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

Hi Orks
I think what Keith has achieved is bloody brilliant. ;)

Its one thing to recognise rising markets but then it takes courage to jump in and take action.




Cheers
MTR

Timing the market is just as important as time in the market. Taking action even more so. I admire those who have taken action, win or lose.
 
And the 12 month return for the year ended 30 June 2013 is 36.85% (before tax for realised gains).

trying to show a month on month return for the year but its not letting me add attachment

IV,

Do you measure performance including brokerage or excluding?

And is it including dividends or excluding?

And do you benchmark against the S&P/ASX 200 Accumulation Index?

My SMSF's 12 month return till 30 June 2013 was 41.77% including dividends, franking credits, brokerage and realised gains (nil), but before tax and before my SMSF accounting and audit fees.

I didn't make any new contributions/investments during the year apart from a DRP amount of 7 shares in total (a very small total value only).
 
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IV,

Do you measure performance including brokerage or excluding?

And is it including dividends or excluding?

And do you benchmark against the S&P/ASX 200 Accumulation Index?

My SMSF's 12 month return till 30 June 2013 was 41.77% including dividends, franking credits, brokerage and realised gains (nil), but before tax and before my SMSF accounting and audit fees.

I didn't make any new contributions/investments during the year apart from a DRP amount of 7 shares in total (a very small total value only).

includes all fees and expenses (including interest cost), includes all dividends and realised/unrealised gains.

Basically just looks at the NAV movement each month.

Report generated for me by the investment banks system.

41.77% great return, well done You only need a few of these in your lifetime (together with the ability to minimise any serious losses), and you will have an incredible super when you retire.

well done again
 
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.


Finally
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.

What an inspirational post! It is interesting that you wrote this in 2007, you probably had little idea of what the next few years entailed (GFC etc.).

This type of information and strategy is worth its' weight in gold. Investing across asset classes, using leverage to improve your position - big picture thinking = big results. A huge congratulations to you for having the courage to go against the herd and be able to see the big picture.

It would be great to get an update of where you are at now, philosophies on investing etc. Whether you are still heavily geared or are reducing debt.

This type of information is exceedingly rare so thanks for sharing :D
 
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