Retirement is a word that can carry some negative emotions. Alternatively, you can look to re-invent your retirement for a whole new perspective. As we progress through life, the knowledge we need to prepare financially competes with other priorities, like raising a family, buying a home and paying off the mortgage, to name a few. As the time draws closer, panic can set in.
If you are a mother, you are probably nowhere near financially ready to retire, but psychologically, you were probably ready years ago. Renovating for profit is the power tool for upgrading your life. It solves many issues around traditional retirement and helps you live a rich and inspiring life.
Nine ways renovating makes retirement more interesting and profitable
1. Retire on your terms
The legal retirement age in Australia is 67. Renovating can enable you to retire at any age as soon as you have the structure to fund your projects and produce sufficient cash flow to cover your living costs. For most people, this takes up to two years to set up.
2. Payoff your mortgage
It’s important to get your mortgage paid off before you stop working. I don’t worry too much about debt, provided the asset is cash flow positive, but with your family home, generally, it doesn’t have an income to offset the repayments. I also like the security of fully paying off your home so you know it can’t be taken from you.
There are two main ways to be free of your mortgage:
- One is to do cash flow reno projects to pay off the mortgage
- The second is to do it as part of a downsizing exercise
3. Downsize your home, and pocket an extra few hundred thousand dollars tax-free
If your plan is to downsize your home, don’t miss the opportunity to put some tax-free dollars into your retirement fund. Almost every house will benefit from a presale makeover to increase the value by at least 10% after costs. It’s been ten years since Stephen and I downsized, and we added an extra $200,000 (tax-free) to the sale price after costs. If you haven’t paid off your mortgage, this is your chance to clean it up.
4. Buy your downsized home at wholesale price
Once you have renovated and sold the family home, your next project is your new home. Often downsizers will opt for a smart new or renovated pad in a hip area. I’m all for getting the best location but urge you to think about looking at unrenovated properties, so you are not paying full retail. This is a smart method to re-invent your retirement and set you on a creative path. By doing your own renovation, you get exactly what you want for (much) less. Also, consider buying something with the potential for cash flow. (see point 5)
5. Turn your empty nest into cash flow to re-invent your retirement
This is where things get interesting. The chicks have left the nest, and you are rattling around in a big house. You could renovate the home to create a separate dwelling to rent out and provide cash flow on the long- or short-term market. Of course, it usually requires council approval but is worth it because you create an investment property at a minimal cost. Sidenote: if you sell your home, this strategy will impact the CGT exemption on that portion of your home. For us, the benefits far outweigh the disadvantages; our studio produces around $50,000 annually.
6. Fund travel for retirements pleasures
What is the first thing you do when you don’t have the responsibility for a job? You travel, and what better way to fund that travel than with the odd reno project?
7. Creates a powerful purpose and identity
A common problem with retirement is the loss of identity and boredom. For many, their job is a source of significance and purpose. When it is no longer there, you can feel lost and invisible. The beauty of renovating is you can create your schedule around how much you want to work, you may choose to do just one project a year, and that’s enough to give your life meaning without being a burden. A byproduct is it keeps your mind and body active, which helps you stay active and healthy.
8. Do projects to help family and friends
While working with renovators, I have noticed that we all have someone in our lives we would dearly love to help financially. For us, it is our kids, but it can be parents, siblings, a charity or even friends. Heart-driven joint ventures are incredibly satisfying and don’t need to be charity. It is possible to do these projects where everyone wins, and it can feel like a whole new way to re-invent your retirement. As you may know, Stephen and I are working through four Avocado smash projects, one with each of our young adult children. We are currently on number three. The first was a flip; the second was a PPOR; this time, we are going with a micro development. We have chosen this strategy because our daughter and her husband already have a home and want to invest. This strategy produces higher profit, and ultimately we will each end up with a high-equity, high-cashflow new investment property.
9. Pay little to no tax (legally)
Of course, I can’t give you tax advice, but I can tell you working closely with your accountant can lead to amazing tax benefits. The three main ways I know to do this are:
- Taking advantage of the CGT exemption on your PPOR
- Investing SMSF funds into joint ventures, especially if you are in the pension phase
- Renovating within a legal structure enables you to retain profit
PLEASE NOTE
Working with your accountant and financial planner on this last point is important to ensure you stay on the right side of the law.
Tax and superannuation laws are complex, and penalties can be high.
Wrap up
I’m sure this article has generated more questions to answer, including…
- Can I get finance when I don’t have a day job?
- How do I get set up for renovating when I am not working?
- What projects should I start with?
- What about the shortage of trades and materials?
- Is it the right time to renovate?
- Do I need a new accountant?
Follow along with our courses and suggestions to re-invent your retirement.
