How many Ip's needed to retire? (I am a bit shocked!)

[Rixter]

In todays financial climate a 'Rule of Thumb' for finding CF+ property from day one...

Multiply the realistic weekly by 800 to give you your top purchase price to pay...anything under this figure increases your positive cash flow further.

ie rent $300 p/w X 800 = $240k Top Purchase Price.

Hope this helps

 

[sash]

Not trying to be smart but $300pw on a 240k purchase equates to a 6.5%...that will cover the mortage payments but your shortfall will still be about $30-40pw after factoring in depreciation and taax deductions?

My guideline has been a take the purchase price divide by $1000 and mutiply by 1.5. If expected rent equates the figure or is higher than it is a reasonable buy. This equates to a rent of 7.5% or higher.

Rixter....how is your LOE going??? I think you are one of the few people who have managed to get this up and going...

In todays financial climate a 'Rule of Thumb' for finding CF+ property from day one...

Multiply the realistic weekly by 800 to give you your top purchase price to pay...anything under this figure increases your positive cash flow further.

ie rent $300 p/w X 800 = $240k Top Purchase Price.

Hope this helps

 

[Rixter]

Not trying to be smart but $300pw on a 240k purchase equates to a 6.5%...that will cover the mortage payments but your shortfall will still be about $30-40pw after factoring in depreciation and taax deductions?

My guideline has been a take the purchase price divide by $1000 and mutiply by 1.5. If expected rent equates the figure or is higher than it is a reasonable buy. This equates to a rent of 7.5% or higher.

Rixter....how is your LOE going??? I think you are one of the few people who have managed to get this up and going...

Yeah sash it provides a gross 6.5% yield..on a near/new IP it will be cash flow positive AFTER tax advantages including depreciation. This is the basic rule of thumb I used when I started out with rates @ 5.5-6% similar to now.

NOt fully LOE as myself & Mrs Rix still working a few days a week. Have been partially LOE at this status for a few years now.

Currently looking to increase the asset base further with the lazy equity accumulating. Works well for tax minimisation to offset individual positive geared IP's within our portfolio purchased earlier on in the acquisition phase.

When LVR drops sub 50 looking to exit race full time - currently mid 50's.

 

[skater]

So is this what you Sash and Skater are saying... That your not too fussed about getting high CG (from eg a close to cbd unit) you are more after the cf.

But i always thought, you cant have both at the same time.

You would really have to research and be sure about the areas your going into wouldn't you!

No, I also expect to get CG from my properties.

 

[Peter Parker]

It doesn't "fade". You pay as you go. Your lender adds 4% onto the inflation rate so if inflation rises, so does your interest bill.

Inflation is NOT a free lunch. You pay full price.

I believe the mortgage component of holding costs indeed fades away (in real terms and relative to the rent received), but the other components (eg rates, management, insurance, maintenance) approximately tracks inflation. My own experience, where interest payments are down to about about half gross rents, demonstrates this nicely.

For example:

Consider a $200k mortgage taken out in 2010. Interest is 7.5% and a $300pw rent more or less covers the interest. So you might be putting in $100pw to cover the other holding costs.

In 2020 your outstanding principal will still be $200k (assuming interest only). Yes you'll still be paying interest on that, but $200k is relatively a smaller amount in 2020 than now.

Assuming everything (rents, wages, prices, CPI) rises 50% in the next 10 years (ie roughly 4% inflation pa). The 'real' value of that $200k still owing will have dropped to less than $140k in today's money. Another ten years later and it's halved, and in another ten the interest payable is maybe a third or a half of rents received.

Meanwhile you'll have a (higher) rent of $450pw to help pay interest on your $200k (which stays the same).

Unless there is double digit inflation and a return to 17% interest rates, the property by then would be more or less paying for itself. If there is high inflation you'll still be negatively geared. BUT if you can meet the payments you'll be OK as the real value of your debt will depreciate even faster. And if the inflation works through to wages and there remains demand for housing then upward pressure on rents means it should even out.

The real scary thing is deflation, which if this happens would make any borrowing-based investment program fail. Especially if combined with lessening rental demand and/or declining household formation.

Whereas moderate and steady inflation is good for investors who borrow. High and volatile inflation could increase returns even more, though at substantial risk if interest rate rises exceed capacity to pay (which can be maximised by getting good yields and not borrowing too much).

 

[sash]

Yep...will work with new or near new to be CF+. I tend to buy older properties so thus the disconnect. I like to get CF+ before depreciation and tax...then this becomes the icing on the cake. If I chucked my job in I will gross 50-60K but will only pay tax on about 30-40k due to depreciation and other deductions about an average of $1500 per property. Very few of my properties have building deductions thus why the yearly depreciation and borrowing cost decuctions are low. This would give me about 46k - 53k net based on 50-60k gross which is equivalent to earning 58k to 67k gross.

Looks like you are almost there in regards to LOE....

Have managed to keep my LVR stable at between 30%-35% despite recent acquisition....so far so good. The key to this is buying 15-30% under market.

Yeah sash it provides a gross 6.5% yield..on a near/new IP it will be cash flow positive AFTER tax advantages including depreciation. This is the basic rule of thumb I used when I started out with rates @ 5.5-6% similar to now.

NOt fully LOE as myself & Mrs Rix still working a few days a week. Have been partially LOE at this status for a few years now.

Currently looking to increase the asset base further with the lazy equity accumulating. Works well for tax minimisation to offset individual positive geared IP's with our portfolio purchased earlier on in the acquisition phase.

When LVR drops sub 50 looking to exit race full time - currently mid 50's.

 

[Sheryn]

Ia 'Rule of Thumb' for finding CF+ property from day one...

