Living off equity – a Reality Check

Kiwi Investor · 4th Mar, 2005

I intend to live off the equity from my IP's in retirement.

Then pass them onto my family (hopefully I won't have spent all the money).

My broad plan is to use the 'reverse mortgage' which I think will become an everyday tool (it's like a LOC I guess) in the future for retired people who own ppty or IP's.
I would like to hear from anybody who may be using a reverse mortgage.

I have to say that this post is the biggest ever I have seen on any forum !

K

austini · 4th Mar, 2005

Thanks Steve,

I'm very much aware of many of the benefits of trusts but was mostly asking in terms of any issues you may have come across in trying to implement some of your specific strategies such as cash bonds etc.

In terms of Land Tax I agree it is a mongrel of a tax. Shares are becoming more and more appealing as these types of property expenses continue to rapidly escalate

Cheers - Gordon

Sleeper · 4th Mar, 2005

Great Stuff, and YES please continue with it Steve.

The style in which you explain these concepts makes them much easier to sink into a thick head such as mine

Sleeper

luckyone · 4th Mar, 2005

Hey Steve,

Thanks for putting up this post for all of us newbies who are trying to learn the investment game and the best strategy to use. This is great pre-reading for your course tomorrow. Can't wait for more!!!

Steve Navra · 4th Mar, 2005

Kiwi Investor said:
My broad plan is to use the 'reverse mortgage' which I think will become an everyday tool (it's like a LOC I guess) in the future for retired people who own ppty or IP's.
I would like to hear from anybody who may be using a reverse mortgage.

Hi Kiwi Investor,

My opinion of reverse mortgages is extremely low:
• Interest rate is HIGH
• LVR allowed is LOW
• The property is encumbered beyond normal first mortgage. (Bank sells to recover their loan)

Other methods achieve exactly the same end without these three horrific disadvantages.
I have helped many retirees in exactly this situation with cashbond / share structure for enhanced lifestyle.

Regards,

Steve

keithj · 4th Mar, 2005

keithj said:
Steve, would you have recommended LOE to Japanese IPers in the 1980's ?

Steve Navra said:
ABSO(F)LUTELY !!

Seems to me there is VERY LITTLE undertanding about what living off capital actually entails

I will give a detailed response to these many questions hopefully sometime later today.

Steve Navra said:
I anticipate that this will take at least 5 posts of this approx volume to complete the task!

Steve,

I realise you are v. busy preparing for your course tomorrow, so maybe instead of posting 5 v. long posts, you could cut to the chase and explain post retirement strategy, including -

the risks you peceive
what is the assumed worst case scenario
what buffers are required
exit strategies employed as attitude to risk changes
at what point is retiring using LOE viable - I realise it is different for everyone, but give an example using $100Kpa nett
asset allocations
any adjustments that may be required if worst case scenario happens
is any active time/effort required (in retirement) to monitor/adjust anything
is LOE the solution for everyone, or are there categories of (possibly risk-averse) people it is unsuitable for

And also explain your answer in the context of 22 yrs (and counting) of 0% growth in Japan that no-one ever thought could possibly happen.

Cheers,

Keith

P.S. And to all those attending the course at the w/e, I expect you to print this thread and grill Steve at length about it and report back

.

Steve Navra · 4th Mar, 2005

austini said:
Thanks Steve,

. . . but was mostly asking in terms of any issues you may have come across in trying to implement some of your specific strategies such as cash bondsetc.

Hi Gordon,

Quite able to place the structure through a trust . . . more paperwork of course

Regards,

Steve

duncan_m · 4th Mar, 2005

keithj said:
I realise you are v. busy preparing for your course tomorrow, so maybe instead of posting 5 v. long posts, you could cut to the chase and explain

NOOOOOO.. I love being guided through a thought process, asking someone to cut to a summary in a discussion is a sure fire way to leave 90% of the readers unclear on great swathes of Steve's approach.

keithj · 4th Mar, 2005

duncan_m said:
NOOOOOO.. I love being guided through a thought process, asking someone to cut to a summary in a discussion is a sure fire way to leave 90% of the readers unclear on great swathes of Steve's approach.

