Early retirement without a fortune

[BayView]

Once I reach 2 mil, I would like to either stop working or ease back significantly. The challenge then is to how to allocate the 2mil so that it generates a 5% yield yearly for the rest of my natural life. I agree that holding it all as cash is no good. At the same time, I don't see holding lots of resi investments as a suitable alternative. As the previous poster has suggested, resi investments is a lot of work. Any suggestions?

You'd be joking, right?

With yer $2mill, you could buy 5 x $400k properties or 6 x $300k properties with cash and have a bit of change for a new car or whatever, and live off the rents, and the houses will still go up - despite what you keep reckoning.

Resi property is no harder work than yer normal 9-5 job once they are bought.

Just hire PM's and be in contract with them regularly, get LL insurance and away you go.

You could also do Comm Pi, but it's a bit different, and can be tough to get a tenant in the harder times, whereas resi is always viable for tenants unless you select terrible houses in bad locations.

 

[china]

You'd be joking, right?

With yer $2mill, you could buy 5 x $400k properties or 6 x $300k properties with cash and have a bit of change for a new car or whatever, and live off the rents, and the houses will still go up - despite what you keep reckoning.

Resi property is no harder work than yer normal 9-5 job once they are bought.

Just hire PM's and be in contract with them regularly, get LL insurance and away you go.

You could also do Comm Pi, but it's a bit different, and can be tough to get a tenant in the harder times, whereas resi is always viable for tenants unless you select terrible houses in bad locations.

As myself and multiple posters in this thread have stated, resi property does involve a fair bit of work. The 2 mil is the sum that allows me to leave 9-5 job. I don't wish to replace 9-5 job with management of 5-6 resi properties. That would defeat the purpose of the two decades of hard graft getting to the 2 mil. I am now looking into the most effective anti-inflation hedging ways of holding the retirement fund. I suspect that this will include LIC and ETFs and will look into the links suggested above. Just about 10% will be held within first state super fund.

 

[OKFFW]

Hey, they're just my experiences, and like I said, there wouldn't be one glowing stereotype.

Btw, normal school is highly regulated as well, doesn't mean attendence or compliance with learning is up to scratch.

No there isn't one glowing stereotype, just as not all homeschool children are emotionally stunted and poorly educated.

Also, I didn't mean that all homeschooling is up to scratch because it is regulated. I meant that there is a system in place to ensure that homeschooled children receive a good education. If this doesn't happen because, for example, the parents are drug addicted dole bludgers who don't take any interest, then some of the blame needs be placed at the feet of the system as well as the parents. Just like if the same situation led to a child being poorly educated through the regular school system one would not lay the entire blame on the system and use it as an example of why the entire system leads to poorly educated and emotionally stunted individuals.

 

[Rolf Latham]

As myself and multiple posters in this thread have stated, resi property does involve a fair bit of work. The 2 mil is the sum that allows me to leave 9-5 job. I don't wish to replace 9-5 job with management of 5-6 resi properties. That would defeat the purpose of the two decades of hard graft getting to the 2 mil. I am now looking into the most effective anti-inflation hedging ways of holding the retirement fund. I suspect that this will include LIC and ETFs and will look into the links suggested above. Just about 10% will be held within first state super fund.

what is your physical age ?

ta
rolf

 

[china]

Almost 37.5.

 

[BayView]

As myself and multiple posters in this thread have stated, resi property does involve a fair bit of work.

How would you know? You've never owned any from what I can remember about previous posts on SS..

The 2 mil is the sum that allows me to leave 9-5 job. I don't wish to replace 9-5 job with management of 5-6 resi properties.

You said you wanted a 5% or better return. There it is.

Or, just chuck into some more shares. That worked, didn't it?

Just keep goin' to work dude; it's the most successful thing you've done financially by the sounds of it.

 

[jingo]

I have owned my PPOR for about three years now when I bought it outright. Unless there is some unforeseen drama (accidents, time off work, getting married, having kids) , I would envisage that in the next five years, I would hold 2 - 3 mil in cash plus my PPOR worth 700k. The challenge is what to do with this net worth so that I can retire in my early 40s.

Any suggestions regarding allocating the 2 mil in cash to create a sustainable retirement, meaning perpetual 5% annual yield, without eating into the capital? Ideally the capital needs to at least keep par with inflation. I suspect that my scenario is somewhat uncommon for someone aspiring to retire ASAP.

