How I got from just a PPOR to multi millionaire retiree in 5 years using only OPM.

I am sure many of us would enjoy reading a detailed step by step of your decisions and reasons for then which led you from having to borrow 100% to being $2M better off since 2001.

Hi Simon,

The first half of my story is all standard stuff that many here have done, buy IPs, watch then grow, draw down the equity, repeat. The 2nd half (LOE & shares) is what I've posted here about over the years. All the figures mentioned below are vaguely ballpark.

It all started with a Geoff Doidge seminar & breakfast in 2001 - $250 well spent. I had $250K of equity in my PPOR in 2001. Drew it down & bought $1M or so of slightly c/f -ve IP in Bris & Blue Mtns. I borrowed 105%. Nothing was particularly cheap, or a great bargain. It doubled in value, so there was the 1st $1M of equity. PPOR value increased too. I sold a couple of duds & kept the quality ones. Many people here will have done similarly well. I also hung around the SS chatroom & was inspired by many there - particularly TW.

I also did a couple of renos. However, I decided the effort I was putting into them was eclipsed by the growth I was getting from doing nothing, so I stopped. I kept depreciating the power tools though.

Some time around then I went to a Navra seminar - another $100 well spent. I liked the idea of LOE, but definitely NOT his version of LOE with his income fund and/or cash bonds. Also bout this time I realised that IP wasn't going to give me a passive income – it was great for creating wealth with low risk. But something else was needed to replace my income. I've always had an interest in the share market, particularly remember Telstra T1 – I bought for $2 and sold at $2.79 – a huge 40% gain:D , and then watched them go to $9:eek: . I also set up a discretionary trust around this time.

By 2003, IP was expensive & low yielding & I considered poor value, I had stopped buying more. And at that time I didn't believe that Bris IP could possibly get more expensive. Rents had gone up, so the IP was paying for itself after 2 years.

Shares were cheap & virtually paying for themselves, so I drew down as much of the IP equity as I could & invested in quality, blue chip, dividend paying shares. These included 4banks, LPTs, PPT, QBE, ASX, WES, HIL, ALS, ORI, MBL, BHP, AFI, ARG. I also set up a margin loan & bought some more, but kept the LVR to a v. conservative 33%. My plan was to live on the dividends & capitalise the margin interest – a version of living on equity.

At that time shares were yielding around 7.5% (after franking). That generated enough income to pay the IP interest & quit the job (just).

The rough figures -
Draw down $1M equity from IPs – interest (5.95% fixed for 5 yrs!!) = $60K
Borrow $400K margin loan & buy shares – interest $0 – it's all capitalised (this is the LOE bit)
Dividends on $1.4M shares @7.5% - $105K
Nett income- $45K
NB The ATO considers that I pay the interest on the margin loan & borrow it again. So my taxable income is actually -ve.
As I need more than $45K income, I just draw it down from the margin loan.
I then had gross assets of $2.4M (+PPOR).
I was hoping the shares/IP would grow by their long term average 7%ish or $180K the first year, therefore covering the drawdowns for personal use & also the margin interest. Diversifying into shares & IP reduced the volatility.

I was still 30 something, so I knew if it all went wrong I could go back to my IT job. I've posted previously that I favour retiring as early as possible and 49% of SSers agree

Since 2003, share earnings/dividends have doubled & consequently shares prices have doubled.... and so more equity to available to buy more good value quality assets.

Since dividends increased by so much my LOE strategy really only lasted for a couple of years – I now have enough passive income from them. IP rents increased a little - $50pw or so doesn't go far though. The initial plan of using LOE did have some risk to it over the short term, but my backup was my willingness to return to work.

The future
My spreadsheet tells me that my equity with double every 5 years, simply through leverage & investing in balanced growth/income assets. Passive income will more than double. I never need do anything except draw down more equity when it becomes available & invest in IP or shares when they are good value. It's a completely passive and fairly conservative strategy. I hold $0 cash, although I have $Ms available at 1 days notice in my margin loan if I see a bargain.

My philosophy
  • I don't consider anything I've described above as risky or speculative.
  • I'll never buy speculative shares only quality ASX200 companies.
  • Margin LVR has always remained below 40% - I'm currently allowed a max of 72% - so it would take a >55% drop in the market before I got a margin call. I aim for 33% in the long term.
  • My IP loans are partly fixed, partly var. I can handle huge interest rate increases for more than just the short term.
  • I've diversified – IP & shares & LPTs are vaguely counter cyclical, so there's always likely to be some spare equity somewhere.
  • The diversified portfolio means reduced volatility – good for LOE, good for reducing risk.
  • I'm a big picture investor - I firmly believe in asset classes and the rising tide doing the work rather than me putting in the hard yards. I'm also fairly lazy – the 80/20 rule is good enough for me.
  • I don't invest in asset classes blindly, I only invest if they're good value.... IP was in 2001, ASX shares were in 2003, IP will be soon.
  • I concentrate on historical trends when deciding what to buy, I concentrate on forcasts when deciding when to buy.
  • I will never sell quality assets.

Things that haven't worked as well or at all
  • Share Options – wrong strategy at the wrong time
  • Speculative shares – it's gambling, not investing
  • Share trading – did my head in
  • IPOs – Rivkin said it best “if you can get an allocation, you don't want it”
  • Renos – there's easier ways of making money
  • IP fluff & flick – it’s a lot of effort for little return especially after txn costs
  • Selling quality assets - CGT
But I've learnt a lot & will return to some of them with more knowledge

Other things I stuffed up. Missed the Perth boom completely, missed the first couple of years of the resources boom. I don't feel bad about them though, as the equity was growing in other areas.

