$200k net passive income

Fantasy stuff. Business will never provide you with a passive income long term. Business is constantly changing and needs to be kept on top of or you'll go under quick. Even if you can find a super star manager how long do you think they will stick around when they see the money you are making by not even being there. Not long! They will go and start there own and become your competitor.

The way you could do it is work in the business, manage it, build profits over some years, create and implement systems so the business can run at least some of the time without you, then sell business for a profit.

Then invest these profits to create your passive income, while also accumulating assets during the period you work in the business.
 
I read recently that those commonly quoted stats for business failure rates were highly exaggerated and the failure rate is actually much lower.

You don't need a lot of money to start a business, just some extra time.
You can always build a business part time while still working full time, takes away the pressure of instant earnings requirements.
Also, a home based business to start with will keep your overheads and risk right down.
This is what we did about 7 years ago and it worked for us.

Yeah I agree, just like the divorce rate being 33 to 49%
I know two divorced couples out of say 30

Me being one of them!


Back to topic, I find that timexeffortxluck +money does not equal success in business, in today's competitive world so much can change In a short period of,time,

I find that people who do,a side business from home just don't go any further for whatever reason, I did four or five of these micro businesses on the side

Yes, it was profitable without overheads, but once you have a physical presence and staff, not a chance in hello to survive, coupled with suppliers upping prices, ebay charging more fees, more competitors, changing exchange rates, imports from china etc, it would have become a huge loss business

I'm happy to admit that maybe I'm not that talented as some of you out there, but coming across heaps of businesses that have run for 30 years delivering the owner his salary and that's it and when it's time to retire, they can't even give the business's away
 
Just following on from my previous posts:

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City heads towards two-speed economy

Date October 14, 2013

Clay Lucas

Melbourne could soon have a dual economy: a permanently prosperous inner city, surrounded by ''client'' suburbs where jobs are hard to get to and lack security, a new study warns.

And the continued spread outward of the ''already super-sized'' Melbourne could leave residents in these new outer suburban areas at risk of ''profound social exclusion''.

Four of the last five former Victorian premiers talked to economist and planner Marcus Spiller as part of his research, published in an urban planning journal ahead of last week's new metropolitan planning strategy, Plan Melbourne.

Dr Spiller, a principal of influential consultants SGS Economics and Planning, recommends reinstatement of a body similar to the long-defunct Melbourne and Metropolitan Board of Works, as a way of de-politicising planning and tackling the growing social divide of access to jobs.

The MMBW's planning powers were removed in 1983. But all four ex-premiers - John Cain, Jeff Kennett, Steve Bracks and John Brumby - said there was no use in ''rolling back the clock'' to reinstate the Board of Works, which one referred to as a ''dinosaur lacking entrepreneurial energy''.

All four agreed, however, that the elevation of planning as a voter issue and ''the introduction of a new [planning] strategy with each change of government'' had exacerbated the ever-outward spread of the city's suburbs.

Melbourne is one of the Western world's lowest-density cities, stretching more than 100 kilometres from east to west and 90 kilometres from north to south.

Dr Spiller's report makes clear the extreme advantage inner-city residents have over the outer suburbs in access to work.

A Carlton resident, the study said, could access 890,000 jobs by driving for 30 minutes in peak hour, while those in Cranbourne East could get to just 345,000.

The disparity in access to employment is even starker for those using public transport: a Carlton resident had 724,000 jobs accessible within a 45-minute public transport journey, compared with just 5000 for someone in Cranbourne East.

Over the past two decades there has also been a widening disparity in housing values.

In 1990, a house within a kilometre of the CBD cost just over $200,000 while a house 80 kilometres out cost a little over $100,000. By 2010 a house next to the CBD had a median price around $1.4 million compared with between $300,000 and $400,000 in outer Melbourne.

Dr Spiller's paper suggests that, after the planning functions were stripped from the MMBW, no new force emerged to plan for the entire city. Instead, individual inner-city councils often frustrated attempts to encourage urban density. Meanwhile, lower land prices encouraged expansion on city fringes.

Planning ministers had also come to be seen as ''planner-in-chief'', and instead of rising above the political fray had become ''at the centre of the action'', making planning a key battleground.

The Napthine government's Plan Melbourne predicts the city will grow from its current 4.25 million people to around 6.5 million in 2050.

