Early retirement

Hi All

I'm a little confused right now!

My goal through investing, is to not have to work for someone else, and be able to work when i want - if at all. (after i have got to the stage of being bored with golf everyday ;))

Apart from that, i'm not sure! I need some clarification as to what is possible/not possible.

My current aim is to buy heaps of resi property, artificially add equity (small renos), then use that equity to finance the next place.

I realise that at some point servicability will become an issue, and i think i've solved that problem which is to use cashbonds.

I would like to get to the point where i'm living off equity, but hopefully less equity than i make each year, to pay down loans slowly - eventually reaching a point where i'm living on rent.

The main problem i have not been able to solve, is that when i am at a point where i am making enough equity to quit my job, how do i get a loan to access that equity?
I don't want to have to go and get a job for 6 months every time i want to access equity!

Feel free to add quicker/better ideas, to reach retirement!

Look forward to your responses!
 
Locko, my plan is to make sure you top up all LOC's prior to quitting PAYG income and always keep enough sufficient equity in your LOC/s to fund your lifestyle for a property cycle (7-10 years) and also to put into a cashbond to complete another round of LOC top ups for the following cycle. Then duplicate the same each cycle.

I hope this helps.
 
Locko, my plan is to make sure you top up all LOC's prior to quitting PAYG income and always keep enough sufficient equity in your LOC/s to fund your lifestyle for a property cycle (7-10 years) and also to put into a cashbond to complete another round of LOC top ups for the following cycle. Then duplicate the same each cycle.

I hope this helps.

Aaah. Just the man to reply! Your previous posts are the ones where i got the cashbond idea!
Would you mind expanding on the above for me?
(or give me a link to somewhere that will explain?)
 
I don't like sounding negative but I can see a couple of problems in your strategy...

You've stated you'll use a cashbond to overcome serviceability issues. I presume you'd need to borrow against your equity to purchase the cashbond. This could be a bit difficult if you've run out of serviceability. It could be managed and timed (borrow the money for the cashbond prior to running out of serviceability), but you may find it difficult to find lenders who'll recognise a cashbond as contributing to your serviceability long term. What happens after five years when the bond expires? Lenders are starting to think longer term these days...

Assuming you do get to the point where you've got lots of equity, it's almost impossible to borrow money without suitable income streams. If you're negative or neutrally geared, lenders simply won't allow you to borrow against your equity any more. If your employment history shows you're ducking in and out of jobs whenever you want to borrow more, lenders probably won't want to talk to you either.

The Cashbond strategy and Living Off Equity strategy were developed under very different economic, lending and regulatory conditions to what we face today. They are still valid for a very narrow group of investors but if you're in this group you probably don't need these strategies, you just use them to give your investments a boost.

Here's an alternate strategy to consider...

Buy property, add value, get good rental returns and create equity. You probably will hit a road block at some point, but this can be a good time to take stock of what you're doing.

If you've bought well, eventually rents and incomes increase and you'll get through the roadblock. Look at alternate stategies like commercial properties or even equities markets to help. Educate yourself.

With time and good decisions, eventually you'll find yourself with a lot of equity. Reconsider your strategy. You might be better off to sell some properties, pay the capital gains taxes and pay down debt. This might enable you to live very comfortably off the rent from the remaining properties.

Consider selling properties and moving the moeny into tax advantaged structures such as insurance bonds and superannuation. Put it into asset classes which may not have as much capital growth, but better income yields.

In the meantime keep educating yourself and do your due dilligence well.
 
Work out how much income you need per annum to live/fund your lifestyle.

Prior to exiting the rat race and quitting your Job, approach your lender/s to get your IP's valued and then top up (to 80% LVR of new valuations) your existing LOC's, whilst you can still show PAYG income for DSR purposes.

Even after all other forms of income you have available, if it looks like you still may not meet lenders DSR you may also want to make sure you have sufficient funds still available in existing LOC/s to structure a Cashbond prior to this point, otherwise you will have painted yourself into a corner and be caught catch 22.

