Early retirement

[BV]

I dont think you realise the magnitude of growth thats been sustained across Perth, and particularly more in some suburbs, in the last decade +.

We're off topic but my point was that if you're holding assets like that, then IMO you should be wondering if that growth can be maintained. I'm not saying that a correction will come tomorrow but it could be that additional growth won't come for a very long time.

Look at Sydney for example, prices in some suburbs have trippled in a 10+ year cycle when they should had only doubled.
As a result, we had a long period of correction/stagnation.
In recent times we've had some price growth which brought us back to the previous peak but looking at current market activity and the dark clouds in the horizon it looks like that little growth will evaporate again.

Currently only the suburbs which didn't tripple in value have room for growth and that's where most of the value and sales activity is. Something to think about....

 

[investor2009]

As always, cautious investor Alex, and a very good trait to have my friend.
I always remember that if at any point in time long term lenders refuse to lend and or I don't fit their lending criterea then I will sell and reduce debt.

I can think of much worse problems to have!
Either way everything will be excellent and my plans will only change marginally. I've recently considered selling anyway as I get older (20-30 years from now) to reduce risk, as you mentioned. But again, can look at that down the track and reassess.

Who knows, I could have another 50 properties by that stage and be at 80% LVR..! Or only have a handful of props at 20%LVR. Only time will tell and alter the outcome/end strategy but the end game remains the same: I am in power of choice. Something you instilled in me many years ago if you cast your mind back actually

I plan on living for longer than 2 years, though.

My issue is whether LOE is viable long term. My opinion is that if you have enough to LOE long term, you also have enough to switch to LOR, and LOR is less risky than LOE because you're less dependent on bank lending rules. I'm not willing to accept the risk of LOE'ing for, say, 10 years, and then find I can't do it anymore because the bank won't let me access my equity. And in the meantime I've lost all my earning ability.

 

[locko24]

So we've established that it's possible to LOE partly right now, and all kudos to you guys!
Does anyone live completely on equity right now? Does increasing equity/rents satisfy servicability requirements? If so, I think this a good plan, as long as you don't spend all your equity as you get it, and let rents reduce your LVR. This will allow you to live off rents alone in say 10 years, if banks change their lending rules. (possible you'll have to sell the odd property to lower lvr even further)

 

[Dazz]

As usual, I agree with Rixter, and disagree with Dazz.

Sorta makes perfect sense that an investor who is partially LOE would agree with another investor who is partially LOE.

Of course, one could be crude and draw an analogy whereby a simple illiterate pig farmer in the highlands of some mountainous terrain might conclude, even though he has never tried or attained the status of flight, that it was impossible to fly to the moon. I imagine his equally ignorant pig farmer neighbour would wholeheartedly agree with the statement....as would 50 other pig farmers in the tribe. However, despite them both or all of them agreeing with one another, does not make the statement wise nor correct. Different paths indeed - but the astronaut studying flight and purchasing rockets will ultimately succeed.

One wouldn't want to be crude however.


Partially LOE is partially at the discretion of the credit officer within the Bank and the solicitors and Board who set Bank Policy. They change, you are affected.

I prefer a tad more certainty and control with my cashflows, especially if I am intending to live off the money for the rest of my life....I thought that was the objective of property investing, to exhibit that control, rather than be at the mercy of the DSR and LVR gods.

What's the point of swapping your Job god for a DSR god ??

I've been partially LOE for the past 2 years without any problems at all.

Like alexlee, I would want way more surety of my position before extrapolating 2 years of partial "no worries" into fully exposed for "the rest of my life".


As stated previously, LOE is simply a shortcut taken when LOR is the preferred, safer, surer, more conservative path. Partially LOE is just a short cut on the short cut. Most people don't have the patience nor the investment acument to wait the 30 or 40 years to LOR with residential housing. Life gets in the way, and the attraction of ditching the job gets stronger as the reality looms closer.

The price you pay for those shortcuts are exposing yourself to more debt and ever changing DSR hurdles.

 

[JIT]

Well said post Dazz.

