The case against owning rental property as a strategy for retirement income can be boiled down to five main points:
Housing has always been a public policy (political) issue and always will be.
Successive governments have tried to put a lid on property prices and rents. However, the current government does seem to be more serious about holding down values and making property better for tenants – things like the Healthy Homes Act, amendments to the Residential Tenancy Act along with taxation measures like the extension of the bright-line test and interest costs ceasing to be deductible are adding to costs and reducing prices. Government wants to hold down the price of the very things you (as a property investor) want to rise – the government wants rents and house values to stay steady, you want them to rise. We cannot be sure how that will play out, but we do know that betting against the government is risky.
Residential rentals need very good active management.
Retirees who own rental property need to put a lot of time, effort and energy into their rentals. They will also need to keep up with legislative and regulatory changes. All of this may feel like work – for most, that is the antithesis of a good retirement.
Residential property values are now at such a high level that yields are very low.
This is not good for retirees who are depending on the rental income to fund their lifestyles. Net rental yields are probably not much more than 2 percent after all costs (rates, insurance, maintenance, management and obsolescence) are factored in. This is a very poor deal compared to other yields on offer (e.g. the average dividend yield on the Listed Property Vehicles is current 5.9 percent). It strikes me that retirees planning on using the income from residential rentals to fund retirement are cutting themselves out of a considerable lifestyle.