Why Doctors Shouldn’t Bet Their Retirement Savings On Property

As I have highlighted a couple of times in the past, doctors and other medical professionals typically have a love affair with property. It is not hard to see why:

– it provides tax benefits in the form of many possible tax deductions; – it is easy to leverage against and finance options are plentiful for doctors; – it is a tangible investment.

Whilst I do believe that property can be a good investment for medical professionals due to your stable income and high taxable income, I do also want to caution against the idea that you can retire comfortably on a residential property portfolio.

What disturbs me is that several accounting and finance groups who work with doctors and other medical professionals, heavily promote property investment, and even recommend buying a multi-million dollar primary residence. The advice seems to be that doctors should borrow as much as they can and accumulate as many properties as possible.

I believe this is downright dangerous and can actually jeopardise your retirement, irrespective of whether you believe property prices are going to go up or down.

Let me explain why:

– residential property typically pays a net income (i.e. after expenses) that is lower than the interest you earn on a bank account;

– hence, doctors would need a multi-million dollar property portfolio to fund their retirement expenses, which is not very practical;

– this would come with a lot of tenant issues you don’t have time to deal with;

– it would leave your portfolio very illiquid (some properties could take months or even years to sell) and at risk of long-term vacancies;

– it would leave you very exposed to debt and interest rate rises (yes, we are in a rising interest rate environment);

– it would leave you very heavily exposed to one particular type of investment.

These are just some of my concerns.

I have worked with clients who enter retirement asset-rich in property, but turn out to be income-poor. The little cash flow they have from property is drained by land tax, strata fees, repairs and maintenance issues as well as vacancies.

It puts a lot of stress on your retirement funding and selling a property may not always be an immediate option or can lead to substantial capital gains tax.

Also, the idea that you can sell your primary residence capital-gains-tax-free and should thus buy the most expensive home you can afford, is completely flawed. I have yet to come across one client who has been able to downsize in retirement and end up with surplus cash to add to their retirement nest egg. Most people trade sideways or upwards.

I am a big believer in a diversified approach, and working with financially successful clients has only strengthened that belief. I have had the privilege to learn from clients who have been able to retire in their early fifties…and believe me, they didn’t have more than 1 investment property. Instead, they took a broader wealth creation view and had disciplined cash flow management.

If you would like to benefit from the collective experience of our medical clients, and take a more sensible approach to retirement planning, then contact us today on 08 9381 2704 or Yves@affluenceprivate.com.au

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