I'll admit was hesitant about making such a request in view of all the other readers interest. But I thought the Navra approach to investing had a) been done to death elsewhere in this forum, b) is mostly available in articles on his website c) is discussed in depth in his excellent course d) could be detailed in a separate thread.

I was (selfishly) hoping this thread could be all about the final Post Retirement phase.

Cheers,

Keith

Steve Navra · 4th Mar, 2005

keithj said:
. . . so maybe instead of posting 5 v. long posts, you could cut to the chase and explain retirement strategy,

Hi keithj,

Slow up

I CAN'T cut to the chase . . . the whole purpose of this LENGTHY post is to FIRST explain ALL the FUNDAMENTALS that are necessary BEFORE one can live off equity!

My previous articles were the "Cut to the chase" versions . . . and now nobody is sleeping at night

keithj said:
And to all those attending the course at the w/e, I expect you to print this thread and grill Steve at length about it and report back.

Well exactly . . . this is what the course is for

Regards,

Steve

keithj · 4th Mar, 2005

Steve Navra said:
I CAN'T cut to the chase . . . the whole purpose of this LENGTHY post is to FIRST explain ALL the FUNDAMENTALS that are necessary BEFORE one can live off equity!

My previous articles were the "Cut to the chase" versions . . . and now nobody is sleeping at night

Hi Steve,

The reason I am interested in answers to all these questions is because I have got to a point where I have $xM nett assets (as have many here) and feel I have enough to be able to retire.

I would have expected to be able to come to you as a client and say - "I have $xM IPs, $yM debts & $zM shares - how can I live off capital ?"

And you could say - "No-worries mate, you obviously don't need the first 4 pages of my strategy, you're onto to the last page. Sit down, have a cup of tea, this is the plan - here's a spreadsheet of your personal situation."

And they I'd say, "Wow, the numbers looks great, but what about -

the risks you peceive
what is the assumed worst case scenario
what buffers are required
exit strategies employed as attitude to risk changes
at what point is retiring using LOE viable - I realise it is different for everyone, but give an example using $100Kpa nett
asset allocations
any adjustments that may be required if worst case scenario happens
is any active time/effort required (in retirement) to monitor/adjust anything
is LOE the solution for everyone, or are there categories of (possibly risk-averse) people it is unsuitable for

And also explain your answer in the context of 22 yrs (and counting) of 0% growth in Japan that no-one ever thought could possibly happen."

Cheers,

Keith

Sim · 4th Mar, 2005

KeithJ - it sounds like you need to sit down with Steve in person and go through this stuff for your own personal circumstances - he'll be able to show you pretty quickly if you can indeed retire at this point, or at worst tell you what you still need to do to get across the line. He'll also be able to help address the risks and concerns that you have - these things are very individual.

Steve Navra · 4th Mar, 2005

keithj said:
I would have expected to be able to come to you as a client and say - "I have $xM IPs, $yM debts & $zM shares - how can I live off capital ?"

"No-worries mate, you obviously don't need the first 4 pages of my strategy, you're onto to the last page. Sit down, have a cup of tea, this is the plan":

So where are you??

Come by and I will continue the conversation

keithj said:
And also explain your answer in the context of 22 yrs (and counting) of 0% growth in Japan that no-one ever thought could possibly happen."

Oops, sorry I forgot to answer this one:

Easy: 0% growth = $000,000-00 to spend

Regards,

Steve

keithj · 4th Mar, 2005

Sim said:
KeithJ - it sounds like you need to sit down with Steve in person and go through this stuff for your own personal circumstances - he'll be able to show you pretty quickly if you can indeed retire at this point, or at worst tell you what you still need to do to get across the line. He'll also be able to help address the risks and concerns that you have - these things are very individual.

Hi Sim,

I have retired, but I don't currently live off equity. I fully expect the risks & concerns I have are things that Steve would be happy to talk to everyone about, not just me personally.

