Do you have an IP Financial Plan to get you to retirement?
- Thread starter Keen
- Start date
Sim
Administrator
keithj said:
Which is why an investment in something like an income fund is good - high cashflow levels to A) pay for interest, and B) fund further investments or pay living expenses
NigelW said:
Surely another option between Options 1 and Options 2. is
"sell some properties and pay down debt, live on the remaining properties"
Lets say you have 10 properties valued at $5M and an LVR of 50%, debt of $2.5M, OK you are going to be hit with CGT, agents, vendor tax, bla bla bla. Sell 6 (selling 5 for debt, 1 for the costs of selling) of your 10, reduce your asset base to 4 IPs worth $2M 100% yours!
This should give you a $70K/year (taxable) income that is rock solid! If I think of my #1 SANF in this regard namely the CWO (Chief Worry Officer): Mrs AL, this is the only way to go!
Optimal is to not to sell and live of the increased equity.
For the worst case the Japan market is now at 1983 levels...22 full years of zero gains. Living off equity would have had you in a Rolls royce in 1990 and living in a cardboard box under the stars in 2000!
Guys & gals,
Have not read the whole thread yet but please tell me If I am off the mark with what I have planned. Couple of years ago asked my wife what would she like as a gross income when we retired "$100,000" this figure was at the $ value 2 years ago, mind you this is way more than what our combined gross was, prior to the start of the aquisition of our IP's. "Working on our 4th at the moment"
At that time I worked out that to get this figure we would have to own outright 10 IP's at then current rent rate, when I asked the question of my wife to acheive this.
No way were we going to be able to do this on our combined wages, hence we are trying to purchasing as many IP's as possible. Allowing for capitol growth and the CG tax we would have to pay upon selling some of the IP's, with what is left paying off the 10 IP's outright resulting in the $ figure my wife wanted to retire on.
If my plan is off the mark please let me know as I personally have 472 Mondays left to go before "I" plan to retire!!!!
God Willing
John
Have not read the whole thread yet but please tell me If I am off the mark with what I have planned. Couple of years ago asked my wife what would she like as a gross income when we retired "$100,000" this figure was at the $ value 2 years ago, mind you this is way more than what our combined gross was, prior to the start of the aquisition of our IP's. "Working on our 4th at the moment"
At that time I worked out that to get this figure we would have to own outright 10 IP's at then current rent rate, when I asked the question of my wife to acheive this.
No way were we going to be able to do this on our combined wages, hence we are trying to purchasing as many IP's as possible. Allowing for capitol growth and the CG tax we would have to pay upon selling some of the IP's, with what is left paying off the 10 IP's outright resulting in the $ figure my wife wanted to retire on.
If my plan is off the mark please let me know as I personally have 472 Mondays left to go before "I" plan to retire!!!!
God Willing
John
always_learning said:
Yes..
Even as part of your strategy as you go . You could buy, for example, 19 cash flow properties towards the end of a cycle . Sell off 10 and own the other nine outright. This would give you an income of around 50 K after expenses ( also would provide a basic retirement ) . Then you can use the cash flow and equity to buy good properties at the start of the next cycle when other people don't have the surplus cash flow to do that.
See Change
Brizzy Boy said:
Hi John
To answer you question someone would have to copy and paste the whole thread. Maybe it would be easier if you just read it first.
Cheers
Hi all,
SC, Al, those points seem to fall on deaf ears to those who don't want to consider the increased risk of LOE.
Just using Duncan's example. Let's call it 10 properties worth $330,000 each that we owe $200,000 on each.
Sell 4 = $1,320,000- $33,000 REA, - $121,750 CGT - $800,000 debt on those properties. =$ 365,250.
put $365,250 into offset account against other properties. you now pay interest on $1,200,000- $365,250 = $834750 at 6.5% that = $54,258 p.a.
Duncans 5% return on the remaining 6 properties = $99,000 p.a.
$99,000 - $54,258 = $44,742 p.a.