For SANF, ideally I'm wanting 7-10 times my lifestyle costs per annum, funds available in my LOC's after top up, plus, should the need arise, sufficient extra funds to set up another cashbond structure to use towards increasing my DSR in 7 years time to repeat the valuation and LOC top up process once again.

I hope this helps
 
Thanks for the well thought out response Peter.
I suppose the economy could have completely changed by that stage anyway!
Maybe loans will be really easy to get, and banks will be pushing them on people.

Perhaps if i run out of servicability and am still unsure, i will re-post the above :)
I guess the goalposts need to be moved to the appropriate spot at the time!

Thanks again guys :)
 
Work out how much income you need per annum to live/fund your lifestyle.

Prior to exiting the rat race and quitting your Job, approach your lender/s to get your IP's valued and then top up (to 80% LVR of new valuations) your existing LOC's, whilst you can still show PAYG income for DSR purposes.

If it looks like you may not meet lenders DSR you may also want to make sure you have sufficient funds still available in existing LOC/s to structure a Cashbond prior to this point also, otherwise you will have painted yourself into a corner and be caught catch 22.

For SANF, ideally I'm wanting 7-10 times my lifestyle costs per annum, funds available in my LOC's after top up, plus an extra $200k to set up another cashbond structure to use towards increasing my DSR in 7 years time to repeat the valuation and LOC top up process once again.

I hope this helps

Wow! 7-10 times lifestyle costs!
I'd be happy with 40k, as long as i have the opportunity to increase that. Similar to what i am doing now, but using a small amount of the equity to fund lifestyle etc.
As Peter mentioned above, perhaps i'm asking too much in this economy.

I imagine it won't be too long before i run out of servicability, as i don't earn a massive wage - shoulda/coulda/woulda be an engineer/doctor, whatever, but didn't :( So work semi-qualified jobs to pay for properties - i definately have no interest in my work, so the sooner i get out of it, the better.
I love to work hard - but not for someone else!
 
Wow! 7-10 times lifestyle costs!

As you know property CG can go up, down and sideways for a few years at a time. Its not a stead upward trend each year after year.

Because of this and my personal risk profile, that's the buffer I require to make sure I always will have years of unused funds available to me, and allow time to create more equity from portfolio capital growth to continue on indefinitely.
 
always keep enough sufficient equity in your LOC/s to fund your lifestyle for a property cycle (7-10 years)

Hi Rixter,
in theory the idea sounds good; but can't help thinking that when put into practise it will create enought "bad debt" to negate the whole deal? I'd imagine the interest against funds drawn from LOC's for personal reason's wouldn't be tax deductible? and this would only continue to increase with each repeat cycle? Also would start hitting the DSR (on paper) as well?

I guess might also depend on what age do you plan on retiring & hence the number of cycles before hitting the dust?

tdh
 
I'd imagine the interest against funds drawn from LOC's for personal reason's wouldn't be tax deductible?

Correct interest on drawings for personal use is not tax deductible. This seems to be an issue for you -why?

Also would start hitting the DSR (on paper) as well?

Have you misinterpreted cash bond structuring?

I guess might also depend on what age do you plan on retiring & hence the number of cycles before hitting the dust?

How do you mean?
 
Hi Rixter,
Perhaps if we run through an example?
Let's say 6m in equity ... borrowing 1.2m LOC for living ... 10year cycle ... 80k per year lifestyle. Let's also assume interest rate at constant 7% to keep it simple.

Based on this scenario, at start of the cycle I'm geared at 20% LVR; and have 80k x 10years = 800k + additional 400k for cashbond for next 10year cycle.

At the end of 10years .... property prices have doubled and hence 12m in equity ... so still looking good on the leverage front.

However I now do have a 800k "bad" debt costing me 56k per year in interest payments. Hence for the next 10year cycle I'll require increased lifestyle costs (allowing for inflation) + 560k for first cycle interest payments + additional $$$ for cashbond for next cycle (however a much larger amount to allow for the additional 56k hitting the DSR per year).

