc
    4. Petrol, other travel costs
  2. What will you do with your days? What hobbies will you pursue? How much will you spend on these?
    1. Travel
    2. Hobbies – e.g. golf, bowling etc
    3. Entertainment – eating out, going to shows, movies etc
  3. How many cars will you have? What will it cost for:
    1. Repairs and maintenance
    2. Other running costs
  4. What about gifts? How much will you spend each year on:
    1. Children and grandchildren – birthdays, Easter, Christmas
    2. Other giving – charities, church
  5. How much will you spend on:
    1. Clothing
    2. Home maintenance – gardening, general repairs
  6. Miscellaneous – add 5% of the total to cover all the things you haven’t thought of.

Okay, so you do this exercise and you come up with a number per month and then per year. Great, you’ve just worked out the (after tax) income your investments will need to generate so you can live the life you’d like to live in retirement. Now that we know this number we can work out how much investment capital you will need to generate that income. So, how is this done?

As an example, let’s say you are a  couple and have estimated you’d need an after tax income of $65,000 per annum to live the life you’d like to live in retirement. Split between two people this would not mean very much tax would have to be paid – say $7,000 tax – meaning you’ll need a joint income of $70,000pa in total in today’s dollars. That means you’ll need sufficient capital to generate that income. To calculate this, simply imagine your investments are generating a net 5% in earnings. Therefore if $70,000 is 5% your total must be $70,000 divided by 5 and times 100 = $1.4 million.

That’s it, you now have a goal to aim for. But are you on track to generate that kind of investment capital? Will your current planning actually get you to that goal?

Again, you can work this out easily. Simply add up all of your current investment generating assets e.g. total super, investment properties if you have them and any other income generating assets (your jet ski doesn’t count) and let’s say, these add up to $500,000 in current dollars. Now, deduct this amount from the end goal amount you worked out earlier – $1.4 million – and you have your shortfall; $900,000 – this is the amount you must accumulate on top of your existing assets between now and when you plan to retire.

If you have, say, 15 years of working life left in front of you, you divide $900,000 by 15 to get $60,000. This is the amount you need to be accumulating each year to achieve your goals. Calculating the actual amount you need to save each week, month and year is a little more involved as you have to take into account the earnings on your investments year-on-year. At Omnia and with our affiliate partners we have methods to work this out accurately but, just for discussion, let’s imagine you need to save $45,000 per annum to achieve that rate of accumulation.

If you are currently contributing, say, $15,000 per annum to super and you have another $5,000 per annum being generated by other investments you take these amounts off the the savings goal and that leaves gives you an idea of your shortfall i.e. $45,000 less $15,000 and less $5,000 gives you $25,000 and that means you need to save an extra $480 per week from now on.

Your challenge therefore is to determine whether or not you are in a position to save that amount each week to ensure you are on track to achieve your goals – and, if not, what can you do to close the gap.

Ask these questions:

  1. Do you regularly review your investment portfolio to ensure that your savings and investments are sufficient to achieve your long term goals?
    1. When was the last time you took a hard look at your investments evaluate if they are performing well or not?
    2. Have you set long term financial goals and mapped out a weekly, monthly and yearly plan to achieve them?
    3. If you have not, ask yourself what you can do about it!

If you are an Omnia client, we’ll actually do all the Goal Mapping legwork for you; annual reviews are part of your membership.  We also have all kinds of strategies to ‘close the gap’ and help you establish an achievable plan to get you where you need to go. Working with our affiliate partners this advice extends beyond property and can include tax planning, superannuation planning, Estate Planning and much more.

Also, if you know someone  else that is currently invested in property, but does not have an Omnia Membership and has not done this kind of Goal Mapping, please introduce them to us.  We are more than willing to review their investment portfolio and do some in-depth future planning at no charge.

Written by

David Heycock

Kristy Thomas