How many properties to retire?

WOW Steve, that was a very interesting read and puts my mind in a slightly different frame of mind :p

Only one question tho:

Since the median price here in Perth (150k infact) is much lower than that of those eastern cities, I guess all that changes is easier serviceability but more properties?
Hi all

I look forward to going through all those concepts when I attend your course next month. Always look forward to gathering more info for my arsenal. :)

I have always liked my job so my aim was never to retire early but simply not to have a job dictate to me.

When I first started investing it was simply to become a milionaire :D and have an income when I wanted that matched my income at that time. This happened to be back in the early 80's. So my thinking at that point was that 6 properties would suffice with a 7th to pay the expenses. This was based on no debt.

Have since found that the expenses for 6 exceed the income of one so my ratio is now 6:2 or maybe even 6:3 because of land tax.

How many to retire - comfortably?

My basic approach is five

One to live in

One to pay all the bills such as rates, insurance & maintenance

Three to provide income.

This presupposes that all properties are paid for.

This assumes that there is no pension or superannuation or other source of income.

The PPOR is obviously personal choice - a small unit or a mansion.

The aggregate value of the rest will be based on the PPOR and the expenses associated with it.

All reckoning in todays dollars, 'cos everything will adjust and change with time and inflation

Over the course of working life there may be different strategies involved to achieve the end result. We have now moved into trading & development to hasten the satisfaction of the mortgages. The rent income is only a mirage until there is no debt to pay.

Of course, I wouldn't complain if there is more than five, but that's the minimumto provide actual, liveable income (in my humble opinion).


Based on my current lifestyle, I need $40k to $45k a year to live on (after tax, in today's $). That is, $1,000 a week. To achieve this in retirement, I am going for $550k to $700k in Super (smsf with share investments) and $750k to $1million in property (all in today's $).

From where I am now and after runing a number of different interest rate/CPI/Capital Growth scenarios, I believe it will take me about 10 years to get there (15 years at worst).

I have my own business which is not an asset that I include in my retirement portfolio - if I sell it, that will provide me with some extra drinking and gambling money!!!

Hi Steve
A question or two regarding your stucture strategy?
You said
"SOLUTION: Approach reputable bank and ask for an 80% LOC facility against your total equity: $2,199,000 X 80% = $1,759,200 Less of course the existing debt of $1,389,600 = $369,600."

Would that mean cross collateralising the portfolio with that lender?

If so would it not take away the control over ones portfolio of stand alone loans which could otherwise be refinanced individually at will as the need arrises?

Also are LOC's as secure as standard loans? I have heard that the lenders have the right to assess them and your ability to service them on a regular basis?
Steve ,

Thanks for taking the time to set that out in laymans terms so that most of us can get our brains around it. I have printed it out and will read it until it sinks in, then file it in my "keep this stuff" file.
Some questions come to mind,

if we live to a ripe old age of 80 and lets say we retired at 55 we would end up rolling our loan over a number of times, have you an example of extending the figures over say 25 years. Would we run into the negative compound problem that frightened people away from aged pensioner living loans type deals.

How do we handle a period like 1991-2000 when we would have very little capital gain in our properties but our living expenses continue to grow, and our debt % also grows.

In the past home loan interest rates have jumped to 16%, rents do tend to increase in line with affordability, but there is usually a time lag when repayments rise a lot quicker than rent. This naturally would effect our lifestyle and we may have to live quietly for a while, that is ok, but it is the compounding effect of the debt that concerns me.
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Re: A LENGTHY reply

Originally posted by Steve Navra

Buy an income stream (Cashbond)

Do you still need to use Cashbonds now that low doc loans seem to be more available.
The cashbond increases serviceability at a cost, but the low doc loans ignore serviceability with a higher interest rate.
Do they both achieve the same thing.

Perhaps instead of focusing on what amount of money we want coming in each week in retirement we should focus on what sort of lifestyle we want to lead. Jas's post about his nanna going overseas on the pension is very inspiring for me anyway.

One thing I have learnt in my short life is that you always spend what you earn and what you get in income is never enough. Will $2000 a week really make you happier than $1500 a week or $1000 a week? I'm focusing on what I want to DO, not on what I want to HAVE and executing my plans from there. As long as I don't have to work for anyone besides myself or have to deal with centrelink I will be happy!

Also, I have a question about the $4.5million equity required to generate an income of $150000 a year - how is this calculation figured out? If it has been made clear somewhere else in this thread I apologise.

