Does a Property Investor every retire?

[Gordon Gekko]

Hi All,

I guess with Property investing, there are two ways to retire:

1. Buy as many IP's as you can and when you get to "your" retirement age, sell enough of the propeties to pay off the remainding and live of the income from those properties.

2. Buy as many IP's as you can and when you get to "your" retirement age, sell all of them, put the money in a good interest bearing account and live out your years on the interest and i guess some of the principle.

(But of course, IP's will not be your only investment vehicle)

Both options work fine but i have an issue with number 1

Say you retire with 6 properties and of course you still have a PM running them for you. You still have to think about vacancies, people trashing your IP's, repairs, selling one because it is getting too old ....etc

Don't know about you but that is not my idea of retirement.

What do others think

GG

[keithj]

1. Buy as many IP's as you can and when you get to "your" retirement age, sell enough of the propeties to pay off the remainding and live of the income from those properties.

2. Buy as many IP's as you can and when you get to "your" retirement age, sell all of them, put the money in a good interest bearing account and live out your years on the interest and i guess some of the principle.
Agree absolutely. You can retire a lot sooner if you sell your IPs and invest in higher yielding, lower risk asset classes. And diversification is also important.

There are probably self-made dedicated IP investors who have lots of equity, but aren't familiar enough with other asset classes to feel confident investing in them and retiring and still leave an inheritance.

[Thommo]

Using Townsville as an example market (the only one I know anything about) I guesstimate that six good homes might have a market value of $1.5mil and return about $50k p/a. fully taxed. Others more knowledgable than I might do the calcs for their cities, but I suspect that in Syd the value needed with lower returns and higher taxes could be $2.5 mil.

I think I know enough of the share market to get 5% return franked to 75% which is 50% better than the above example and shares need less active management (you can never afford to be detached).

Trouble with GG's option 2 is that selling a portfolio of IPs would incur heavy costs and taxes. Everyone's circumstances are different but could you loose 20%? I don't know.

Thommo

[Patosan]

Interesting question GG,

I guess like many here I'm a relative newcomer though I've set up our trust so as to pass our IP on to the kids. Subsequent trusts will have the same long term plan : for our wealth to grow, passive income and an estate for the children to become active in.

Infact I'd go further and suggest that I'd prefer to keep as many IP as possible for the kids to learn "run" the show. Then we can be relaxing consultants to the trustee Co.

Keithj I truly see no reason for a major shift to high security or whatever type of assets. If we find some great investments, IP or other asset type I'd invest in them NOW. We currently have a few other types but we are agressively buiiding the IP side more. I would suggest closer to retirement starting to invest in the other types if a person hadn't already, but NOT selling the IP unless it was to realise a greater goal. After all if the IP were a good idea and the right choice then there shouldn't be any real need to sell.

Ah but I fear this is becoming more a discussion on the type of investor you are.
If you're aggressive, prone to churning - very active, then the answer to the retirement question would also be different to that of a passive buy and hold person.

I expect to see quite a varierty of repaonses and am keen to hear them all.
Since we should start with the end in mind the question is very important

.

[Patosan]

I think I know enough of the share market to get 5% return franked to 75% which is 50% better than the above example and shares need less active management (you can never afford to be detached).
Thommo

Thommo I don't feel it's truly fair to take a single point in time, in this case now, to justify an investment strategy. Sure rental yields now stink but most houses were bought long before the value rocketed, so the true yield for the investor is unknown. Perhaps the share market will rocket now or perhaps it'll collapse next year.

Even in retirement you need a long term view unless you have a early date with death planned. Assuming we live at least 15 years past retirement age there could be at least one share and property cycle. Anything could happen.

[Thommo]

Infact I'd go further and suggest that I'd prefer to keep as many IP as possible for the kids to learn "run" the show. Then we can be relaxing consultants to the trustee Co.

How old are the rug rats? If you are confident they will follow in your footsteps why not a conventional business? Better returns!

Thommo

[Patosan]

G'day Thommo,

I never ruled out a business.
The topic is what to do with your IP on retirement.
Plus one can never be confident about children doing anything you'd want or like. By the way they're currently only 4 and 1 yr old, and hopefully we'll have another.

[WillG]

Hi GG,

I can't wait to 'think about vacancies, people trashing your IP's, repairs, selling one because it is getting too old'.

I have owned IP's for the past 6+ years and find that once you experience these problems you realise it isn't a hastle at all. I rather enjoy listening to my PM and making level headed decisions.

