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How to Grow a Passive Income through Property Investment

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Whether you’re just starting out, planning to retire early or are heading toward retiring at 65, your property investment strategy needs to include a clear plan for how you’re going to turn your investment into cashflow. 

This decision helps you to determine how many properties you need to meet your financial goals and whether you’ll use a yield or capital gain investment strategy to get there. 

So how do you get enough income from your rental properties to replace your working income? 

First a few points to consider: 

  • All the strategies outlined below work best if you’re freehold on your own property.  

That’s why we provide our mortgage clients with complimentary mortgage debt reduction advice. Once you don’t have working income anymore, you won’t want your passive income to be paying interest to lenders when it could go toward your lifestyle. 

  • These strategies don’t include simply selling your properties and living off of the cash you get. Why? 

If you simply sold everything, there’d be nothing to leave the next generation. True financial freedom should change the wealth of your family for generations. If you spend all your cash on yourself, there would be nothing left to pass on. 

Also, since we’re living longer, you’re likely to run out of money before you pass on, and have to get a job at 80 years old. 

The key to generational wealth is to not spend your capital investment. Instead, use your capital investment to keep providing you with cash. When you die, you can pass on the capital investment, which can provide income for your children, grandchildren and beyond.

How to Get Passive Income from Property Investment

04 ways to cash up & create generational wealth

Here’s 04 ways to get passive income from your property investments while preserving your capital investment so you can pass wealth to the next generation.

01  While working, pay off your rental mortgages, so they are freehold by retirement age, and live off the rental income. 

Pros – You’ll get passive income during retirement with little effort. All you’ll need to do is keep collecting the rent and maintain the properties, which a good property manager can do.

You don’t need lots of properties for this strategy to work. 

Cons – You’ll need to allocate a higher percentage of income to pay off mortgages while you’re working.  

This strategy works best if the rental properties have a positive cash flow to help pay down the mortgages, but these types of properties can be hard to find.  

With this option all your income is dependent on rental occupancy and how well the property market is doing.  

In retirement you need to keep maintaining the rental properties which may be difficult as you get older. 

02  If you have multiple investment properties, sell some and use the money to pay off the remaining mortgages, and live off of the rental income. 

Pro – It’s easy on cash flow during your working life since your rental mortgages can be on interest only and you’re not paying down the rental mortgages until you retire.  

Cons – All your retirement income is dependent on the ups and downs of the property market and rental occupancy.  

You’ll still need to maintain the properties throughout retirement. 

home buyer buying an investment property

03  Sell all investment properties, pay off any debt, and then give money to fund managers to invest on your behalf. Then you’ll live off of annual return without touching the original capital. 

Pros – This option is less stressful and low effort before and during retirement since you don’t have to do anything except be updated by your fund manager about how well your investments are doing. 

Other than acquiring the properties, using a property manager, selling the properties and engaging the fund manager, you’re hands off. 

Con – Your retirement income is dependent on the share market which can go up and down and is, out of your control. 

04  A hybrid of 01 or 02 and 03 

Pro – This option diversifies your retirement income source, so that if there is a downturn in one market (property or share), there’s a chance that the other market could make up for the change in income from that source. 

Con – It takes more properties and more planning to do this strategy to make sure you have enough retirement income. 

By now, you’re probably wondering which strategy to provide passive income during retirement is right for you. There are several factors that determine this including (but not limited to): 

  • Current income level 
  • Current equity position 
  • Desired retirement income 
  • Desired retirement age 

Keep in mind this article is providing general information and not individual advice. 

If you’d like a review of and advice regarding your situation, please book a free 15-min chat