Nat :rolleyes:
Originally posted by natmarie73
Perhaps instead of focusing on what amount of money we want coming in each week in retirement we should focus on what sort of lifestyle we want to lead. Jas's post about his nanna going overseas on the pension is very inspiring for me anyway.


I totally agree. That is why I said in my earlier post "Based on my current lifestyle, I need $40k to $45k a year to live on". I am very happy with my current lifestyle and I know what it costs to fund. If I wasn't happy with my current lifestyle, I would change it, calculate what it costs to fund and then go about setting up investments to fund this lifestyle in retirement.

Hiya Natmarie

The 4.5M comes from the 150K pa divided by the adopted interest rate of 3% to give 5M less his 350K current equity....

The numbers are like this

150,000/0.03 = 5,000,000

5,000,000-350,000 = 4,650,000 which is approx 4,500,000 in the overall scheme of things.

thanks I think I understand :confused:

I would presume what the $4.5million worth of property consists of has something to do with the end result though? take this scenario...

Joe has $4.5M worth of property which consists of cheap houses worth $100000 each renting for $160 a week. This equals $7200 a week gross total or $374 400 a year gross total.

Fred has $4.5M worth of property which consists of houses worth around $500000 each but only rent for $300 a week each - total $2700 gross/week or $140400 a year.

Of course I am not taking ongoing costs into consideration here but you can see my drift...

Two important questions in regards to your example:

(i) If a property has gained $70,000 from a 5% increase over 3 years ($450,000 to $520,000), then you said you have $70,000 to use to borrow for your next property.......however, a bank will normally only lend (80% of $520,000 = $416,000 less what you owe of $450,000)....and hence nothing to draw down on? In order to draw down on $70,000, the value of the property would need to be $650,000!!!

(ii) I know that you normally concentrate on property that is normally above 25% of the median property for a certain area......How can anyone these days get a loan for $450,000 if you have no other property to draw equity from. I find even with a half decent salary, it is difficult to borrow more than $350,000 these days. Does this mean that people that do not have any current equity have 'missed the boat' in regards to your selection criteria?

Re: A LENGTHY reply

Originally posted by Steve Navra
Buy a property today for $450,000...

This is the point where I'm stuck. The rest seems simple. :D

Fascinating post Steve.

Since I don't want to wait till 9th August, I'd like to know that I understand this correctly so I can implement it now...

The median house price in Perth in December 2002 was $194,400. Using your selection criterion, that means I should look at Perth properties around the $250k mark, in suburbs with demonstrated long-term growth, using the 'rental reality' condition.

This price is roughly half your Melbourne starting point so, as I see it, all your numbers are scaled by ~0.5.

So your prescription above will lead to a tax-free income of ~$75k/year in Perth in 10 years time.

To kick it off then and buy the first IP, I need 10% (assuming 90% LVR) plus costs = $25k + $10k = $35k.

So if I have $35k cash or available equity I can do this now?
And have ~$75k/year tax-free in 10 years time with 3 properties?


cheers, Tony
Originally posted by GlennM
(i) If a property has gained $70,000 from a 5% increase over 3 years ($450,000 to $520,000), then you said you have $70,000 to use to borrow for your next property.......however, a bank will normally only lend (80% of $520,000 = $416,000 less what you owe of $450,000)....and hence nothing to draw down on? In order to draw down on $70,000, the value of the property would need to be $650,000!!!


(i) If you bought a property for $450K, it would have been subject to an LVR also, meaning the original loan would only have been $405K (90%) for example. An amount of $45-90K had to come from somewhere else, forming the deposit. That would likely have been funded from another property (eg. PPOR). So when the property grows by $70K to $520K, you can increase your LOC to 0.8*520K = $416K, which is $56K above the original $360K. Steve is incorrect to say (sorry, Steve) that the entire $70K of growth is available - only 80% of it is available ($70K * 0.8 = 56K).

Steve says:
1) You might be asking what happens at the end of the three years, when you have spent the money?? Well $2,200,000 of property growing at 5% pa = $110,000, which is MORE than you are spending each year <snip>.

I believe Steve is also slightly wrong here, because your 5% growth on $2,200,000 of property is certainly $110,000, but once again only 80% will be accessible to maintain reasonable LVR = $88,000 per annum (ie. for the next 3 year cashbond). (Actually, when you compound the growth of 5% over 3 years you get total growth of $346,775).

So, you have total growth of $346,775 for the next 3 years (the 3 years you are living on your original Cash Bond). You go back to the bank to top-up your LOC and they will only lend you 80% of that, meaning your LOC only increases by $277,420 this time.