Who cares if the place is trashed or the carpet is stained. Insurance and tradesmen can fix and you can and claim accordingly.

I get more grief from my day job !

All of the 'problems' you outlined are typical reasons why people don't invest or sell IP's prematurely.

I tend to stay clear of Townhouses with body Corps because they tend to give more grief !

Happy Investing

[keithj]

Keithj I truly see no reason for a major shift to high security or whatever type of assets. If we find some great investments, IP or other asset type I'd invest in them NOW. We currently have a few other types but we are agressively buiiding the IP side more. I would suggest closer to retirement starting to invest in the other types if a person hadn't already, but NOT selling the IP unless it was to realise a greater goal. After all if the IP were a good idea and the right choice then there shouldn't be any real need to sell.I agree, that NOW is the best time to invest. But I believe to retire from working for someone else and invest full time, it can be done quicker when there is enough equity to provide an income stream in a high yielding asset, by exchanging high growth (eg IP) asset classes for high income asset classes. IPs can have a large growth component relative to income, which can't be used to live on (yeah - except for cash bonds).

Trouble with GG's option 2 is that selling a portfolio of IPs would incur heavy costs and taxes. Everyone's circumstances are different but could you loose 20%? I don't know.If you've had an asset for more than 15 years there's no tax - this is the timeframe for many IP investors. There's a 50% discount for asset held more than 12 months. The choice is paying tax, getting a better yield and retiring to invest full time or continuing to work 9-5. Avoiding paying tax is v. low in my list of priorities.

I think in reality though, many will choose to continue to invest by drawing down equity to invest in other asset classes and NOT sell IPs - returns become exponential fairly quickly - this is the path I've chosen.

[Aceyducey]

How old are the rug rats? If you are confident they will follow in your footsteps why not a conventional business? Better returns!
My son wants to follow in our footsteps....as he said the other day, when he grows up he wants to be just like his mum & dad - and do nothing :eek:

Clearly the weeks he's spent on reno sites, being dragged around open houses & discussions of shares isn't having the right effect.... :)

Cheers,

Aceyducey

[Thommo]

Thommo I don't feel it's truly fair to take a single point in time, in this case now, to justify an investment strategy. Sure rental yields now stink but most houses were bought long before the value rocketed, so the true yield for the investor is unknown. Perhaps the share market will rocket now or perhaps it'll collapse next year.

Even in retirement you need a long term view unless you have a early date with death planned. Assuming we live at least 15 years past retirement age there could be at least one share and property cycle. Anything could happen.
Pato, I am deliberately and specificially speaking about current realisable value of investments and returns on that amount, Today! That's what GG meant when he spoke of selling at todays prices

You say that "rental yields now stink" but when and how will they correct? Possibly by prices dropping till rents give a viable return on investment, in which case you will have suffered a significant "paper" loss and no longer be able to sell. (I don't know, Do you?) Share market returns are also historically low and share the same risks of correcting back to normal as does RE. Again I don't know if or when they will.

If I want to discuss shares I go HotCopper, so in SomerSoft I just try to say that RE is NOT the ONLY way, without knocking a strategy that clearly works well for those who are good at it. Last night I said there are many roads to Rome and that we can't all travel the same one. It would be crowded and smelly! We agree though, that planning is important and, for me, such discussions can help recognising weaknesses in my plans

Thommo

[Thommo]

G'day Thommo,

I never ruled out a business.
The topic is what to do with your IP on retirement.
Plus one can never be confident about children doing anything you'd want or like.This is what I was suggesting, diplomatically, of course! :D
Small business and property tend to be mutually exclusive. I'm not the only one on this forum to have found this out.

Thommo

[bornfree]

I would think when someone is retired, one likes to take it easy. If someone has 10 or 20 or more IPs, wouldn't he /she spend the whole day fixing toilet, taps, or whatever ( I know tradesman will actually do the work, but it's still a pain to try not to get ripped off ). This is not really the easy life that I work so hard to accumulate IPs for !

[Gee Cee]

I keep learning all the time.

I bought when I was young (19) and did do ups till around early 30.

Mostly doing the work myself whilst working shiftwork at a full time job.

The hardest decision was when I left full time employment at 35 to just do property. (I never felt I had the confidence to succeed)

However once you throw yourself into the river you just learn to be a better swimmer :eek:

My ideas keep changing. I sort of run investments on my left hand and developments on my right hand.