Partially LOE is partially at the discretion of the credit officer within the Bank and the solicitors and Board who set Bank Policy. They change, you are affected.

And also of course the bank's chosen valuer on the day...

As stated previously, LOE is simply a shortcut taken when LOR is the preferred, safer, surer, more conservative path. Partially LOE is just a short cut on the short cut. Most people don't have the patience nor the investment acument to wait the 30 or 40 years to LOR with residential housing.

And then there's the short cut on the short cut on the short cut... LOSE (Living Off Share Equity) or LOML (Living Off Margin Loan)... !

www.somersoft.com/forums/showthread.php?t=66762

 

[orangestreet]

As stated previously, LOE is simply a shortcut taken when LOR is the preferred, safer, surer, more conservative path. Partially LOE is just a short cut on the short cut. Most people don't have the patience nor the investment acument to wait the 30 or 40 years to LOR with residential housing. Life gets in the way, and the attraction of ditching the job gets stronger as the reality looms closer.

The price you pay for those shortcuts are exposing yourself to more debt and ever changing DSR hurdles.

Dazz,

I might not be reading this right but you reckon it takes 30 or 40 years to be able to LOR by buying residential property?

 

[orangestreet]

Im sure they are real for him otherwise he wouldnt be making the comment.

His way of accessing income from his portfolio is different to mine.

My experience with drawing LOE funds aka Navra style suggests otherwise. My lenders are still providing me funds because I jump the DSR & LVR hoops they require.

Rick, assuming the bank turned off the taps of lending for LOE purposes (I don't think they will) under your present circumstances could you pull of a LOR strategy if need be? Maybe not at $100K per year but maybe 3/4th of that amount in pure rents alone (if you sold a property or two perhaps).

Also, do you think if you could manage for 10 years on LOE would your rents have increased enough for you to live off rents comfortably for the rest of your life, if you so prefer at that stage?

 

[Doovalacky]

Your all wrong, I was assured today I could pay off my current loan. Retire and do a reverse mortgage.
Might pull it off if I buy a tent and move to the nullabor!

 

[BayView]

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 .

Sorry Rixter; I'm struggling with the Capital is King aspect as well.

I'm with Dazz; you need cashflow which is of some resemblance to expenses.

Whenever I want to borrow some money - and I would like to borrow some now - the Bank always asks for a few details...

1. what are your assets?
2. what are you loans?
3. do you have any credit cards?
4. what is your income.

Then they throw it all into the bowl, give it a stir and come up with a figure.

What would happen if they didn't have any income ingredient? No cake.

I know it is a bit simplistic, but what else is there?

EDIT: just read your last post - the magic acronym was there - DSR

 

[kathryn d]

Sorry Rixter; I'm struggling with the Capital is King aspect as well.

I'm with Dazz; you need cashflow which is of some resemblance to expenses.

Whenever I want to borrow some money - and I would like to borrow some now - the Bank always asks for a few details...

1. what are your assets?
2. what are you loans?
3. do you have any credit cards?
4. what is your income.

DSR

We are in the middle of refinancing a property now.What a nightmare. We had 3 mortgage brokers give up. We think the 4th will come thru for us. We paid today for the mortgage appraiser..and hope to have it done soon. Because we have another mortgage and bank accounts with the lender, the mortgage broker has been able to get "one time deal only" on our behalf (depending on the appraisal). We are already 3 weeks in default..and have requested an extension, by forwarding our mortgage committment..still under review.
Our problem is because I no longer have an "income" even though it was only about 10% of our rental income. Banks love that "income" Our LVR is about 50% on average, and still doesn't matter.
Our job as investors is to take advantage of all tax deductions to reduce our income to mzero..which we do. ...BUT lenders hate that !!!

 

[Rixter]

What would happen if they didn't have any income ingredient? No cake.
[/B]

Whats would happen if you give them all the necessary ingredients including income when they ask?

 

[Rixter]

Rick, assuming the bank turned off the taps of lending for LOE purposes (I don't think they will) under your present circumstances could you pull of a LOR strategy if need be? Maybe not at $100K per year but maybe 3/4th of that amount in pure rents alone (if you sold a property or two perhaps).