Hi China,

How are you going to raise 2-3 mil in cash within 5 years?? How close are you to achieving this amount of money now?

The problem with cash is inflation risk. Having an asset base of 2-3 million sounds like a lot. But if you intend to retire in your early 40's there is a real risk of running out of money. Resi property eliminates the risk of inflation. Shares can do this as well but they are volatile. How about holding a mix of investments? Some resi ip's, shares ( eg Argo) some cash in offset accounts and perhaps a commercial property?

Regards Jason

 

[china]

How would you know? You've never owned any from what I can remember about previous posts on SS..

You said you wanted a 5% or better return. There it is.

Or, just chuck into some more shares. That worked, didn't it?

Just keep goin' to work dude; it's the most successful thing you've done financially by the sounds of it.

This whole forum with its many threads and posts is testimony to the hard work required in resi property investment. I have never owned any IPs but reading this forum closely, I don't think that running 6 IPs is a passive activity no matter how good your PMs are.

I think you are correct. Work has been financially successful but draining physically and mentally. Not many have the opportunity to retire in their early 40s. I would like to wind down within the next five years. I need the 5% p.a. return from the 2-3 mil. Or otherwise, I face more work.

 

[wobbycarly]

This whole forum with its many threads and posts is testimony to the hard work required in resi property investment. I have never owned any IPs but reading this forum closely, I don't think that running 6 IPs is a passive activity no matter how good your PMs are.

I think you are correct. Work has been financially successful but draining physically and mentally. Not many have the opportunity to retire in their early 40s. I would like to wind down within the next five years. I need the 5% p.a. return from the 2-3 mil. Or otherwise, I face more work.

Let me reword that for you: "This whole forum with its many threads and posts is testimony to the hard work required [with an active] resi property investment [strategy]."

Generally, the more one puts, in the more one gets out. With resi, my opinion is that you can be as active as you like. Find a place, buy it, get a PM - we get maybe 1-2 calls a quarter from our PMs, if it's busy! Otherwise, the money keeps rolling in.

I will qualify that there is some amount of effort in finding the RIGHT place, and the RIGHT PM, but that's a one-off. Similar to if one were analysing a company/share to buy, you don't just throw a dart at the stock pages in the paper, do you?

 

[HomePage]

I understand that in Australia, the only ETF that deals with the ASX 200 is the one by Vanguard. Is it safe to place most of the retirement nest egg with the one company? Or is it better to spread it between vanguard etf and direct investment in shares?

I have read that with index fund / ETFs like Vanguard offers that the security of that investment is independent of the holding company, hence you are not putting all your eggs in one basket. I'll find an appropriate reference when I get home from work tonight.

 

[geoffw]

This whole forum with its many threads and posts is testimony to the hard work required in resi property investment. I have never owned any IPs but reading this forum closely, I don't think that running 6 IPs is a passive activity no matter how good your PMs are.

You've come onto a forum where people complain about everything which goes wrong. You just never hear much about everything that goes right.

I've worked on my IPs- mostly just because I've chosen to buy some property which needed renovation, and then chose to renovate myself.

There's only once where I've had to work apart from renovating which I could have outsourced- when a hoarding tenant had to be evicted. That was five years ago- I probably could have outsourced that.

In the past five years, the hardest work I've had to do has been opening statements. And in cashing cheques- especially the one for the $250K profit for a property I'd had for three years- a 50% increase.

 

[redwing]

I expect to be accumulating 2 to 3 mil in cash within the next five years. At the moment, it is all sitting in a bank account. About 100k sits in super and 100k in shares. I am working like a maniac and watching the account grow on a daily basis.

Once I reach 2 mil, I would like to either stop working or ease back significantly. The challenge then is to how to allocate the 2mil so that it generates a 5% yield yearly for the rest of my natural life. I agree that holding it all as cash is no good. At the same time, I don't see holding lots of resi investments as a suitable alternative. As the previous poster has suggested, resi investments is a lot of work. Any suggestions?

I have owned my PPOR for about three years now when I bought it outright. Unless there is some unforeseen drama (accidents, time off work, getting married, having kids) , I would envisage that in the next five years, I would hold 2 - 3 mil in cash plus my PPOR worth 700k. The challenge is what to do with this net worth so that I can retire in my early 40s.