You have an income and you have both the cash asset to do something at a moments notice, as well as the ability to borrow against your existing equity if you see an opportunity. Your LVR is still at 61% (not including your cash), EVEN if there are no growth years. Plus your equity rises whenever there is cap growth.
bye
SC, Al, those points seem to fall on deaf ears to those who don't want to consider the increased risk of LOE.
Just using Duncan's example. Let's call it 10 properties worth $330,000 each that we owe $200,000 on each.
Sell 4 = $1,320,000- $33,000 REA, - $121,750 CGT - $800,000 debt on those properties. =$ 365,250.
put $365,250 into offset account against other properties. you now pay interest on $1,200,000- $365,250 = $834750 at 6.5% that = $54,258 p.a.
Duncans 5% return on the remaining 6 properties = $99,000 p.a.
$99,000 - $54,258 = $44,742 p.a.
You have an income and you have both the cash asset to do something at a moments notice, as well as the ability to borrow against your existing equity if you see an opportunity. Your LVR is still at 61% (not including your cash), EVEN if there are no growth years. Plus your equity rises whenever there is cap growth.
bye
Hi remember me.
I'm Keen the guy that started the thread. (being sarcastic here folks).
Whew What a read. And something to chew on.
I particularly like poscash's comments (seem to be similar to mine) and appreciate NigelW summary, expecially after the earlier tooing and froing.
Will the banks really come to the party in such a scenerio? Will they in their conservative and uncreative minds say - "Its too risky" - even if some of us think otherwise. If your not going to reinvest but simply drawdown on the equity and then replace it when you get the capital growth - will the banks want more than just rental income - ie have a probably with increaing debt (amount) and your Debt Service Ratio? Have these questions already been answered but in spending so much time grasping this I have missed a point (amoungst many)?
I have yet to look at the much spoken of spreadsheet - but alas it is a plan. Monitoring how to get from point A to point B. I don't beleive in the "she'll be right mentality" that I read somewhere. Why take more risk than you have to when you may already be ontrack. Why sit back thinking you're ontrack when you're not and you should be evolving your stratergy or pushing the envelope a little harder.
Yes there are assumptions in all plans. Yes they could be wrong. But at least if youre modest in statistical assumptions you have a better chance of getting to point B than simply continually repeating a stratergy and winging it on the hope that want to retire in x years time.
What I liked most about this thread is that people looked at the back end of Investing. They looked at point B.
Regards
Keen
I'm Keen the guy that started the thread. (being sarcastic here folks).
Whew What a read. And something to chew on.
I particularly like poscash's comments (seem to be similar to mine) and appreciate NigelW summary, expecially after the earlier tooing and froing.
Will the banks really come to the party in such a scenerio? Will they in their conservative and uncreative minds say - "Its too risky" - even if some of us think otherwise. If your not going to reinvest but simply drawdown on the equity and then replace it when you get the capital growth - will the banks want more than just rental income - ie have a probably with increaing debt (amount) and your Debt Service Ratio? Have these questions already been answered but in spending so much time grasping this I have missed a point (amoungst many)?
I have yet to look at the much spoken of spreadsheet - but alas it is a plan. Monitoring how to get from point A to point B. I don't beleive in the "she'll be right mentality" that I read somewhere. Why take more risk than you have to when you may already be ontrack. Why sit back thinking you're ontrack when you're not and you should be evolving your stratergy or pushing the envelope a little harder.
Yes there are assumptions in all plans. Yes they could be wrong. But at least if youre modest in statistical assumptions you have a better chance of getting to point B than simply continually repeating a stratergy and winging it on the hope that want to retire in x years time.
What I liked most about this thread is that people looked at the back end of Investing. They looked at point B.
Regards
Keen
Dear Bill.L,Bill.L said:
This makes me terribly sad . . .
I appreciate the many fears that many conservatives seem to hold . . . but what if you are all wrong??
What if property DOES average 5% pa over the next 10 years?
Do you realise that by selling the assets as in your quote, you would be throwing the following away:
$33,000 REA
$121,750 CGT
And also:
Future growth of $830,141
Total of $984,891 thrown away
This is a huge amount of money to forgo just because you were worried that you MIGHT NOT achieve a 5% average return.