Also, do you think if you could manage for 10 years on LOE would your rents have increased enough for you to live off rents comfortably for the rest of your life, if you so prefer at that stage?

Why pay income tax (of up to nearly half) of the rental income when you only have pay say <10% to the bank instead in interest?

 

[Dazz]

Well that's normally during the initial application. You give them most of what you have income-wise, otherwise you know it'll be an automatic rejection.

What happens then is they mortgage broker or the Banker come back saying that Credit is asking for more information, particularly regarding any other sources of income.

So you scrape together absolutely everything you have, cash bonds, 2nd and 3rd job, your mothers pension fund, Uncle Joe's secret stash in the backyard behind the koi pond, submit the lot back to your broker / Banker. They then shuffle it back to Credit.....and then you wait.

Pensively, at first, then that turns to frustration. Back thru the grapevine it finally comes, saying that Credit needs more income - what else do you have ??

Pensiveness turns to frustration - how much income do these Credit actually need ?? Ahhh.....they never answer that.....the game is, you submit everything you've got, and then they tell you a Yes / No. There are no explanations, no stepping thru the formula used, no "Gee I'm sorry you were only 15K pa short". No intelligent feedback to work with to sculpt your next answer....just a yes / no. You're in the dark completely and they have absolutely everything laid before them.....just the way Credit likes it.

Next.

 

[Dazz]

Originally Posted by alexlee :

I'm not willing to accept the risk of LOE'ing for, say, 10 years, and then find I can't do it anymore because the bank won't let me access my equity.

.....and it is a very large risk alexlee, especially if you are going to be relying on it for you and your family to live off. Not saying it can't be done, but the decision is not yours to make.....Credit will decide your fate, along with the valuer's opinion, who take their valuation instructions from the Bank....not you.

All semblance of control and self-determination has been relinquished.

How do you know the bank wont let you access your equity?

He doesn't....just as surely as he also doesn't know that the Bank will let him access his equity.

If you meet their lending DSR & LVR requirements why wouldnt they let you?

Alexlee isn't privy to the Bank's DSR & LVR requirements on any given day, they change them constantly, without notification to borrowers, depending on how much dosh is in that particular lending bucket. Sometimes it's overflowing and sometimes there is nothing allocated....so the answer is an automatic no. You aren't told that as a customer, so you'll be in the dark as to the reasons why. They aren't obligated to give you a reason why the answer was NO....and therefore they do not give a reason.

Of course, that is today.

What happens in 10 years time when you need to re-finance, well....that's anybody's guess. The prediction of accuracy over that timeframe renders the margin of error massive.

You cannot possibly tailor your application to the Bank's DSR & LVR requirements in 10 years cos no-one has any clue what that might be. Looking back to 2001 (10 years ago), the world has changed in the finance world about 3 times.

Seems like your issue isnt they wont let you access it, rather, you dont know how you are going to meet their lending module.

Once again, no-one, not even the Bank big-wigs setting the policy....have the remotest clue what their "lending module" will be in the future, especially 10 years hence.

You cannot possibly sensibly plan around such uncertainty when that complete unknown 10 years into the future is going to be your bedrock or foundation of whether you will granted by the Bank an income or not to survive.

As stated previously, the theory of LOE worked brillo pads when Steve Navra was writing about it back in '06 and '07. Values increase, valuers recognise it, Banks recognise it, top up our LOCs to 80%, everything is honky-dory.

Post '08, when recognition of capital appreciation when the way of the dodo and Lenders were instructed to concentrate on income backed loans....all of that fell by the wayside....and so did Steve Navra's and Kevin Young's model of revalue / top up / retire and LOE / go again.


I note that very few mortgage brokers, bankers and lenders are contributing to this thread. Their silence is deafening.

 

[Archer]

Daz,

Your point is well made - the only people who should be living off equity are those who don't need to.

 

[BayView]

Whats would happen if you give them all the necessary ingredients including income when they ask?