Any suggestions regarding allocating the 2 mil in cash to create a sustainable retirement, meaning perpetual 5% annual yield, without eating into the capital? Ideally the capital needs to at least keep par with inflation. I suspect that my scenario is somewhat uncommon for someone aspiring to retire ASAP.

Hi China

I've cherry picked some of the quotes but if you're 38 now and looking to retire at 67 years old (29 years) and turn your $200k into $2M, then you're looking at an average compounding growth rate of 8.26% on your funds (sans additional contributions).

If you're 38 now and looking to retire at 45 years old (7 years) and turn your $200k into $2M, then you're looking at an average compounding growth rate of 38.95% on your funds (sans additional contributions).

Whats the earl-retirement plan?

MMM and Jacob of ERE love shares as their ER funding vehicle. Nothing fancy, just index investing like that offered through Vanguard and a 7% long term average return. Volatile, yes, but in the US at least you can pretty much have drawn down 4% of your nest egg starting any year over the last century and your nest egg would have survived the worst of the share market downturns. Oz is different, but not much so (see http://www3.grips.ac.jp/~pinc/data/10-12.pdf). Plenty more of this sort of stuff on MMM's site.

MMM also has a business on the side though, so its an active retirement, which, if you can choose your own hrs and days of work, sounds good to me

I understand that in Australia, the only ETF that deals with the ASX 200 is the one by Vanguard. Is it safe to place most of the retirement nest egg with the one company? Or is it better to spread it between vanguard etf and direct investment in shares?

Hi China

Vanguards ETF (VAS) is the top 300 by market cap, Streetracks have the top 200 in the SPDR S&P/ASX 200 Fund (STW) ETF as do iShares/Blackrock with the iShares MSCI Australia 200 (IOZ).

There's also specialty ETF's for the top 200 by Financials, REIT's, Industrials, Resources, Metals & Mining etc...it seems whatever your taste, they have an ETF for it nowadays

 

[Ed Barton]

No I actually feel quite frugal, no tv, no e class merc, usually fly economy class, no gym membership. Cheap house. My main indulgence is eating out. I would love to have luxurious standards.

I recall you saying you paid 700k for your house, yes? Hardly cheap to house one person.

 

[Ed Barton]

Good point Rolf. This issue has been nagging at the back of my mind for a long time. I expect to be accumulating 2 to 3 mil in cash within the next five years. At the moment, it is all sitting in a bank account. About 100k sits in super and 100k in shares. I am working like a maniac and watching the account grow on a daily basis.

Once I reach 2 mil, I would like to either stop working or ease back significantly. The challenge then is to how to allocate the 2mil so that it generates a 5% yield yearly for the rest of my natural life. I agree that holding it all as cash is no good. At the same time, I don't see holding lots of resi investments as a suitable alternative. As the previous poster has suggested, resi investments is a lot of work. Any suggestions?

To fulfill your goal you must be earning around 1m a year. I can see why you think living on 100k is frugal.

 

[lizzie]

As myself and multiple posters in this thread have stated, resi property does involve a fair bit of work.

What work?

I have several properties and the most tedious work is entering the figures into the computer every couple of months for tax time.

The rest is managed by a PM at 5.5% ... who pays the bills and might ... once in a blue moon ... let me know some minor maintenance is required so I instruct them to send out the handyman.

The only properties that take some work are the one's I live in and choose to renovate for (potential) profit. That's only because I can't bring myself to pay a higher price for something already renovated when I know I can do similar for half the extra cost.

I don't personally do any work on my IP's as the work is tax deductable, usually something minor and I can't be bothered.

 

[kathryn d]

Resi property involves work.
If you want to hand over the control to another party...aka PM..and sit back and hopefully collect money at the end of the month, that is a choice.


Not a choice we make. We are very hands on, even when we are not physically there. We don't use PMs when not there, but rather 2 sets of property supers, who look after no other properties, except ours.

Most of our problems come from 1/2 of our properties. The other 1/2 we have no problem, and just deposit the rent.We rent to the "average guy" because anyone on a good income, will own their house, as it is cheaper.(here)

The problem is getting worse, with the decline of the economy (Canada) in our area. Tenants are getting laid off their job, and they need to wait 5 weeks for their unemployment benefits to kick in. They know it is coming, but they still don't plan for it...thus we must continuously chase them.