As I have grown older I don't have the energy or time for older places that require constant maintenance and big $$ input. Fortunately over the past 2 years i have been able to off load old stuff and just concentrate on new developments. These have been on -sold.

But with the changing market development margins will drop. So it will be back to basics. Buying do uppers to hold a few years.

My basic idea of retirement is that you get up in the morning and fall asleep by 1pm from bordom.

However if you are doing, setting up or deligating out something you have a reason to get out of bed.

Speaking of bed , at 45 it is almost time to hit the sack :D

Gee Cee

Older Fart :eek:

[geoffw]

Using Townsville as an example market (the only one I know anything about) I guesstimate that six good homes might have a market value of $1.5mil and return about $50k p/a. fully taxed. Others more knowledgable than I might do the calcs for their cities, but I suspect that in Syd the value needed with lower returns and higher taxes could be $2.5 mil.

I think I know enough of the share market to get 5% return franked to 75% which is 50% better than the above example and shares need less active management (you can never afford to be detached).

Trouble with GG's option 2 is that selling a portfolio of IPs would incur heavy costs and taxes. Everyone's circumstances are different but could you loose 20%? I don't know.

ThommoThe old argument revisited.

I know my properties, bought a few years ago, at minimum deposit using just equity have perforformed pretty well- growth and cashflow.

I could not have bought shares with either that leverage or that performance.

But that was then- and in one micromarket.

I find shares can involve active management. I'm mostly B&H- but if I see a good price, I will realise the profit. My properties were active while I was renovating- but mostly now just involve a few emails every now and then. I probably spend a little more time on $1.5M of properties than $60K of SMSF shares.

[Ecogirl]

Agree absolutely. You can retire a lot sooner if you sell your IPs and invest in higher yielding, lower risk asset classes. And diversification is also important.

There are probably self-made dedicated IP investors who have lots of equity, but aren't familiar enough with other asset classes to feel confident investing in them and retiring and still leave an inheritance.

keithj
I am curious about your statement. Can you please explain what you mean by this?
I know this isn't a shares forum but I believe I need a balanced portfolio in different asset classes. At the moment I'm concentrating on IPs but down the track I would like to diversify. If you could shed some light on your comments so we can all learn that would be appreciated.

Ecogirl

[peelsman]

I can offer some insight into this (no from my own point of view unfortunatley) but from the perspective of my old man. He's been buying property for quite some time and hasnt "worked" for the last 25 yrs, but still has to follow up all the associated stuff with owning ip's. It hasnt been a real chorefor him as he enjoys correct the accounting of the managing agent ;) but when you think about it, its not a bad life just doing some admin on some 5 properties and watching the $$$ get deposited into your account every month..

He spends on maintance what he has to and has so much income its of no real concern about what he has to spend to maintain the properties. I can tell you that the life he leads is pretty much stress free...

HT

[keithj]

Hi Ecogirl,

My aim was to retire (to become a full time investor) as soon as possible. The way I did it was to take reasonable risks to gain equity while I had personal services income with a c/f neutral portfolio. Dividends & rents roughly paid the outgoings and interest. There was a high growth component in the assets. That is the aim of most people.

At retirement (for me) the priorities changed. An assets growth component is a much lower priority and the income priority is higher. So exchanging high growth assets (eg well located IP) for high yielding assets (eg bank shares, LPTs, commercial property) means I can retire sooner. These high yielding assets still have a growth component, but much lower.

As Thommo mentioned tax may be an issue. Another way to do it would be cash bonds.

Roughly speaking, if someone has $1M in equity (outside PPOR) and they've held it for more than 12 months, then they sell the lot, pay a max of 24% tax, leaving $750K. Buy & hold a bunch of LPT shares yielding 8% (tax advantaged, which means you don't pay tax on all the income), and get $60K passive income. This is not advice, of course:).

Then start again all over again, buying IPs using equity in PPOR just you did last time .........

KJ

[Thommo]

Hi Ecogirl,

My aim was to retire (to become a full time investor) as soon as possible. The way I did it was to take reasonable risks to gain equity while I had personal services income with a c/f neutral portfolio. Dividends & rents roughly paid the outgoings and interest. There was a high growth component in the assets. That is the aim of most people.

At retirement (for me) the priorities changed. An assets growth component is a much lower priority and the income priority is higher. So exchanging high growth assets (eg well located IP) for high yielding assets (eg bank shares, LPTs, commercial property) means I can retire sooner. These high yielding assets still have a growth component, but much lower.

As Thommo mentioned tax may be an issue. Another way to do it would be cash bonds.

