How will you retire on property? - POLL

How will you retire on property?

  • Residential - pay down & live off rent

    Votes: 46 45.1%
  • Residential - sell off & live off rent

    Votes: 17 16.7%
  • No sell off residential - live off equity

    Votes: 12 11.8%
  • I'm already retired &/or don't need to work

    Votes: 9 8.8%
  • Development residential projects & sell or keep

    Votes: 25 24.5%
  • Expand to commercial property - live off rent

    Votes: 17 16.7%
  • Business or other income generating ventures

    Votes: 13 12.7%
  • Aged pension &/or superannuation

    Votes: 5 4.9%
  • I don't know - yet to be decided

    Votes: 10 9.8%

  • Total voters
    102
  • Poll closed .
For retirement I think you need to gradually move towards better income-producing assets, and residential property in this sense is generally not as good as shares or commercial property when you compare them on a net yield basis.

For most of us shares I think are the best option for passive income, but if you have the financial capacity to invest directly in commercial property you could perhaps do better.

If you are only interested in retiring off residential property rents, although it can be done, I think it's worth learning about the other alternatives.

LOE has too many risks, in particular the never-ending borrowings required to sustain it when you are no longer working and earning active income.
 
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As mentioned previously my end game will likely change as it comes closer...

But for now my thoughts are combination of paying down debt along with selling lower performers. Will have a combination of freehold property, shares and super.
 
LOE has too many risks, in particular the never-ending borrowings required to sustain it when you are no longer working and earning active income.

What if you already had access to those 'never-ending borrowings' (as you put it) prior to leaving paid employment?
 
What if you already had access to those 'never-ending borrowings' (as you put it) prior to leaving paid employment?

What if you live to 95 y/o?

How much LOC do you plan to have setup pre-retirement?

This is in today's dollars, what about inflation?

What happens when the initial LOC runs out?

Try setup cashbonds pre-LOC running out?

But the use of cashbonds for this purpose is already going the way of the dodo isn't it?

What next, live off the increased rent... this is fine, but this is now LOR, not LOE...
 
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What if you live to 95 y/o?

Time doesnt matter so long as your asset base CG outstrips lifestyle costs over the long term.

How much LOC do you plan to have setup pre-retirement?

A minimum 1 property cycle of annual lifestyle costs.

This is in today's dollars, what about inflation?

Property growth long term outstrips cpi.

What happens when the initial LOC runs out?

You always keep a buffer to use for increasing DSR.

Try setup cashbonds pre-LOC running out?

Yes, set up a cashbond finance structure.

But the use of cashbonds for this purpose is already going the way of the dodo isn't it?

Never has been.

What next, live off the increased rent... this is fine, but this is now LOR, not LOE...

You have the option to live off the rent & capitalise the property expenses to the same amount as your lifestyle costs so as to maintain deductibility.
 
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It's the imputation credits (i.e. less tax) and lack of overhead costs (at least 1.5% off the gross) that do it for me.

That's true. I don't even know why people quote 6-7% residential gross yields and get all excited.

To compare any investment, the only way to do it is to look at net rent / net cost. Who cares what gross rent you get if you haven't counted vacancies/repairs/agent fees/coucil rates/water bills.
 
Suddenly the landlord is in do do, no signed lease, no bank guarantee after feb, and unlike residential property, commecerial property needs to be refinanced every so often years. And guess what:

Its refinance time!!!!!

Anyway ive got someone who wants to take over the lease. So I go to the landlord, you have this opportunity, take it or leave it. What can you do to me?

I told you several years ago, that your expectations were unreasonable, I was prepared to reinvest capital in the business, but not on the extortionary terms your lawyer was demanding, but all I heard back was the lawyers demands.

That's right. Commercial can be higher risk. Even if you have a water-tight lease, your tenant could flee the country (seen that happen many times).

At the end of the day, you need to manage the risk with tools such as:
- Low/moderate LVR;
- Contingency plan on what you'll do if it went vacant;
- Cash buffer for vacancies;
- Cashflow buffer for advese interest rate movement;
- Good eye for location (ie knowing someone will lease it if your current tenant went)
 
--- Keep the votes and comments coming - almost at 100 votes for the poll ---

* I'd be interested to hear from those that no longer need to work and what they have to say. What's your number?...

* Has the plan evolved greatly over the years, or just small tweaks here and there?

---Quote - Wall Street: Money Never sleeps---

Jacob: What's your number?

Bretton Woods: Excuse me?

Jacob: The amount of money you would need to be able to walk away from it all and just live
happily-ever-after. See, I find that everyone has a number and it's usually an exact number,
so what is yours?

Bretton: ... ... More.

http://www.youtube.com/watch?v=Humfsis-QLI
 
--- Keep the votes and comments coming - almost at 100 votes for the poll ---

* I'd be interested to hear from those that no longer need to work and what they have to say. What's your number?...