Key aspects of the plan include a ''permanent'' urban growth boundary, encouraging population and jobs growth in regional towns such as Kilmore and Wonthaggi, accelerating planning permit approvals in areas slated for significant housing growth, and encouraging huge employment growth in Melbourne City Council's area.


Read more: http://www.theage.com.au/victoria/c...eed-economy-20131013-2vgse.html#ixzz2heAPK1VI
 
If it were that simpl. Everybody would be doing it

Buying an established business with good profits is expensive

Starting your own one, forget the hype, has a 90% failure rate in the first 5 years or whatever the stat is

That's before even when you start worrying about whether it's managed or not

Of the 299,123 new business entries during the 2008-09 financial year:
- 76 per cent were still operating in June 2010;
- 61 per cent were still operating in June 2011; and
- 51 per cent were still operating in June 2012.

From the ABS. Source: http://www.abs.gov.au/ausstats/abs@...=8165.0&issue=Jun 2008 to Jun 2012&num=&view=
 
Of the 299,123 new business entries during the 2008-09 financial year:
- 76 per cent were still operating in June 2010;
- 61 per cent were still operating in June 2011; and
- 51 per cent were still operating in June 2012.

From the ABS. Source: http://www.abs.gov.au/ausstats/abs@...=8165.0&issue=Jun 2008 to Jun 2012&num=&view=

so the general 90% rule is not far off,

given that its decreasing by 10% per year, in year 3, and assuming linear decrease, youd be looking at 70% at year 5,
bear in mind that I reckon that the businesses included would also be sole traders from home who have NOT cancelled their ABN/ACN, and have merely stopped doing it
 
Unless you were constantly evolving your business in which case it would not be passive income, most initially successful businesses would only have shelf life of 5~6 years max.
 
The way you could do it is work in the business, manage it, build profits over some years, create and implement systems so the business can run at least some of the time without you, then sell business for a profit.

Then invest these profits to create your passive income, while also accumulating assets during the period you work in the business.

Sounds like a plan. :)

The goal you set there is to make the busines profitable, sell it and push the money into passive investments like property/shares etc. Business at best can only provide you with a passive income for a short time until it needs your attention again. These days with email and mobiles it's hard to get a break from it at all. Sadly without the boss there to drive it most business wouldn't last long let alone provide you with a passive income.
 
Sounds like a plan. :)

The goal you set there is to make the busines profitable, sell it and push the money into passive investments like property/shares etc. Business at best can only provide you with a passive income for a short time until it needs your attention again. These days with email and mobiles it's hard to get a break from it at all. Sadly without the boss there to drive it most business wouldn't last long let alone provide you with a passive income.

Yes, bosses and employees have very different mentalities. I think it is near impossible to have a truly passive income from a business. That would be called holding shares via Comsec.
 
Most of us can get to $200k pretty easily with around $2.5m-$3.0m, and still be hedged for all the asset growths etc (eg buy a commercial which generates the $200k net income, and if properties boom your $3.0m also makes you another million). So the question would be how do you get to that $2.5-3.0m.

I agree with you that it is easy to pay 2.5mil cash to purchase say 2 comm IPs which yield 200k per year in rent.

The real question is what happens when you have stopped work because you are getting 200k rent from your 2.5 mil unencumbered comm IP portfolio - and there is a prolonged vacancy but the holding costs remain. Even if the IP is unencumbered, there are still rates, water, etc. At this stage, there is no other income and you may have to come out of retirement if you are still able. And also, it is hard to sell at this stage because it is vacant.
 
I agree with you that it is easy to pay 2.5mil cash to purchase say 2 comm IPs which yield 200k per year in rent.

The real question is what happens when you have stopped work because you are getting 200k rent from your 2.5 mil unencumbered comm IP portfolio - and there is a prolonged vacancy but the holding costs remain. Even if the IP is unencumbered, there are still rates, water, etc. At this stage, there is no other income and you may have to come out of retirement if you are still able. And also, it is hard to sell at this stage because it is vacant.

If your retirement depends on it then you really need more tenants giving you that total income.

So maybe 6 tenants across one or two larger properties (though at this price level each smaller tenant may be of lesser quality).

And some sort of minimum cash reserve to cover say 6-12 months vacancy.

In any case, if you are completely unleveraged, I think you need to consider having share dividend income as well - and this will make it much easier to diversify your income stream (ie. with several different shares), potentially be even more passive, and have higher income growth potential.
 