Repeating this over and over simply seems to create exponential position with the "bad" debt?
 
Hi Rixter,
Perhaps if we run through an example?
Let's say 6m in equity ... borrowing 1.2m LOC for living ... 10year cycle ... 80k per year lifestyle. Let's also assume interest rate at constant 7% to keep it simple.

Based on this scenario, at start of the cycle I'm geared at 20% LVR; and have 80k x 10years = 800k + additional 400k for cashbond for next 10year cycle.

At the end of 10years .... property prices have doubled and hence 12m in equity ... so still looking good on the leverage front.

However I now do have a 800k "bad" debt costing me 56k per year in interest payments. Hence for the next 10year cycle I'll require increased lifestyle costs (allowing for inflation) + 560k for first cycle interest payments + additional $$$ for cashbond for next cycle (however a much larger amount to allow for the additional 56k hitting the DSR per year).

Repeating this over and over simply seems to create exponential position with the "bad" debt?

But whats happening with the rents?
 
Repeating this over and over simply seems to create exponential position with the "bad" debt?

You dont seem to have factored in the exponential rental incomes into the equations?

You seem to be stuck on bad debt..yes the interest payments on lifestyle are not tax deductible..what would happen if you funded your lifestyle costs from rental component and capitalised portfolio expensive to the equivalent amount?

Would that ease your feeling towards the non deductibility issue?

At the end of the day as long as you meet DSR and your LVR is reducing due to portfolio growth outstripping loan redraws, then whats tax deductible and whats not deductible becomes irrelevant.

You are already funding your lifestyle living costs without the need for tax relief - deductions become a bonus.

Its a complete paradigm shift in thinking away from the conventional way the masses are brought up accustomed to.

The poor/middle class paradigm think cash flow for income, whilst the rich/wealthy class think capital.

The rich/waelthy control appreciating assets to fund their incomes whilst others are paying the holding costs along the way.

I hope this helps.
 
The poor/middle class paradigm think cash flow for income, whilst the rich/wealthy class think capital.


I think cashflow for income, so I must have a poor paradigm. That's cool, cos since 2008 so have all of my Lenders. In my experience cashflow is king.....and all of the Lenders I've spoken to think so as well.



The rich/wealthy control appreciating assets to fund their incomes whilst others are paying the holding costs along the way.


We've found with residential that only lasts so long, until the renters simply refuse to pay. As an example, we purchased a house in Perth for 400K back in '99 that rented for $ 500 pw. Gross yield of 6.5%. Nett yield of 5.8%. This 5.8% compared OK with the interest rate of low 7's. We still chipped in, but it was manageable.


Nowadays, the place is worth 1.4m, and it is struggling to attract anyone willing to pay $ 700 pw. That's a gross yield of 2.6%. Outgoings, especially land tax has gone thru the roof so nett yield has slumped to 1.95% compared against the value. The rent levels won't improve.


We still need to chip in slightly. Loan is $ 530 pw. Outgoings are $ 180 pw to hold. We need to pay $ 10 pw to have someone live in our house. We've waited 12 years and it's still a cashflow albatross around our necks.


I would like to get to the point where i'm living off equity, but hopefully less equity than i make each year, to pay down loans slowly - eventually reaching a point where i'm living on rent

Anyone that can squeeze a living out of increasing rents from houses is a better investor than I'll ever be. I gave up trying 7 years ago now and haven't looked back. There are better games to play IMO.
 
That's cool, cos since 2008 so have all of my Lenders. In my experience cashflow is king.....and all of the Lenders I've spoken to think so as well.

That's because bank employees are simply bank employees fitting round pegs into round holes as per bank policy. They too are simply wage slaves, that what they're taught and get paid to do. Its what the masses are programed & conditioned to think .