* Has the plan evolved greatly over the years, or just small tweaks here and there?

---Quote - Wall Street: Money Never sleeps---

Jacob: What's your number?

Bretton Woods: Excuse me?

Jacob: The amount of money you would need to be able to walk away from it all and just live
happily-ever-after. See, I find that everyone has a number and it's usually an exact number,
so what is yours?

Bretton: ... ... More.

http://www.youtube.com/watch?v=Humfsis-QLI

My answer was ... Enough.
 
That's right. Commercial can be higher risk. Even if you have a water-tight lease, your tenant could flee the country (seen that happen many times).

I've seen an owner selling a commercial property priced on the basis of the good yield when they knew their tenant was about to go under ....

Cliff
 
I've seen an owner selling a commercial property priced on the basis of the good yield when they knew their tenant was about to go under ....

Cliff

Oh absolutely. Or properties that price on a good yield because of a short lease (eg 168 Exhibition St, Melbourne - an entire 10 storey building in CBD sold at around 7.5% net yield, leased to the Victorian Government).

At the end of the day, as a buyer, you have to make an assessment of whether this rent is achievable by the next tenant and how long it'll take to find them.
 
The answer is never so simple.

I don't have Dazz's skill in commercial property, but I am quite happy investing in the stock market.

So I have a two pronged strategy:
residential property and shares.

Both have done well.

Commercial property in the right hands is a good money spinner, but it is MUCH HIGHER RISK, regardless of what anyone on this forum tells you.

And any asset class with higher risk, involves a higher skill level to manage it.

I am on the opposite side of a little commercial property at the moment.

Its my oldest business and unforuntately its time has come to an end. I don't have time to focus on it any more. Back in its day, in the late 1990's, I set up this business at the age of 24. It used to make me the same money as a national partner in a big for accounting firm, but not anymore.

Anyway the lease for the business has been on the same premises for 16 odd years.

A few years ago, realising business was deterioriating, I was contemplating a major re-fit. Approached the landlord to get 12 years of additional option leases.

Her lawyer must have heard of Dazz, because the lawyer started demanding all sought of things which if I agreed became into effect immediately:
*personal guarantee in addition to the existing rent guarantee (3 months)
*immediate additional rent increase (after having just done a market review several months ago)
*minimum rent increases of 4% a year.

All this for a set of options that back then wouldn't have kicked in for an additional 8 years (ie existing total lease + options was 8 years).

Stuff it, just bleed the business.

So fast forward 4 years, and the business has deteriorated much further. No longer making money, and I am never there.

Market review + final option was executed last year. Said yeah I will execute the option but never signed the new lease.

Suddenly her lawyers going into overdrive, one letter saying I have no lease, the next saying I agreed in writing to the new lease, and therefore its effectively in force.

My counter:
Do nothing, no correspondence, no communication.
Landlord starts coming to the shop every day, but I am never there.

Get a call from my friendly bank manager who's bank is also the lender on the property. Hey buddy, your bank guarantee expires end of feb.
Thanks mate I wont be renewing it. Done he says with a smile.

Suddenly the landlord is in do do, no signed lease, no bank guarantee after feb, and unlike residential property, commecerial property needs to be refinanced every so often years. And guess what:

Its refinance time!!!!!

Anyway ive got someone who wants to take over the lease. So I go to the landlord, you have this opportunity, take it or leave it. What can you do to me?

I told you several years ago, that your expectations were unreasonable, I was prepared to reinvest capital in the business, but not on the extortionary terms your lawyer was demanding, but all I heard back was the lawyers demands.

From my point of view:
yes I don't walk away with much on the final exit price for the business, but I don't care. This was my first business, made my money back many times over.
Most importantly my staff who have been with me many years all have perminant residency (they were on a mixture of work visas and student visas).

So the important assets, my staff, have all been taken care off and are very happy with me.

If this deal with the landlord and the new potential tenant doesn't go through, she will be in trouble.

So the motto of the story:
commercial property has its risks as well. The two previous landlords under my lease hold (especially the first one) did very well. The last one, not (partly because she also overpaid for the property)

And now I have a very co-operative landlord. I am exiting the premises.
I have a buyer for my lease. They are not taking over the business, but they are paying me to surrender the lease. In turn they have created a new lease with the landlord subject to my surrender of lease.
 
Time doesnt matter so long as your asset base CG outstrips lifestyle costs over the long term.



A minimum 1 property cycle of annual lifestyle costs.



Property growth long term outstrips cpi.



You always keep a buffer to use for increasing DSR.



Yes, set up a cashbond finance structure.



Never has been.



You have the option to live off the rent & capitalise the property expenses to the same amount as your lifestyle costs so as to maintain deductibility.

Australia has had a very good long term upwards cycle, 30 years of it.

I would be very very hesitant of the average layman using this approach at this point in time ie 2014.
 
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