How many investment properties is enough for retirement?

The Federal Government may yet tinker with negative gearing in next month's budget. 

The most likely scenario would see the introduction of a limit of say two claimable investment properties or alternatively a dollar value cap on how much can be negatively geared by investors. 

There are now a record 2.05 million taxpayer individuals with an ownership interest in a rental property in Australia.

This represents a jump of 348,000 investors over six years, increasing at around 1000 every week.

The latest release of ATO data for 2014-15 tax year show the number of individuals with just the one investment property stands at a record 1.468 million.

Some 383,000 eventually get to two investment properties. 

There are therefore just 10 percent who own three or more.

Less than one percent of investors, or just 19,198, become potential headlines for their triumph by owning six or more property.

Preventing negative gearing from the third property onwards would be consistent with Treasurer Scott Morrison's view that changes to the housing market ought be done in a "surgical" role rather than involving a "chainsaw".

The data release prompts two questions in my mind: Why do Australians typically stop at just the one? How many investment properties do you need?

I have a theory that many Australians are almost accidental investors rather than professional investors.

That is they do so in a rather relaxed way, keeping up with the Joneses, heard it was a god nest egg, but with no intention of getting around to ratcheting it up beyond the one.

These investors often do so after little research, minimal financial services advice, and in their near neighbourhood and often for the use of the extended family as required.

One or two properties is definitely not enough to fully fund your retirement. 

Estate agent John McGrath suggested it could be argued that even six won’t be enough to fund your retirement if you want a good lifestyle.

He recently offered some tips to help figure out how many investments you’re going to need to achieve your goals, by saying the best idea is to work backwards.

"Say you want to fully fund your retirement with $100,000 in passive income.

"Would five properties returning $20,000 per year would work?

"Actually, no. You'll need to pay tax on that income and even if you owned all five debt-free, they’re still going to cost money to maintain."

He pointed out strata levies on five two bedroom apartments in Sydney could easily add up to $20,000 per year.

McGrath noted if you're aiming to fund your retirement, it's critical that your properties achieve solid capital growth.

He said a common strategy was selling half your portfolio to pay off the remaining assets; and you live off the income from those that are left.

This article was first published in the Sunday Telegraph.