And IF you were correct and there was no growth etc, well what do you lose by WAITING to react to that situation?
I know many people who have bought and sold many properties and they ALL look back now and lament "If only".
So without being judgmental, this is why all the "negative talk" makes me sad.
Sincerely,
Steve
Steve Navra said:
Sorry Steve , but I don't see this as negative talk . It's really about varying your exposure to the market at different times of the cycle. ( well at least that's the way I see it ).
Bill's not talking about selling and not doing anything with his money.
To quote him
You have an income and you have both the cash asset to do something at a moments notice, as well as the ability to borrow against your existing equity if you see an opportunity.
I am also motivated by past discussions with Michael C and GCC who have invested in property over more than one cycle ( unlike many on the forum at the moment ) and my own observations in previous cycles of bargains that will be available in coming years . I know that your predictions are conservative , but I believe that with a more proactive style of investing I can outperform these estimations by a comfortable margin.
I believe that it is possible to increase one's equity by a factor of at least ten in one cycle and this is what I aim to do , though at my current level of equity I don't need to do that to get where I want to get to.
See Change
Hi Steve,
Why is property investment in a conservative way, instead of maxing out negative??
How is having a swag of property and a cash buffer, while living off the income bad??
Yes I agree that if there is good growth in the next 10 years then maxing out the leverage now is the best option.
But you have to agree that if there is the disaster (ie a period of say 10 years where there is actually negative growth, (and including shares)), then just living off the income with cash buffer would be the best approach. (Even if your LVR fell due to the neg growth)
It comes down to how risk tolerent/averse people are, and a bit of future prediction( however futile it may seem).
What do we know that can help with future prediction???
1. The growth rate of well located res property has been over 7% p.a. for a long time. Hence the assumption that property doubles every 10 years.
2. Yields are at historic lows, and even using your Rental Reality, would still be at extremely low levels compared to historic norms.
3. We have a large section of the population thinking/or starting to think about retirement and where to invest for their future.
4. We have just had huge cap gains averaging over 15% p.a. in many areas over a 6 or 7 year period. ( Was this catch up for the previous period? was this some/most of the next periods growth? Was it a bit of both?)
5. Inflation and interest rates are at low levels not seen for over 30 years.
6. Markets do not behave rationally. When everyone expects them to do one thing they often prove the majority correct for a time, then incorrect for a time.
What does this all mean to me??
If there is no growth for 10 years, then the yields in Duncan's example would go from 5% to 6.7%, given 3% annual inflation.
Is this possible?? To me the answer is yes.
If there is growth of 5% p.a. for the next 10 years (while inflation stays at 3% p.a.), then the yields in Duncan's example would go to 4.1%.
Is this possible?? To me the answer is also yes.
Which is most likely?? Ahh the future, very hard to see.
Am I prepared to throw away some of the potential gain for mitigating some of the risk??? yes
Has Jan Somers approach been that bad, that suggesting it means being negative, throwing away money and being a "doomster"?? Yet growth or no growth, high interest rates or low interest rates, boom or bust, the approach to slowly build wealth while mitigating risk seems to work.
bye
P.S.
As I have stated in other threads a long time ago, that if I could see a period of high inflation ( averaging over 10% p.a.) with relatively low interest rates, then I would "pin the ears back" to get into Steves method to leverage up the asset base.
Why is property investment in a conservative way, instead of maxing out negative??
How is having a swag of property and a cash buffer, while living off the income bad??
Yes I agree that if there is good growth in the next 10 years then maxing out the leverage now is the best option.
But you have to agree that if there is the disaster (ie a period of say 10 years where there is actually negative growth, (and including shares)), then just living off the income with cash buffer would be the best approach. (Even if your LVR fell due to the neg growth)
It comes down to how risk tolerent/averse people are, and a bit of future prediction( however futile it may seem).
What do we know that can help with future prediction???
1. The growth rate of well located res property has been over 7% p.a. for a long time. Hence the assumption that property doubles every 10 years.
2. Yields are at historic lows, and even using your Rental Reality, would still be at extremely low levels compared to historic norms.