The real question is what happens when you have stopped work because you are getting 200k rent from your 2.5 mil unencumbered comm IP portfolio - and there is a prolonged vacancy but the holding costs remain. Even if the IP is unencumbered, there are still rates, water, etc. At this stage, there is no other income and you may have to come out of retirement if you are still able. And also, it is hard to sell at this stage because it is vacant.

To find the answer to your question I will direct you to the threads on cash buffers.

SYD
 
If your retirement depends on it then you really need more tenants giving you that total income.

So maybe 6 tenants across one or two larger properties (though at this price level each smaller tenant may be of lesser quality).

And some sort of minimum cash reserve to cover say 6-12 months vacancy.

In any case, if you are completely unleveraged, I think you need to consider having share dividend income as well - and this will make it much easier to diversify your income stream (ie. with several different shares), potentially be even more passive, and have higher income growth potential.

What you are really saying is that if your retirement expectation is 200k passive income and you want to feel secure, you really need far more than 2.5 million in unleveraged assets. At 2.5 mil, you will get your 200k per year return but you could be vulnerable to vacancies and other nasty surprises which could collapse your passive income stream overnight. Having a one year cash buffer is not really enough because you are in retirement and you are solely dependent on the investments to generate the passive income for day to day living.
 
What you are really saying is that if your retirement expectation is 200k passive income and you want to feel secure, you really need far more than 2.5 million in unleveraged assets. At 2.5 mil, you will get your 200k per year return but you could be vulnerable to vacancies and other nasty surprises which could collapse your passive income stream overnight. Having a one year cash buffer is not really enough because you are in retirement and you are solely dependent on the investments to generate the passive income for day to day living.

I've thought about this problem, and decided that I could adequately mitigate the risk by living off 90% of my passive income, saving 10%. I would also have a full year of cash prior to commencing retirement.

I don't expect to have all me debt paid off when I retire, so I will keep my cash in an offset account to reduce interest, giving myself what is effectively a pay rise. This has the added benefit of reducing future liability. When (if) all the debt is offset, I'll then have the problem of finding somewhere to keep all that spare cash (which is a good problem to have).
 
What you are really saying is that if your retirement expectation is 200k passive income and you want to feel secure, you really need far more than 2.5 million in unleveraged assets. At 2.5 mil, you will get your 200k per year return but you could be vulnerable to vacancies and other nasty surprises which could collapse your passive income stream overnight. Having a one year cash buffer is not really enough because you are in retirement and you are solely dependent on the investments to generate the passive income for day to day living.

That's not really what I'm saying china.

If you had 6 tenancies, and 1 or 2 were vacant for a period of time, your passive income stream won't exactly "collapse".

Maybe if all of them were vacant at the same time, or the ones which had a larger rent as a proportion of your total rent were vacant at the same time... then perhaps you could justifiably use the term "collapse".

What I'm suggesting is that perhaps you need to consider share dividend income as another complementary source of passive income, and reduce the risk to your passive income stream by diversifying in this way.

If you want to focus exclusively on commercial property and want to get A-grade tenants on long triple-net leases, then perhaps you will have to work a few more years and build up a lot more capital before you can retire with the peace of mind/security that you seem to require.

If you are really not that comfortable with the risks inherent in commercial property or shares, then perhaps you will be better suited to investing in a combination of term deposits/bonds/hybrids for a passive income stream.

What I have found is that the more knowledge I have on relatively riskier growth assets, the more comfortable and tolerant I am with their risks.

If despite all of your reading and experience with these assets you are still very risk-averse to them, then perhaps this is a reflection of your own investment personality that may not be changeable?
 
That's not really what I'm saying china.

If you had 6 tenancies, and 1 or 2 were vacant for a period of time, your passive income stream won't exactly "collapse".

Maybe if all of them were vacant at the same time, or the ones which had a larger rent as a proportion of your total rent were vacant at the same time... then perhaps you could justifiably use the term "collapse".

What I'm suggesting is that perhaps you need to consider share dividend income as another complementary source of passive income, and reduce the risk to your passive income stream by diversifying in this way.

If you want to focus exclusively on commercial property and want to get A-grade tenants on long triple-net leases, then perhaps you will have to work a few more years and build up a lot more capital before you can retire with the peace of mind/security that you seem to require.

