Whilst it’s common knowledge that a financial planner helps you create a personal financial plan, often including areas such as tax, estate, investment and retirement planning, many people don’t realise there’s a similar professional service that deals specifically with property investment.
Property wealth planning is a very specialist field and generally sits outside the domain of financial planners. One way to describe it is Financial Planning for Property, but not generally done by Financial Planners!
What exactly is Property Wealth Planning?
Just as you need a life plan for your other financial needs, you also need a carefully planned strategy for investing in property. A property wealth planner (PWP) is ideally someone who has experience, skills and the appropriate qualifications in several areas including property investment finance broking, so they are equipped to help you understand how to use and build equity and incorporate other finance techniques to increase returns while minimising risk. They should also be a qualified investment property buyers agent with capability in researching the whole Australian property market and ideally a qualified property investment advisor with PIPA, (Property Investment Professionals of Australia) which is the industry body that works toraise the professional standards of operators servicing consumers in property investment.
What does Property Wealth Planning include?
- Equity Planning: How much cash or equity is needed to invest in each property and how much cash or equity should be retained as a cash reserve buffer?
- Cash Flow Management and Planning: How to maximise and manage cash flow without increasing risk or reducing capital growth can mean the difference between a good and great property portfolio that may help you improve not only your retirement wealth and lifestyle, but also your wealth and lifestyle on the way to semi-or full retirement. Recently, we helped a retired client increase her net retirement income by 2.6 times – which is 260% better in relative terms, by selling a poorly performing property and investing in markets and properties with higher net rental incomes. Incorporating this type of cash flow management can significantly improve the performance of your portfolio both before and after retirement while reducing risk and increasing capital growth
- Property Market Research: Some property markets around Australia can literally grow ten times more than other markets in the same ten year period while having net rental returns 2-3 times higher. Knowing which markets and properties to invest in and when to sell them is crucial. Many PWP’s will only advise on one city (perhaps their home state) without being aware or educating consumers about how much better other markets can and will perform. Ensure your property advisors have the capability to offer Australia-wide research and can advise on at least the major capital cities across Australia.
- Portfolio Planning: You can’t really create great wealth with just one property, a good PWP should help you invest in a multi-property portfolio safely over the coming years. This includes helping you decide when it is better to invest in two or more cheaper properties, versus one more expensive one, when it is safe to invest in more property and how to incorporate this all into your strategy effectively and safely.
- Risk Identification and Management: Although property is considered lower risk, there are still many risks, especially with long-term off-the-plan property. All risks can essentially be avoided or minimised with the right strategy.
- Debt and Mortgage Planning: Advanced mortgage broking and investment finance techniques may help increase returns by many hundreds of thousands of dollars over a ten year period while reducing risk.
- Retirement Planning: Having a strong understanding of how much property you need in addition to other assets for when you want to fully or semi-retire will help you calculate what you need to save, or can spend on a better lifestyle in the meantime.
- Tax Planning: A PWP doesn’t need to be an Accountant, but having a good general understanding of tax as it relates to property is very important. Income tax, capital gains tax, goods and services tax and land tax must all be considered as they can impact on both your cash flow and net wealth creation through property. A PWP will also collaborate with your accountant to ensure their tax advice is incorporated.
Property wealth planning brings these concepts together and can also help you prepare for the more challenging times in life.
If for example you started with around $100,000 of cash or spare equity, a good PWP should usually be able to help you safely increase your net wealth by 5–10 times each decade and retire on around 1–2 times your current income within 15 years.