3. We have a large section of the population thinking/or starting to think about retirement and where to invest for their future.
4. We have just had huge cap gains averaging over 15% p.a. in many areas over a 6 or 7 year period. ( Was this catch up for the previous period? was this some/most of the next periods growth? Was it a bit of both?)
5. Inflation and interest rates are at low levels not seen for over 30 years.
6. Markets do not behave rationally. When everyone expects them to do one thing they often prove the majority correct for a time, then incorrect for a time.
What does this all mean to me??
If there is no growth for 10 years, then the yields in Duncan's example would go from 5% to 6.7%, given 3% annual inflation.
Is this possible?? To me the answer is yes.
If there is growth of 5% p.a. for the next 10 years (while inflation stays at 3% p.a.), then the yields in Duncan's example would go to 4.1%.
Is this possible?? To me the answer is also yes.
Which is most likely?? Ahh the future, very hard to see.
Am I prepared to throw away some of the potential gain for mitigating some of the risk??? yes
Has Jan Somers approach been that bad, that suggesting it means being negative, throwing away money and being a "doomster"?? Yet growth or no growth, high interest rates or low interest rates, boom or bust, the approach to slowly build wealth while mitigating risk seems to work.
bye
P.S.
As I have stated in other threads a long time ago, that if I could see a period of high inflation ( averaging over 10% p.a.) with relatively low interest rates, then I would "pin the ears back" to get into Steves method to leverage up the asset base.
Steve Navra said:
I am with Steve on this one.
Last Saturday, I met a old man in the park in front of my house and have a chat with him. He moved to our area when he was 4 years old and stay there for 60 years. There were no houses here before he said. His grandparent ever own many many Ha farm right over here. He pointed out which development site was bought from him. From his word, it could worth 1 billion dollars he said. Now, he has 6 houses left. His daughter advices him to sell them and put the money into the bank because this is the most safe way. He say "No". House is a machine to generate money. There is a house on the corner in my street just sold for more than A$400K. He said he almost bought this house at A$59,000 in 1989....... At one stage of the conversation, he said he could bought the whole suburb with A$1 Million dollars before.
I am disagreed with one.Steve Navra said:Dear Bill.L,
This makes me terribly sad . . .
I appreciate the many fears that many conservatives seem to hold . . . but what if you are all wrong??
While we are talking about never never sell during building up portfolio stage, it is not quite right to say Bill's calculation sad. It all depends who the person is for holding the $3.3M portfolio. If he/she is approaching retirement age, Bill's suggetion is valid and this is the best way for this old person to retire comfortably.
*BUMP*
Interesting thread and well worth the read.
Reminds me of the Couple in API many Months back who were cleaners in Perth with a Portfolio of $6M; they are selling thier cleaning company and retiring, with 10% CG p/a they get $600,000 to live on, at 5% CG they get $300,000 to live on..however, they are happy to live on $100,000 p/a and will do so.
Wonder what thier Portfolio is worth now with the WA Boom?
Interesting thread and well worth the read.
Reminds me of the Couple in API many Months back who were cleaners in Perth with a Portfolio of $6M; they are selling thier cleaning company and retiring, with 10% CG p/a they get $600,000 to live on, at 5% CG they get $300,000 to live on..however, they are happy to live on $100,000 p/a and will do so.
Wonder what thier Portfolio is worth now with the WA Boom?
Hi Redwing
Didn't see the article.
Can you recall how much debt the couple had owing on their portfolio (possibly the sale of the cleaning business will retire some of the debt).
Also, are their intentions to keep drawing down from the capital growth in their portfolio to live on, i.e live off equity. Or, are they going to have enough rents to live on (pay tax on it). Possibly a combination of both?
Regards
Marty
It's the issue with DuncanM on the cover
I think debt was around $3M and the sale of the business was going to help, they had about 20 properties; it was a great read anyhow as it was aPerth story (maybe more of a freo story).
RedWing
This is the way i figure it. I'm 30 years old.