You just need to make the decision whether you can keep up with inflation, with money coming from a savings account,
OR
living off rent, that hopefully increases each year
This doesn't always happen, we had to reduce rent to entice at some properties. If the country/world falls into a recession/depression you will find a lot of transient tenants, with tenants leaving when eviction is on the horizon.


Not sure how the banks work in Australia, but our bank deposits are only insured up to $100k per account, per bank. Not everything is covered.You may need to spread your money around.

 

[geoffw]

I would argue that resi investment involves as little or as much work as you want to have.

Kathryn- you have properties which return more, but which involve more work, due perhaps to being properties which appeal to a lower income tenant.

Wen I had my flock of bats there were more problems than with the single household rentals- but apart from the one eviction (another one didn't take any work on my behalf) and renovations, the actual work involved wasn't that great. But the rewards weren't as great either.

Something else to point out. Although originally I bought the standalones on around 5% return (the figure China is suggesting) after some years of ownership and rental growth I'm now getting around 15% return on my original purchase price.

 

[oracle]

Any suggestions regarding allocating the 2 mil in cash to create a sustainable retirement, meaning perpetual 5% annual yield, without eating into the capital? Ideally the capital needs to at least keep par with inflation. I suspect that my scenario is somewhat uncommon for someone aspiring to retire ASAP.

Spend a couple of hundred dollars and buy some good books to improve your understanding on how different asset classes work. And which asset class suits your risk profile.

Investing in yourself to improve your knowledge is the best thing you can do to truely have the passive investments when you decide to retire.

As others have said regularly investing in Index Fund / ETF can create a passive income stream which I agree but I also think to make it really work you need to develop the psychology to handle the market volatility. You need to understand why this method will work? Inspite of all the volatility what makes the stock market to always go up over the long term?

What would you have done when the market during GFC dropped nearly 50%? Would you have panicked and started to sell when you saw your portfolio half in value or would you have bought more during that time?

The more information and knowledge you build the more you will be able to take advantage when the opportunities arise.

Cheers,
Oracle.

 

[Ed Barton]

What work?

I have several properties and the most tedious work is entering the figures into the computer every couple of months for tax time.

The rest is managed by a PM at 5.5% ... who pays the bills and might ... once in a blue moon ... let me know some minor maintenance is required so I instruct them to send out the handyman.

The only properties that take some work are the one's I live in and choose to renovate for (potential) profit. That's only because I can't bring myself to pay a higher price for something already renovated when I know I can do similar for half the extra cost.

I don't personally do any work on my IP's as the work is tax deductable, usually something minor and I can't be bothered.

What work indeed!

There are two broad types here, passive investors and developers/improvers.

Developers/improvers will put in more work and achieve higher returns. It's kind of like a second job for them.

But a passive investor will just get the odd call and make the odd call, far less time consuming than any other type of investing if you use a PM.

I'm a passive investor and probably spend less than an hour a month on my properties (apart from time here).

A typical passive investor...
Every six months a call for some maintenance - ok let the plumber etc do their work and invoice me
Once a year lease call - ok take tenant A.
Once every 5-10 years the place needs a paint and new carpets - ok accept quote c, go ahead.
Once every 20 year a nightmare tenant - a few more calls and signatures.
Once every 25 years replace the bath and kitchen.

China - I suggest if you want a completely passive investment you contact Bernie Maddoff.

 

[lizzie]

Totally agree Ed - I am passive on my IP's but active on my PPOR's.

Mainly because I can make darn good tax free CG on my PPOR's in a short period of time and can reno at a pace that suits me at no extra holding/no rent cost.

I tend to buy IP's that are standard, solid, tenant proof, 1970's red brick units in high demand areas ... do a repaint and carpet before letting ... sit back.

One's I bought nearly 3 years back were returning 6.2% gross on purchase price - are now on 7.8% gross on purchase price - and the value has increased by around $80k each ... although I've have also made 20% + dividends on my selected shares this year ... it's been a good year.

Also just sold some negatively geared units, bought at a bargin 18 months ago, and made $100k net profit (before cgt) ... for absolutely no work at all asides from signing some docs and pestering the mortgage broker.

Beats money in the bank any day.

It's been a good year really.