I don't understand the question. It's a given that you do. Why wouldn't one?

I would assume that if you give them all the necessary ingredients your chances of borrowing would be better, thus income is an important ingredient?

I know many people like to hide cashflow to get out of paying some tax, but I don't reckon they see the bigger picture; the less profitable your whole financial world is, the less the bank will want to give you to increase your financial world that bit more.

Most people hide the income to save the $5k to spend on a bigger boat/car/holiday etc. That's fine, but often these are the folk who resent the "lucky" PI's, or are a bit anti the rich folk and so on.

For me; I want our figures to always look as good as they possibly can to increase our chances of getting more borrowings for more assets..

If, by declaring income that may cost me another $5k in tax, I can borrow another $200k or more for another income producing asset, then it's hopefully a worthwhile cost.

But this is off the point; you were saying Capital is more important than cashflow, and both Dazz and I reckon cashflow would be equally as important in terms of staying afloat.

 

[Nathan]

There is many different ways people can make money.

I agree with many factors, and disagree with sentiments also.

I am not a fan of LOE but if that works for Rixter and others then great stuff, Dazz's strategy is working for him, and I am sure there are stock traders and gold/silver bulls here too.

I guess when investing, I use the term investing because its not all about property it should be clear with a plan from start to finish, with multiple exit strategies and more upsides then downsides. No guessing, no potentially's, no hopefully's or it shoulds etc...

As for living off rents, it can be acheived. I am around $60,000 - $80,000pa CF+ and this is continiously going up. No high LVR's, and no excessive risks. I prefer to buy bread and butter metro stock with the occasional additions of crazy cheap regionals.

If I were to restructure my portfolio I could change the CF+ position to around $120,000 - $150,000 but in all reality I still like accumulating.

Bread an butter stock, $200,000 metro stock which can be found in outskirts of most capital cities for around $200,000 - $250,000 and rents of $300 - $350pw are main stream bread and butter.

If it is to be cf neutral for the exercise today then if you put the rents up $10-$20pw each year in 10 years time you will be 100 - 200pw cf+ in 10 years time.

Multiply that by 10 properties this is $1000 - $2000pw cf+.

Many different strategies to adopt and best to ensure whatever you decide to do is in line with your goals and your lifestyle, yet getting you closer to your goals and not further away from them.

If you want $50,000pa cf+ there is no point buying properties which are negative geared by $200pw because this is a loss or enslaving you to work for $10,000pa.

Hope this helps

 

[redwing]

As for living off rents, it can be acheived. I am around $60,000 - $80,000pa CF+ and this is continiously going up. No high LVR's, and no excessive risks. I prefer to buy bread and butter metro stock with the occasional additions of crazy cheap regionals.

If I were to restructure my portfolio I could change the CF+ position to around $120,000 - $150,000 but in all reality I still like accumulating.

Hi Nathan,

Is this early retirement though or replacing your job?

Even as replacing your job it has merit as you've built some great equity fast having read many of your posts

 

[Nathan]

Hi Nathan,

Is this early retirement though or replacing your job?

Even as replacing your job it has merit as you've built some great equity fast having read many of your posts

Nah it is clear cashflow from properties.

I do do other things and stay active however this is just for over and above. I dont like waking up or leaving my house before 10am in the morning.

 

[redwing]

Wait until you have kids mate

Ref the below, I did a quick search and filter on REIWA for PERTH (see attached for posterity).

Bread an butter stock, $200,000 metro stock which can be found in outskirts of most capital cities for around $200,000 - $250,000 and rents of $300 - $350pw are main stream bread and butter.

I did have a look at Australia's CHEAPEST 3 bedroom homes! thread though and you can pick up a property in NORSEMAN WA for $35,000.00

In PERTH its more like starting around $250,000 and renting for $240-250 p/wk (5.2% and decreasing) and thats after some Capital Growth hits and rental increases from yesteryears dizzying heights

Though like anywhere, there are probably some unearthed gems and screaming bargains. Keystart Loans also appear to have a number of Mortgagee Sales as would a number of others