I was hoping this thread would not digress into a Complete Navra Strategy thread, but stick to the final Post Retirement phase, which I would have expected is a phase that can stand alone from the Pre Retirement phases. However, I'm quite happy to wait for the final chapter

.

Cheers,

Keith

MJK · 4th Mar, 2005

Simon & Julie,

Thanks for your replies. I put heaps of smily faces on mine so you would know I wasn't being nasty

but rather hoping for a meatier answer. Thanks Simon for the nice meaty example

. I'll go away and ponder it with my calculator. Plenty to think about.

Cheers
MJK

keithj · 4th Mar, 2005

Steve Navra said:
"No-worries mate, you obviously don't need the first 4 pages of my strategy, you're onto to the last page. Sit down, have a cup of tea, this is the plan":

So where are you??

Come by and I will continue the conversation

Hi Steve,

The point I was trying to make was - does the final post retirement phase rely on the pre-retirement phases. Are you confirming that it does or doesn't ?

I dont' want to appear to be aggressively anti-LOE (as I said in the v. first post - it's a great concept). I want to fully understand what you perceive to be the implications of taking such an important decision.

So I apologise for harassing you to cut to the chase

and look forward to reading your responses to the risks and concerns.

Cheers,

Keith

plumtree · 4th Mar, 2005

Living off equity seems only possible if the value of property continues to grow. This has regularly been accepted as a given since the '60s'. Interestingly enough, this historical 'fact' is soon to be given it's biggest challenge since it's origin. The Baby Boomer generation is soon to retire and submit the property market it's biggest blow in modern time. Many challenges will hit the investment world; asset sell-off to fund some retirees, down load of funds from financial institutions as retirees utilise their super, shortage of tax payers to fund fiscal requirements both federally and statewide, and a shortage of qualified work force. Property value may never generally escalate again. Even if the BB episode is only a hicough in property growth it will possibly extend over many years.
I might be written off as being negative but if someone has the answers then I would, as would others , like to hear them.

duncan_m · 4th Mar, 2005

plumtree said:
Even if the BB episode is only a hicough in property growth it will possibly extend over many years.

I've just put nearly $500K into buying a holiday home where I'm confident LOTS of Baby Boomers are going to want to spend a LOT of time.

Steve Navra · 4th Mar, 2005

keithj said:
The point I was trying to make was - does the final post retirement phase rely on the pre-retirement phases.

Hi kiethj,

You're holding me up, I'm trying to finish chapter 2 before the rugby starts!!

To answer your question:
Yes, but only to the extent of firstly fully understanding the process (The comfort of seeing it 'work for you" in advance of spending anything) so that you have SANF and obviously the portfolio balance is vitally important.

Note the portfolio can be re-balanced at the end, but there might be cost implications: for example CGT.

Regards,

Steve

simonjulie · 4th Mar, 2005

plumtree said:
Living off equity seems only possible if the value of property continues to grow. This has regularly been accepted as a given since the '60s'. Interestingly enough, this historical 'fact' is soon to be given it's biggest challenge since it's origin. The Baby Boomer generation is soon to retire and submit the property market it's biggest blow in modern time. Many challenges will hit the investment world; asset sell-off to fund some retirees, down load of funds from financial institutions as retirees utilise their super, shortage of tax payers to fund fiscal requirements both federally and statewide, and a shortage of qualified work force. Property value may never generally escalate again. Even if the BB episode is only a hicough in property growth it will possibly extend over many years.
I might be written off as being negative but if someone has the answers then I would, as would others , like to hear them.

IMHO your veiw of the looming situation is only looking from one perspective. What about the fact that there is only one planet that people can live on and that any good desirable land will always be held valuable. Economies come and go but the land will hold its value if we don't destroy it's desirability.
Kind regards
Simon

Living off equity – a Reality Check

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Kiwi Investor

austini

Sleeper

luckyone

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Steve Navra

duncan_m

keithj

Steve Navra

keithj

Sim

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MJK

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duncan_m

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