Often when we start to reach that transitional point in life, where retirement is not as far away as it once was and post-work cashflow questions are at the forefront of our fiscal considerations, we also face the conundrum of living off a single income.
It’s generally right when we’re in the midst of raising a family and one person has elected to stay home, that we start to think about shoring up our financial future and taking our economic obligations a little more seriously.
So how do you obtain the peace of mind you can realise through relatively low risk real estate investments, when only one of you is working?
Here are 5 ways you can ascend the property ladder as a single income couple…
- Purchase strategically
It makes sense that the person earning the highest income is the one who continues working, right? An effective way to make your money go further in this instance, is to purchase in the name of the partner or spouse who earns the most, hence capitalising as much as possible on negative gearing incentives.
In this way, the higher income earner will be able to offset the full value of ongoing tax deductions against their income tax.
Conversely, if you plan to acquire a positive cashflow asset straight up, you’d be wise to do so in the name of the lower income earner, remembering tax is only payable on rental income if you earn over $18,000 per annum.
- Explore all options
Trusts are quite complex entities and should be carefully explored prior to entering. But they can work magic in the instance of single income households that plan to hold income producing property assets, in terms of reducing your tax bill.
Purchasing a property investment within a family trust, rather than your personal name(s), allows for greater distribution of income to lower earning family members, including a non-earning spouse and children aged 18 or over.
It’s important to note however, that this entity cannot distribute a loss to members and is therefore unsuited to a negative gearing investment strategy.
- Protect yourself and your assets
Don’t leave yourself open to an unexpected change in fortunes for the partner who remains gainfully employed. Things can turn unexpectedly, even with the greatest laid plans in place.
Income protection, life and landlord insurance policies are vitally important to protect the integrity of the single income household’s investment portfolio.
- Have a solid financial plan in place
As much as you should expect the unexpected wherever possible, I cannot stress enough how critical your strategy and planning is to your future success. If you fail to plan…you know how it ends.
- Don’t overextend yourself
This one is obvious. Crunch the numbers and then go back and crunch them again. A shiny new housing asset might make for impressive dinner party banter, but this isn’t about keeping up with, or outdoing, the Jones’s.
Don’t buy something you can’t sustain on one income. Period. And certainly don’t do so if you’re going to suffer from chronic ‘buyer’s remorse induced’ insomnia. It’s simply not worth the heartache.
Remember, seeking out professional guidance is what all successful property investors do. Make this your first step and there’s no reason you can’t build a respectable retirement fund through residential real estate.