We've found with residential that only lasts so long, until the renters simply refuse to pay. As an example, we purchased a house in Perth for 400K back in '99 that rented for $ 500 pw. Gross yield of 6.5%. Nett yield of 5.8%. This 5.8% compared OK with the interest rate of low 7's. We still chipped in, but it was manageable.

Nowadays, the place is worth 1.4m, and it is struggling to attract anyone willing to pay $ 700 pw. That's a gross yield of 2.6%. Outgoings, especially land tax has gone thru the roof so nett yield has slumped to 1.95% compared against the value. The rent levels won't improve.

We still need to chip in slightly. Loan is $ 530 pw. Outgoings are $ 180 pw to hold. We need to pay $ 10 pw to have someone live in our house. We've waited 12 years and it's still a cashflow albatross around our necks.

What was the median house price back in 1999? Was your property in the top end, middle or bottom end market? What market attracts the maximum demand?


There are better games to play IMO.

Horses for courses I suppose.. lots of different ways to chose from.
 
That's because bank employees are simply bank employees fitting round pegs into round holes as per bank policy. They too are simply wage slaves, that what they're taught and get paid to do. Its what the masses are programed & conditioned to think.

[BAnd tese are the rules they fllow and Dazz is suggesting that this causes issues, you don't seem to have expalined how you get around this issue you agreed exists and seems, from Dazz's explanation is able to put a spanner in one's works / plans [/B]

What was the median house price back in 1999? Was your property in the top end, middle or bottom end market? What market attracts the maximum demand?




Horses for courses I suppose.. lots of different ways to chose from.

Seems to be that you agree with Daz that his is a real problem, so one needs to overcome it for the rest of your plan to work.

So how does one do that ?
 
Surely you two (Rixter and Dazz) don't have a problem with my plan of half equity, have cashflow?
 
Last edited:
That's because bank employees are simply bank employees fitting round pegs into round holes as per bank policy.

Regardless of the Bank personnel employment status and their mindset - all borrowers must conform to Bank Policy. This is where LOE came unstuck after 2008. Ol' Steve Navra and his posts don't work now.

I am happy to report LOR is still unaffected.


What was the median house price back in 1999? Was your property in the top end, middle or bottom end market? What market attracts the maximum demand?

Median for the very large suburb was 408K, so it was slightly under median. Still is - no change there. By definition - median attracts the most demand. It's just demand is **** weak, and low paying when it does come thru.

What's changed is the ratio between the rent willingly paid vs the value of the property. Easy solution though - sell.




Horses for courses I suppose.. lots of different ways to chose from.

...not sure about that....the different ways are all still on the same track, and that track is run / owned / controlled / dictated by Bank Policy.

Fluffy mindset perceptions etc cuts no sway on the Bank's track....the Bank's credit officers making the final funding decisions rule the show....and all Bank's purposefully exclude you from ever speaking to those guys.....so perceptions etc cut no sway. They just feed the hard data thru their sausage machine and spit out an unemotional, unfeeling dry as a cracker answer. Bank policy is simply the knobs and dials tweaked on the sausage machine, and no investor ever gets their hands on those.
 
Regardless of the Bank personnel employment status and their mindset - all borrowers must conform to Bank Policy. This is where LOE came unstuck after 2008. Ol' Steve Navra and his posts don't work now.

I am happy to report LOR is still unaffected.

Strange how my LOE strategy is still providing finance then.




Median for the very large suburb was 408K, so it was slightly under median. Still is - no change there. By definition - median attracts the most demand. It's just demand is **** weak, and low paying when it does come thru.

What's changed is the ratio between the rent willingly paid vs the value of the property. Easy solution though - sell.

What area did you buy in and is it considered an affluent suburb (top end) or middleclass Joe Average suburb?
From your stats given my guess is top end where there is less people who can afford and/or rent compared to middle class where the masses lay.


...not sure about that....the different ways are all still on the same track, and that track is run / owned / controlled / dictated by Bank Policy.

Different ways from a investment strategy view.
 
Back
Top