Many potential investors - people in their 40s, 50s and 60s - ask us “Am I too old to invest in property?”
This question, of course, very much depends on their personal circumstances.
Investors in their 40s.
This is not old! With 20-25 years to go in the workforce, there is ample time to make profitable investments in property. Of course, starting at age 20 would have been better, but all is not lost.
For the sake of simplicity, we will assume a capital growth of 5% per annum. At this rate a property will double in value approximately every 14 years, so if an investor starts at 40, and his property is worth $400K when he acquires it, then it will be worth $1 million after 20 years. If this investor had started at 20, the property would be worth $2.8 million after 40 years, so a lot more than just twice the amount. That is the magic of compounding; the longer you invest the more bang for your buck you receive. However, if you are in your forties, don’t despair, there is still plenty of time to make property work for you!
Investors in their 50s.
Many people have a 10-15 year working life in mind when they are in their fifties. There is usually no issue obtaining a 25-30 year loan, as most lenders will accept that a person is able to work until age 70-75 (although most people hope that won’t be necessary). They will require an exit strategy though, i.e. demonstrate how the investor will get out of the investment once they retire (a good mortgage broker can help with this). A long term loan is important for cash flow, as monthly repayments on a 10-15 year loan would be uneconomical for most investors.
A typical property price cycle is 7-10 years, so an investor has a pretty good expectation to go through an upswing in prices at least once. Remember that, in general, property prices do not go up in a straight line fashion, they usually have longer flat periods followed by a shorter period of sharp price rises. This is not an absolute pattern, but it is a very common one. So a new property investor can make good capital growth, although obviously it would have been better if they had started earlier.
If an investor is in his late 50s, we would recommend consulting a financial planner first to confirm that property is a safe strategy given the investor financial profile.
60+ years of age.
Generally speaking, at this age a would-be investor is wise to consult a financial planner before making any move into leveraged investments. This is because financial priorities, superfund options and taxation changes substantially at this age. However, there are cases where investing in property can still be a smart choice.
We recently settled an investment property for a 65 year old registered nurse. This is the fourth property we have financed for her over the last few years. The difference with this one is that she intends to move into it when she retires in 2-3 years’ time. She will then sell her unencumbered current residence where she has lived for the past 35 years and this will enable her to pay off the investment property loan. We even obtained a 30 year loan from one of the major banks because we put together a robust exit strategy. So in general terms, age is not an issue when applying for a loan, providing there is a solid and safe strategy in place.
Even as a retiree, it is possible to borrow in the right circumstances (this is not common though). We recently inquired about a loan with one of the major banks for a retiree on an allocated pension. He has plenty of savings outside of super and an unencumbered residence. The bank would not use equity in the home to fund a new purchase but they had no issue with the pension income or the amount of savings. The client intended buying a property as an investment initially, with the intention of leaving it to his daughter in his Will.
This was only possible because of the very comfortable financial situation of this client. In general terms, once a person retires, investing in property may not be the best investment vehicle because of the long lead time for a material return, and the leverage which by definition makes an investment more risky. Again, a consultation with a financial planner about the suitability of a leveraged investment is a necessity.
In conclusion; although age is not a barrier to investment, strategy and planning is a lot more important given the shorter time frames. The complex rules around superannuation and retirement income make it relevant to involve a financial planner for anyone approaching their 60s before making a move into a leveraged investment.