Baby Boomers heading into retirement, or even already enjoying their golden years, have much to think about when it comes to their future prosperity.
Aged roughly between 50 and 70 years old, this generation is looking for ways to ensure they can support themselves in their retirement years.
However, government intervention, credit restrictions and potential changes to negative gearing and capital gains tax if Labor were to win the next federal election, have cast doubt as to how to proceed.
According to Doron Peleg, CEO of RiskWise Property Research, the best way to generate long-term healthy rental return from investment properties alongside long-term capital growth is to do the research and buy right.
The RiskWise and WargentAdvisory Impact Analysis: Negative Gearing, CGT & Australia’s Residential Property Markets report highlights the issues Baby Boomers need to be aware of when looking for solid investment properties.
“The objective is to buy and hold, but you also need to know where to buy and which market you are targeting – primary (which is eligible for tax concessions) or secondary (not eligible for tax concessions). Investors need to understand that if they try to sell these properties they will be in the secondary markets so, if the reforms do take place, they won’t be qualified for tax concessions,” Mr Peleg said.
“It’s important to look for properties with good long-term rental return and long-term capital growth, and these can often be found in the middle rings of the city and have the added bonus of not only being suitable to families but also have undersupply issues which make them more likely to rise in price.
“It’s true that the first couple of years prices could go down in some areas because they carry a high level of risk due to credit restrictions, a drop in foreign investors, and the reforms to negative gearing and capital gains tax if Labor wins the federal election, but after this prices will go back up and then you have a property suitable for owner-occupiers.
“In addition, there are property markets, such as southeast Queensland, which have many areas where houses carry only a low level of risk, and are projected to deliver solid capital growth, particularly in the medium and long term.”
He said it was important to choose properties that appealed to families who were more likely to be long-term tenants than singles.
This is especially the case if they have children and the unit is in a school catchment area. It must also have proximity to good transport solutions and parking is a must.
“If you can attract good tenants, you can also reduce the costs associated with the changes of tenants such as letting fees and other expenses. It also means there is a low vacancy rate,” he said.
“In addition, good tenants mean you don’t have to spend as much on maintenance as they are more likely to look after the property.
“Younger renters on a budget are more likely to move around and therefore you have a higher vacancy rate and letting fees.”
Mr Peleg said due to undersupply and severe unaffordability in places like Sydney, Melbourne and many areas in southeast Queensland, there was strong demand for such properties by owner-occupiers, so not only were they likely to achieve healthy capital growth, the potential audience in the market was higher.
He said this was opposed to small units with one or two bedrooms which were not suitable for families and had little demand for owner-occupiers and therefore presented greater risk.
“The number one strategy in property investment is to have low-risk, good long-term tenants and projected return, along with good mitigating strategies regarding any potential changes to negative gearing if Labor were to be voted in,” he said.
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