Planning a property portfolio for retirement income

Creating future retirement income by buying investment properties is a time-honoured way to build your wealth, so you can achieve freedom from work. And we’re not just talking about retirement in your mid-60s. There’s a global movement called FIRE (financial independence, retire early) that attracts younger followers.

So whether you’re an empty-nester looking forward to more time for golf and gardening, or a 30-something who wants to give up work before the traditional retirement age, building a portfolio of investment properties is a popular long-term income strategy

Owning investment properties is the classic Kiwi way to build wealth

In New Zealand it’s common practice to store a big chunk of individual wealth in property. Property is a broad term – it refers to our own homes, residential rental properties, commercial rental properties and holiday homes. It also refers to investing in property funds, but that’s not the focus of this article.

It’s fair to say we’re all looking towards retirement at some stage, so wealth built through owning properties can one day become a main source of income. Just recently, research undertaken by Massey University reported that the lump sum required for a couple to enjoy a comfortable retirement living in a major city is now $809,000.1 This funds the gap between NZ Super and the cost of a pleasant lifestyle. And that’s at today’s prices.

Why is property ownership such a popular retirement funding strategy?

It’s nice to live in a country where everyone gets superannuation from the government, however the amount you will receive from NZ Super is unlikely to be enough. At the date of this article, the single living-alone rate for NZ Super2 is $873.88 a fortnight after tax (‘M’ code); for couples where both qualify, the sum is $672.22 each. Unless you’re very frugal and living in a less-expensive part of New Zealand, it would be challenging to live on this amount.

How many properties will you need?

Whether you decide to aim for one investment property or several will depend on your plan. To formulate that plan, you need to ask yourself a few questions, such as:

  • How much extra cash per week or fortnight will you need above NZ Super to finance your ideal retirement?
  • Will that income come from rent or do you plan to sell property when you retire, then put the money in the bank?
  • If you plan to buy a property or two, how will the properties be financed?
  • Will you need to refinance to extract equity from your home, so that you source deposit money for an investment property?
  • If you still have a mortgage (or two) when you retire and don’t want to sell the associated properties, what level of regular repayments could you comfortably manage?
  • What would you do if you wanted to access a large amount of capital in a hurry? This could be for travel, elective surgery, helping a child to buy a home or any other reason.
  • If you choose rental income as a strategy, what would happen if a property was untenanted for a long period of time? For example, if commercial property you own is impacted by an event that affects business tenants, such as a pandemic.

When should you start building your property portfolio?

In New Zealand you can work for as long as you want, but you won’t be eligible for NZ Super until you’re 65 (unless you achieve eligibility through a partner who meets the criteria). However, increasing age and home loan approval aren’t the best of friends.

As you approach 70, lenders are likely to become hesitant about lending you money. Even at age 60, you might find it challenging to get a 10-year loan term. A lot can depend on your total equity and proof of continued income.

Before you make plans to go shopping for an investment property, it’s smart to consult a mortgage broker or have a frank discussion with your favoured lender. Armed with the facts about what you could borrow and for how long, you can devise a robust property investment plan. It’s also important to develop a borrowing plan that takes these points into consideration:

  • Do you want interest-only finance for investment property, or do you want the loan to reduce by paying principal as well as interest?
  • If you needed to sell or refinance a property to free-up equity, how easy would that be?
  • Could you use revolving credit home loans, which make it easy to withdraw funds when you need them?
  • Would you be wise to split lending and securities across several lenders?
Qualified financial advice can help you to answer these questions, and develop a property purchase and financing strategy that works for you.

Another strategy for retirement income – a reverse mortgage

If you’ve left it a bit late to build a portfolio of investment properties to fund your retirement, there’s another avenue you can explore – a reverse mortgage.

If you’re over 60 and own a mortgage-free home, a reverse mortgage lets you borrow money against that property. You don’t have to repay the loan or accumulated interest until the home is sold. This could occur when you move into a retirement village, rest home or pass away. You can make voluntary repayments at any time to reduce the principal and interest charged, but it’s not a requirement.

The maximum amount you could borrow through a reverse mortgage will depend on your age and the market value of your property. Interestingly, some lenders will let you take out a reverse mortgage against a secondary property, such as the family bach or a rental property.

A reverse mortgage can be drawn down as one lump sum, or you can draw it down in stages up to an agreed maximum. You can use the money from a reverse mortgage for any purpose, for example:

  • Supplementing your NZ Super, so that you have enough money to live comfortably
  • Home improvements, such as a renovation, adding rooms or making your home wheelchair accessible
  • Paying for elective surgery, hearing aids, spectacles or other health-related needs
  • Buying a new vehicle
  • Dealing to your travel bucket list
  • Debt consolidation, if you have high-interest debts
We strongly recommend you get independent professional advice before you take out a reverse mortgage. You need to understand all the pros and cons. For example, because your regular interest charges are simply added to your mortgage, the amount you owe continues to grow, which also increases the interest charged each time.
To learn more:

To find out more about investing in property for your retirement, see our free helpful guides to:


DISCLAIMER: The information contained in this article is general in nature. While facts have been checked, the article does not constitute a financial advice service. The article is only intended to provide education about the New Zealand mortgages and home loans sector. Nothing in this article constitutes a recommendation that any strategy, loan type or mortgage-related service is suitable for any specific person. We cannot assess anything about your personal circumstances, your finances, or your goals and objectives, all of which are unique to you. Before making financial decisions, we highly recommend you seek professional advice from someone who is authorised to provide financial advice.

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