Have I been lucky ?
Yes - I've been lucky - that's what people tell me anyway. I've also been unlucky - see above. But I've tried stuff - some worked, some didn't.

Is this reproducable?
Yes. Buy good value IPs first. Wait for the rising tide. Draw down equity. Invest in the next good value asset class - it may be shares, china, resources. Convert the equity into c/f using LOE. The key is to create equity safely & fast using IP, then invest generated equity in c/f assets or LOE.

The bottom line
In 2001 I had a vague plan about creating wealth using IPs a la Somers. The wealth creation bit worked, but I realised it needed modifying to provide me with income for an early retirement. By incorporating LOE the direction changed. And in 2003 the economic cycle dictated that shares were the asset class of choice.

If in 2001 anyone had told me I'd be writing this story in 2007 I'd never have believed them. So to all the gunnas out there, I was once one of you, then I bought a really average IP at the asking price....

......and I apologise for the sensationalist title.
Great Post Keith,

Certainly more food for thought for me anyway, that along with some posts by Y-Man, Top Cropper, Michael Whyte etc etc etc... :D and various posts on InvestEd have me thinking that a combination of Shares/Managed Funds and some Property via strategies outlined here as well is the appropriate mix for me

Our equity is not yet enough to retire on and LOE is a still some years away , however, we have around $600k equity and a LVR of appx 63%, currently we're investing some more funds into the stock market so posts such as these are great and informative for me anyhow..many thanks

using $250k of equity to get $1M of property sounds like another great story in itself
WOW Keith...

well done mate!!! thanks so much for sharing your wisdom and "secrets" with us.

reminds me of an old margarine ad..."you ought to be - congratulated"

I get really inspired when i read these stories - I like to think that a mug like me can do it too!!

thanks for sharing keith - very inspirational, and made me sit back and think.

we missed the share boom cause all our money was tied up in new ip's. i'm hoping to catch the wave of the next ip boom and then off we go ...

damn - sold bhp at $10/share to fund an ip deposit (didn't see the resource boom coming), but at least i sold my telstra shares at $9.20.
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"damn - sold bhp at $10/share to fund an ip deposit (didn't see the resource boom coming)"

gotta love BHP...

I'm a member of another site that gives buy/sell/hold recommendations on the buy email sat $9.20 - and sell at $30 - wish i'd bought a hell of a lot more :D

Really great post! I like how your strategy (as well thought out and researched as it was/is) was/is a work in progress depending on work was working best and what was not working so well.

This shows your open mindedness to admit mistakes and learn from them etc. I'm trying to by of a similar mindset and also hope to achieve the sort of wealth and CF you have described in your post.

I also think the combination of IP/Shares/LPTs is the way to go long term for a strategy to be most flexible and probably have the most consistent returns.

Thanks Keith

Hi Keith.

Also just wanted to say thanks for sharing your very inspiring story.

Gives us something to think about and aim for.

Keith, great post, love your work as always. Very well thought out post with justifications for everything.

I also think the combination of IP/Shares/LPTs is the way to go long term for a strategy to be most flexible and probably have the most consistent returns.

Thanks Keith


Well said. generating enough income from residential property alone would take ages compared to LPTs etc..
Sensational post the numbers !!! ;) ,

You've chosen a rough strategy and stuck to that, adding a few modifications here and there to roll with the punches as they come along, taking advantage of opportunities as they presented themselves by being financially and mentally ready for them. Good onya.

I'm constantly amazed at ordinary folk doing extra-ordinary things.

I'm also amazed at the many and varied paths that one can wander down and still achieve the goals that you set out to achieve.

Inspirational to all on the forum. Keep it up. Well done. You should be proud of what you have achieved. :)
Keith - thanks so much for sharing your story. Just goes to show you can achieve extraordinary results from doing ordinary things.

Forget about those saying it was based on a fair bit of comes down to this...

you saw an opportunity, and you took action - put your money where your mouth was. That is the biggest hurdle people face is not taking action.

Sure timing has played a part but cant take advantage of timing without action.

Good on ya

Hi Keith,

thanks for sharing the great success story.
You manage your growth so well.
I have most of my money in shares & managed funds. Only have one IP and would like to get more one day. The only thing stopping me is the low yield.
Maybe I just don't know what I am doing.
keith, a great read and by the sounds of it you've picked up alot of knowledge about wealth and investing, in 6 or so years to come so far, i dips me lid to ya, as i've heard on here before.

Congratulations Keith!

If in 10 years I've succeeded half as well as your have (so far!) then I'll be over the moon. And I don't just mean $$ wise. It appears from your post that your thought process, taking action with a rough goal in mind, but "rolling with the punches" as somebody else said, is exactly the mind set I need to adopt. You gave it a go and look where it got you! What an awesome story to read. Very inspirational and thought provoking. Thanks for sharing.
Thanks Keith for that post - I really enjoyed reading it.

The amazing part is not what you did but that you had the guts to extend yourself as you did. Many people, especially newcomers to our world, would baulk at buying more than one IP. I meet so many that see buying AN IP as an end in itself - now they are investors and will be set for life ...

I'm a member of another site that gives buy/sell/hold recommendations on shares...

Can you tell us the site UC?
Fabulous story & information Keith,

Thank you for sharing your investment stategies, definitly food for thought for me - in a big way.