Multiply the realistic weekly by 800 to give you your top purchase price to pay...anything under this figure increases your positive cash flow further.

ie rent $300 p/w X 800 = $240k Top Purchase Price.

Hope this helps

Love Rule of Thumb's

Question
Does the top purchase price include stamp, duty, legals & fees?

Thanks
Sheryn

 

[HandyAndy888]

I am currently finding it tricky to find CF+, but I always calculate an 8% interest rate. Unfortunately, I am mainly in cf- territory, which sucks and as CG has been quite low for my properties, I am in stalemate.

Can't service any more AND shouldn't sell. What to do??? Looks like I'm cutting my loses (a little) so that I can move ahead...I am going to look regional for cf+

 

[Sunfish]

In theory, theory and practice are the same. In practice, they're not.

 

[Rixter]

Sheryn,

On 105% borrowed funds (100% of the purchase price plus 5% for those purchasing costs)

Love Rule of Thumb's

Question
Does the top purchase price include stamp, duty, legals & fees?

Thanks
Sheryn

 

[Alex P Keaton]

..........

 

[devo76]

Living in a regional city and being quite happy to spend the rest of my days here filled with fishing,counter lunches down the club,golf, etc etc( This is retirement im talking about,im only 33). The amount i need to retire could be significantly less. I was planning on between $1000 and $1500 per week. Not the $100,000 plus per year some aim for. If my PPOR was paid off and i had that cashflow then i would be very happy. Infact im sure it would be a above average lifestyle.

My numbers
Average rent per week on the houses i target $280
Houses required 4 to 6 plus one for cost = 5 to 6 Paid off

This would give me the $1000 to $1500 income per week. Very achievable.
The kicker is if i buy a quality investment. my latest Ip after i build on the back should return Close to $900 per week in rent.So if i target a similar property next time that would mean i only need to keep two of my purchases at the end of my accumulation phase. Maybe just one !!!!.Very very achievable.I guess it comes down too what do you really want to reach and what would be acceptable if you didnt quite make it there.

 

[crc_error]

Who told you that?? There are plenty of areas where you get CG and CF if you look.

Some recent examples of my purchases:

thanks for the examples

 

[bene313]

I was planning on between $1000 and $1500 per week. Not the $100,000 plus per year some aim for.

100k after tax is not that much more being only 2k per week.

However a 100k per year before tax, less 27k tax = 73k per year or 1.4k per week.

You might need the 100k after all.

 

[Neophyte]

Here is what I found out...when I subtracted water rates, council rates, Property management fees, insurance and repairs...my costs for the year was a whopping 36% of my income...and that was with the mortgage repayments not being counted (I would hate to think what the % would come to if I had to pay land tax as well!)

I didn't realize the costs were so high.

Have you been unlucky with repairs? Are your rents too low?

10% gross yield -> 6.4% yield before interest.

 

[devo76]

100k after tax is not that much more being only 2k per week.

However a 100k per year before tax, less 27k tax = 73k per year or 1.4k per week.

You might need the 100k after all.

Yeah maybe. But $1500 per week was my high end figure and the $2000 pw you mentioned is significantly higher again.My point being is you could live a very comfortable life on less than $100,000. I am right now and i still manage to save etc.

 

[jaycee]

Buy a property for $200k which has real value of $250k rent $320pw


Cashflow would be fairly neutral.

pull equity out and use as deposit for the next one and repeat the same purchase.

get 10

so 10 x properties costing $0pw from your pocket.

wait 5 years and when the rent goes up $100pw then there is $100 x 10 = $1000pw pos cashflow.

Theres an example.

Great examples of a real situation using real numbers there Nathan.....

 

[alexlee]

I didn't realize the costs were so high.

Have you been unlucky with repairs? Are your rents too low?

10% gross yield -> 6.4% yield before interest.

The numbers look more realistic if you use lower yields.

300k property, 300pw rent or 15,000 a year. Council rates 1,500, body corp 1,500, insurance 300. Management fees, repairs, etc.

The 36% looks big, but it's really just saying 5% gross yield, 3.5% net yield, which sounds about right.

 

[kathryn d]

We have several properties .We have lots of debt.
A lot of debt on credit cards at high interest rates which is all business related.We could refinance and pay off the cc. It comes at a price I'm not prepared to pay at this point.
We have a vendor financed property for 15 years at 7% for the whole term.I could get cheaper rates at the bank, but I don't want to be at their mercy.
I see how they make us jump through hoops with our other 11 unit building.

Lat year we bought one single purchase, that is an absolute money maker.It has a house and 4 older mobiles on it.The mobiles were thrown in for free.
We got rid of the last original tenant yesterday.His rent was $425 month.Tomorrow the new tenant starts paying $650 a month.Only thing we are doing is laying new carpet (maybe $300)Told them they can paint if they want.Last year we installed brand new efficient furnaces in all mobiles ($14K total)
The previous owner this time last year was collecting $2430 for the house and mobiles.We are now collecting $3525 a month, and outgoings of $1000 a month. We have done minor repairs.

I have previously been offered the chance to buy another mobile with Vendor Finance.I offered my son the opportunity, but he has declined.If the offer is still available, I may take him up on it.
I will pay him $1000 a month for about 15 months, plus pay the lot rent ($150 month)There is a tenant already there paying $600 month.So after paying $550 X15 months, we will have another $450 a month coming in.

There are deals out there.
Most of our properties will need time to start showing a large profit.
But if you have lots of units, with a modest profit..all is good.

 

[Nathan]

Great examples of a real situation using real numbers there Nathan.....

I have made many portfolios of identical numbers.

Some being 10 or 20k higher or lower but with the rents also being 20 or 50$pw higher or lower.

The properties are out there for this structure.