How agents can futureproof their portfolios

For any investor, the primary purpose of an exit strategy is to maximise returns while minimising tax, including selling property to pay down debt, retiring debt, or living off rental yields and equity.

While most aim to retire their mortgage debt, experts advise that investors should consider their own personal circumstances and what they want to achieve through their portfolio.

Reshmi said that investors are often eager to jump into their portfolio building without considering their ultimate goal, while others are unsure about where to begin with their strategy.

She said: “I (have) had to say, ‘Look, there are so many strategies out there that you could do, but is that really what you’re trying to do?’

“We’re looking at your wealth creation. What do you want to achieve out of this?”

Tarrant said that while retiring debt is advantageous for investors, it can also present a challenge and become a liability as they consider how to manage it.

“If you retire the debt, that’s great because it probably means you’re going to be generating quite significant positive income,” he said.

“But with retiring the debt, it manufactures a whole new litany of other problems and challenges you need to consider, as in, what are you going to do with this asset in the future?”

Victor said there are a few key ways to pay off a mortgage, including business income, surplus portfolio income, or selling investments, including shares or property.

He said many investors place more importance on the initial stages of acquiring and owning properties, but don’t give enough thought about how they will repay the investments.

“They think that something magical will happen and all of a sudden we’ll get to that income that we’ve always been after.”

“And that’s what we want to talk about, is to say, OK, there are nuances in here that we need to address first before we even start talking strategy as to what we’re buying – age-appropriate investing, all of those things,” Victor said.

He added that the strategy will look different for everyone depending on what stage of their property journey they are in.

“As an example, I spoke with an investor, their plan is to buy a principal place of residence in the Northern Beaches (with a) budget of $2–3 million, that’s in seven years’ time,” he said.

“So investing for them looks very different to someone who hasn’t got that milestone happening.”

Victor said that retiring debt as an exit strategy is particularly important for younger generations; otherwise, they will continue to accumulate debt and hold mortgages.

Given that the younger generations will be living and working longer, a focused effort to pay down the debt is essential.

“Whether it’s the principal place of residence, whether it is the investment properties where you are offloading the debt off enough properties to get enough unencumbered rental coming in to support the home mortgage.

“It could be, OK, does it give me enough of a lifestyle boost? Does it take away pressure from my principal place of residence?”

“Does it actually allow me to build or buy a dream home, or build a dream home and still retain some of the properties and have minimal debt on the principal place of residence?” Victor said.

According to Victor, investors should constantly ask themselves what their goals are as they build their portfolios.

“As you see how hard it is to actually put a good portfolio together, you start having these thought processes,” he said.

“The goals start changing as life happens, age happens … all of a sudden you say, ‘OK, yeah, I think I don’t need that many properties. I don’t need that much income.

“So all of those conversations need to start happening to start shaping how we’re going to retire mortgages.”

Reshmi‘s final piece of advice for investors is to understand that, whatever the goal is, there will always be hard work involved.

Investors should consider how much mental capacity they want to allocate to their portfolio over the years and how much stress they can tolerate throughout their lives.

“What does your lifestyle look like after you’ve done your wealth creation, let’s say you’ve done the 10 years, 15 years, what does it look like? What were you aiming for? And I’m telling you, people don’t think about those things. People don’t know,” she concluded.

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