Roughly speaking, if someone has $1M in equity (outside PPOR) and they've held it for more than 12 months, then they sell the lot, pay a max of 24% tax, leaving $750K. Buy & hold a bunch of LPT shares yielding 8% (tax advantaged, which means you don't pay tax on all the income), and get $60K passive income. This is not advice, of course:).

Then start again all over again, buying IPs using equity in PPOR just you did last time .........

KJ
I was thinking of answering Ecogirl but I'm glad I didn't. You did it so well.

The only thing I could add is to phase the change over a longer period (10yr?) on a more "opportunistic" basis. ie Tend your garden by selling investments you are least happy with and buying others "at the right time".

Note: I like the idea of trying to time the markets, it can be very satisying.

Thommo

[Aceyducey]

Good reply Keith :)

We've also changed to a more income/cashflow focused approach.

Cheers,

Aceyducey

[Ecogirl]

Thanks guys
that give me a lot to think about - learning one step at a time allows me to be very good at one thing then move on to the next, as opposed to be being a 'jack of all trades' and not using the full potential of the deals/situations
Does LPT mean Ltd Property Trust?

Ta muchly
Ecogirl

[Thommo]

Does LPT mean Ltd Property Trust?

Ta muchly
Ecogirl
Nearly! It's Listed Property Trust. That means it is listed on the Aus Stock Exchange.

Worthy of consideration.

Thommo

[keithj]

Ecogirl,

See ASX here (http://www.asx.com.au/markets/pdf/lpt_retail_sheet12.pdf) for a 1 page overview of LPTs, and here (http://www.asx.com.au/markets/pdf/lpt_retail_sheet12.pdf) for a bit more detail and similarities to residential property and lots of links. And here (http://www.asx.com.au/markets/l3/PropertyTrustsGraphs_AM3.shtm) for graphs showing their returns.

KJ

[Jacque]

Interesting question- I guess it also depends on your definition of "retirement".
As for me, I would hope that, over the ensuing years, I become better at handling PM's, hone my skills in employing competent tradesmen and improve my account reading techniques. One of my PM's statements is very tricky to decipher and it always takes me longer to reconcile than the others....

As for selling off and using the gains elsewhere (shares, SMSF, Managed funds etc) I intend to do this in the future, as my hubby and I "wind down" and decide to spend more time in life doing the things that we both enjoy. Consistent and sufficient cashflow will be necessary to sustain the type of lifestyle we are aiming for :)

As for now, however, I'm enjoying the challenge of making profits (from divergent sources) and learning every day. I love it!

[perky29]

Good thread,
I have heard of many cases of people retiring at age 65 and dying soon after - the drive of working keeps them going.
I can't wait to "semi-retire" into full-time investing. But fully retire - no way , too boring. Besides which, I really enjoy investing, following up PM's , day to day maintenance, looking for new opportunities etc - to me thats the best bit. :) :)

[handyandy]

Hi All

Personally if I stay a property investor than I won't retire which is fine by me.

Some time ago I decided that to be able to live off property and have the luxury of choice as to whether to be directly involved in the day to day affairs I would need a lot of property. To this end I then set about enlarging my portfolio to ensure a excelent rental cash flow.

Since then and because of the outstanding capital gains I have changed direction slightly and am now in the process of drawing down those gains and investing in managed funds, based around 80% lend and then further margin lending.

Based on this new strategy I will get more income from the funds than from the rents yet am only risking a 1/4 of my portfolio in this particular scenario.

I still see he properties as the long term capital growth and the managed funds as the immediate income for living expenses and expansion of my little empire.

So to come back to the question regardless of whether you are in property or some other form of investments there will always be some level of management required and as such we are doomed to being only semi retired :D

Cheers

[iLuxo Jr]

Hmm...

Firstly I'd aim to restruture what we have. For a start when we're 65 (47 now) I know we won't need or want the size of house we have now and would probably want a change as well.

I'd be looking to sell one of our IP's to use as equity to buy and fit out a place to suit us, somewhere between 55 and 60. No clear idea yet what or where that might be, however.

Then move in and sell our PPOR and probably put the proceeds of that into IP's for a while.

As I cease work I am thinking of selling 1 at a time when the market is right (near a high) and converting that into other more liquid investments that provide an income.

Exactly what that investment may be I'm not sure, the rate at which things change I feel its too early to speculate on what the best vehicle will be when the time comes.

But I doubt it will be shares or managed funds.