The $277,420 can then be used to buy another Cash Bond for 3 years, but obviously this time it won't provide $125,000 per annum, more like $92473 per annum.

Of course, you have also borrowed another $346,775 (in your LOC) and interest on that comes to $22,540 per annum @ 6.5%, meaning your accessible income is now down to $92473-$22540 = $69,933.

Clearly what is happening here is that your income is dropping because your assets are not delivering sufficient growth. To keep a sustainable income, you would have to probably accept [roughly] a $70,000 per annum nett income instead of a $100,000 per annum income.

My logic is that you have $2,200,000 of property, your original 90% loans were $1,389,600. You acquire a LOC at 80% LVR = $1,760,000 which gives you another $370,000 on top of your original IO loans of $1,389,600. Just because you have $369,000 LOC doesn't mean you can actually use [all of] it. The most I think you can really use to buy a cashbond is roughly based on 80% of 5% of $2,200,000 per annum, or $88,000 per annum. If you buy a cash bond for more than this, your capital growth (at 5%), reduced to 80% for LVR reasons, won't be able to buy another cash bond of the same amount. So, even though you have $370,000 available in a LOC, I'd figure you'd only spend $88,000*3=$264,000 on a cashbond.

The borrowing costs for a $264,000 cashbond would be $17,160 per annum, so your $88,000 income from the cashbond would leave you $70,840 nett income.

In 3 years time, your $2,200,000 has grown to $2,546,775, a capital growth of $346,775 (as noted previously). You can now increase your LOC to $2,037,420, which is $277,427 more. You didn't use your full LOC last time (in fact, your LOC balance = $1,389,600 + $264,000 = $1,653,600), so now you have access to $383,320. But, once again, you really only want to purchase a cashbond no more than the capital growth you expect to receive, or $101,871 per annum, or a $306,000 (approx) cash bond.

The borrowing costs for a $306,000 cash bond would be $19,890, so your nett income would be $101,871-$19,890 = $81,981.

By not sacrificing the capital "too early" you now have an income which continues to grow rather than shrinking.

Now it's time for some of my questions (and my assumptions):

1. After 3 years (when the first cash bond "runs out"), you still owe the bank $369,000 (or $264,000 per my example). It has not been paid out anywhere. What funds the continued interest payments on this amount? I presume the rental income from the properties commensurately grows so it is cashflow neutral and therefore covers the growing interest bill.

2. After 3 years (after purchasing the cash bond), you now have $369,000 (or $264,000) LOC amount that was used to fund your "personal lifestyle" (ie. providing your income).

Surely this amount cannot be tax deductible any longer against the property?

If so, are you not essentially creating non-deductible debt for yourself? The original amount of deductible debt of $1,389,600 remains. You now have $369,000 or $264,000 of "personal debt"?

What that implies to me is that your $2,200,000 of property, with only $1,389,600 of deductible debt, is very very likely to be cashflow positive, and you will pay tax on that positive cashflow, and then you must use the balance to fund the interest bill on the deductible debt?
Hi All,

Soooooo many questions!

And of course the answers will follow.

At the moment I am in Melbourne doing the follow up assessment meetings (5 per day)(As you should know Kevmeister!!), so I hardly have time to breathe, but I will try to get some answers out late tonight or tomorrow night.


G'day Steve,

Buying $700,000 to $800,000 houses and renting them out for 5% gross rent return leaves a huge amount of $$$$$$$ that you have too make up in negative gearing.
I have three rentals in Sydney . Value $1,100,000. Cost $846,000
three - four years ago.
Can't afford to buy any more in Sydney. My nett wage is $75,000 a year, when you borrow $900,000 plus you don't pay tax.


No need to buy more - with 8% capital growth per annum in 8 years time you'll have at least $1.2M in investment equity with positive cashflow, enough to retire (assuming you paid off your home)!


hi BBRUHAM,in fairness to his structure re his rental reality for purchases,he wouldnt allow you to buy for those prices in Sydney.
Melbourne the same(only if u were lucky)
Brisbane would be your only possibility.

G'day Lotana and Beech,

Yes I do own my own house, bought it for $36,600. Repayments of $205.00 a mth. My inlaws said I was robbed. Near the beach, worth $800,000 plus today.
I'm just sitting and waiting.
Beech I've just returned from looking for investment properties from Sydney to Noosa Qld. No chance in hell of buying near the coast with + ve or neutral returns in mind.The prices all along the Sunshine coast are expensive.
I fancy Maroochydore and Mooloolaba and surrounding areas.
I'm only interested in houses. Brick etc not big yards as tenants don't usely like too much mowing.