If you are really not that comfortable with the risks inherent in commercial property or shares, then perhaps you will be better suited to investing in a combination of term deposits/bonds/hybrids for a passive income stream.

What I have found is that the more knowledge I have on relatively riskier growth assets, the more comfortable and tolerant I am with their risks.

If despite all of your reading and experience with these assets you are still very risk-averse to them, then perhaps this is a reflection of your own investment personality that may not be changeable?


So in terms of a secure retirement, as defined by 200k passive income, you may require 2.5 mil unencumbered comm IP, maybe deriving commercial IP rental income from three or four tenants. On top of this you may need another one mil of shares to diversify and generate a dividend income stream to allow for rental vacancy?

So all of a sudden you really require a 3.5 mil unencumbered pool of assets to secure 200k passive income.
 
I've thought about this problem, and decided that I could adequately mitigate the risk by living off 90% of my passive income, saving 10%. I would also have a full year of cash prior to commencing retirement.

I don't expect to have all me debt paid off when I retire, so I will keep my cash in an offset account to reduce interest, giving myself what is effectively a pay rise. This has the added benefit of reducing future liability. When (if) all the debt is offset, I'll then have the problem of finding somewhere to keep all that spare cash (which is a good problem to have).

VY, how does this cover commercial vacancy for a prolonged period? Lets say you derive 200k of rental income under usual circumstances. Then you are aged 70, retired, no active income and then you run into a five year vacancy period. And lets say your unencumbered comm IP requires 50k a year to hold - rates, water, cleaning, maintenance,etc. You would churn through your one year of cash and then there are still four years worth of 50k to cover. What do you do about this then?
 
So in terms of a secure retirement, as defined by 200k passive income, you may require 2.5 mil unencumbered comm IP, maybe deriving commercial IP rental income from three or four tenants. On top of this you may need another one mil of shares to diversify and generate a dividend income stream to allow for rental vacancy?

So all of a sudden you really require a 3.5 mil unencumbered pool of assets to secure 200k passive income.

Yes you will need to overshoot your investment targets to ensure that you have sufficient income to cover the rainy days.

You could have more than 1 vacancy
You may need to repair after a bad tenant and based on your recent remodel could face substantial costs.
You could suddenly need to replace a roof or other large expenses.

You can do it with less by managing it more. Such as with your sub tenancy you are increasing your returns substantially. This may not work with other properties.

Cheers
 
Yes you will need to overshoot your investment targets to ensure that you have sufficient income to cover the rainy days.

You could have more than 1 vacancy
You may need to repair after a bad tenant and based on your recent remodel could face substantial costs.
You could suddenly need to replace a roof or other large expenses.

You can do it with less by managing it more. Such as with your sub tenancy you are increasing your returns substantially. This may not work with other properties.

Cheers

This means constantly decreasing passive income expectations and a search for an ever bigger nest egg. This also means working endlessly till you are unable to in order to have the most secure retirement income stream possible. If you retire at aged 40 and live entirely off passive income, it means that everytime there is a rental vacancy or stock market drop, you will be quivering and wondering whether you need to return to work. When you have an active income, you can weather rainy days more easily but depending on just passive income sources, it is far more nerve wracking.
 
So in terms of a secure retirement, as defined by 200k passive income, you may require 2.5 mil unencumbered comm IP, maybe deriving commercial IP rental income from three or four tenants. On top of this you may need another one mil of shares to diversify and generate a dividend income stream to allow for rental vacancy?

So all of a sudden you really require a 3.5 mil unencumbered pool of assets to secure 200k passive income.

I think there maybe a big discrepancy between what you are really comfortable with and what is realistically possible with these asset classes.

If you are trying to get a very, very "secure" passive retirement income stream by investing in what are actually high-risk assets, you need lots of them (eg. lots of commercial tenancies or lots of different shares) and usually this also means holding a large $ value of these assets too.

I understand the appeal of passive income from a long net commercial lease, but if you want to invest directly and have this be your primary source of income, then from what I gather of your risk tolerance the $2.5M in capital you mentioned may not be enough as you likely won't get enough quality diversification from it to satisfy your SANF (whether it is with 3, 4, 5 or 6 tenancies).

Again, if we are talking unencumbered assets, shares should be in the mix somewhere, and if you don't have sufficient capital to invest with sufficient diversification in commercial property directly, then maybe you should consider investing indirectly instead.
 
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