30 months ago i had 35K (20 of which i got from inheritance). Today i've got 600K in equity and 1.4 Mil in property. Thats a 17 fold increase in equity and a 40 fold increase in the amount of assets i control in only 30 months - by simply purchasing property. Now if i do my homework and consistently follow the property cycle around the country and oversea's then i reckon i'll have a conservative 10Mil by the time i'm 40. I aim to eventually own a large property developing firm.
Now, "theoretically" if i can turn 35K into 10Mil in 10 years (between ages 30 and 40) then i can turn 10 mil into 100mil in another ten years (by age 50).... and turn 100mil into 1 billion dollars (today's dollars) buy the time i'm 60.
That sounds rather naive doesn't it? What kind of idiot thinks he can make 1 billion dollars over a space of 30 years? Pretty ambitious huh? But what i'm getting at is - if for every dollar i make in theory, in reality i actually make only 10 cents then i'll have $100mil by the time i'm 60.
I intend to be workin for myself as a developer by 5 years time (aged 35) and retired by 45 with others running the show while i pull the strings.
If i don'ty have at least 100mil (today's dollars) by the time i retire then i'll kick my own ****! Thats the minimum i'm hungry for.
"Capacity is a state of mind" "Get up, make it work, make it work!"
Cabo Wabo
30 months ago i had 35K (20 of which i got from inheritance). Today i've got 600K in equity and 1.4 Mil in property. Thats a 17 fold increase in equity and a 40 fold increase in the amount of assets i control in only 30 months - by simply purchasing property. Now if i do my homework and consistently follow the property cycle around the country and oversea's then i reckon i'll have a conservative 10Mil by the time i'm 40. I aim to eventually own a large property developing firm.
Now, "theoretically" if i can turn 35K into 10Mil in 10 years (between ages 30 and 40) then i can turn 10 mil into 100mil in another ten years (by age 50).... and turn 100mil into 1 billion dollars (today's dollars) buy the time i'm 60.
That sounds rather naive doesn't it? What kind of idiot thinks he can make 1 billion dollars over a space of 30 years? Pretty ambitious huh? But what i'm getting at is - if for every dollar i make in theory, in reality i actually make only 10 cents then i'll have $100mil by the time i'm 60.
I intend to be workin for myself as a developer by 5 years time (aged 35) and retired by 45 with others running the show while i pull the strings.
If i don'ty have at least 100mil (today's dollars) by the time i retire then i'll kick my own ****! Thats the minimum i'm hungry for.
"Capacity is a state of mind" "Get up, make it work, make it work!"
Cabo Wabo
Hi CC,
Welcome to the good ship SS Somersoft. Its always great to see new Perth Property Investors here to network with.
Where abouts in Perth are you and what areas are your IPs located?
Welcome to the good ship SS Somersoft. Its always great to see new Perth Property Investors here to network with.
Where abouts in Perth are you and what areas are your IPs located?
This is the way i figure it. I'm 30 years old.
30 months ago i had 35K (20 of which i got from inheritance). Today i've got 600K in equity and 1.4 Mil in property. Thats a 17 fold increase in equity and a 40 fold increase in the amount of assets i control in only 30 months - by simply purchasing property. Now if i do my homework and consistently follow the property cycle around the country and oversea's then i reckon i'll have a conservative 10Mil by the time i'm 40. I aim to eventually own a large property developing firm.
Now, "theoretically" if i can turn 35K into 10Mil in 10 years (between ages 30 and 40) then i can turn 10 mil into 100mil in another ten years (by age 50).... and turn 100mil into 1 billion dollars (today's dollars) buy the time i'm 60.
That sounds rather naive doesn't it? What kind of idiot thinks he can make 1 billion dollars over a space of 30 years? Pretty ambitious huh? But what i'm getting at is - if for every dollar i make in theory, in reality i actually make only 10 cents then i'll have $100mil by the time i'm 60.
I intend to be workin for myself as a developer by 5 years time (aged 35) and retired by 45 with others running the show while i pull the strings.
If i don'ty have at least 100mil (today's dollars) by the time i retire then i'll kick my own ****! Thats the minimum i'm hungry for.
"Capacity is a state of mind" "Get up, make it work, make it work!"
Cabo Wabo
