I think when you get serious about property that you will realise 1m in 10 years is a gross underachievment. Especially when you consider how inflation will affect things. Many of us have achieved (with nothing more than an average (40k say) job) 1m in 5 years. Spend less than you earn, buy property anywhere and wait. HArdly earth shatteringly intelligent stuff!
is 1 million in 10 years really feasible ?
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I think when you get serious about property that you will realise 1m in 10 years is a gross underachievment. Especially when you consider how inflation will affect things. Many of us have achieved (with nothing more than an average (40k say) job) 1m in 5 years. Spend less than you earn, buy property anywhere and wait. HArdly earth shatteringly intelligent stuff!
I agree. I believe that you are only limited by your beliefs and attitudes.
I recently went to see a financial advisor with a view to diversification who of course told me I was way over committed to property. She asked me what gross income I wished to retire on. I told her $150000 a year in 20 years time. She then asked "In todays dollars or future dollars?". I told her future dollars and she straight away told me it was impossible to achieve with my current income.
We'll see.
Nat
I recently went to see a financial advisor with a view to diversification who of course told me I was way over committed to property. She asked me what gross income I wished to retire on. I told her $150000 a year in 20 years time. She then asked "In todays dollars or future dollars?". I told her future dollars and she straight away told me it was impossible to achieve with my current income.
We'll see.
Nat
Originally posted by natmarie73
I agree. I believe that you are only limited by your beliefs and attitudes.
I recently went to see a financial advisor with a view to diversification who of course told me I was way over committed to property. She asked me what gross income I wished to retire on. I told her $150000 a year in 20 years time. She then asked "In todays dollars or future dollars?". I told her future dollars and she straight away told me it was impossible to achieve with my current income.
We'll see.
Nat
Hi Nat.
Being a financial planner myself I am intrigued by your post.
I don't know your situation, but I wondered, if someone did want to achieve your outcome, how much would they need to save (assuming a nil $investment starting point).
So, here is an example.
Assumptions
Future value of $150K (income requirement in 20 years), is worth $83K today, based on 3% inflation pa.
Earnings on amount saved is 7% net pa.
The amount saved increases by 3% each year
Person is age 35 now.
Retires in 20 years at age 55.
Person expects to live until age 90.
In retirement, after age 55, the person earns 10% gross pa on their investment.
Capital will be used up by age 90 to assist fund their income needs ie when they turn 90, their money has all gone.
How much does the person need to commence saving each year (+3% pa), starting now, to fund the above scenario.
Have a guess.
Answer on next post.
Geekay
Garry,
I don't understand your point....
Having spoken to a number of financial advisors over the years, it appalls me that I have not yet found one who believes that property should form a major part of a portfolio (except Steve Navra, who is contrarian in many other ways as well).
Most are very uneducated in regards property & focus on fund-based approaches that generate good commissions for the advisor.
What DO they teach them at Financial Advisor school?
Cheers,
Aceyducey
I don't understand your point....
Having spoken to a number of financial advisors over the years, it appalls me that I have not yet found one who believes that property should form a major part of a portfolio (except Steve Navra, who is contrarian in many other ways as well).
Most are very uneducated in regards property & focus on fund-based approaches that generate good commissions for the advisor.
What DO they teach them at Financial Advisor school?
Cheers,
Aceyducey
Hi Acey
No real point, just thinking out loud (is that okay?).
I was just considering if someone walked into my office, and said they wanted income of $150,000 a year in 20 years like Nat, but had nothing saved yet, what would they have to do.
Mathematical answer is to save $65,000 a year.
How could they do that? Lots of ways.
They might be like me and invest in property, and aim to achieve overall net compounding capital growth of $65,000 + a year.
It's a bit tricky to relate my scenario to property investments as you usually are using gearing to buy properties, and eventualy the loans need to be repaid. I wouldn't usually say that I am "saving" $65,000 a year, but I know I getting ahead overall each year with my properties.
Your comment about Financial Planners is, unfortunately, not that far from reality for the majority, me included.
To work as FP for one of the Dealer groups, makes recommending direct property investments to clients very problematical. There are all sorts of industry and dealer compliance issues.
FP's that specialise in direct property are in the minority, but many, like me, use property as part of their own investment strategy.
The old argument of shares V direct property continually goes on, is very polarising (ie you are either one or the other) and at present the share argument is winning hands down.
That is one reason I enjoy this forum, because I can get a different view from what the FP industry trots out. The forumites also know their stuff - I have learnt quite a bit already.
There you go.
I hope that having divulged I am a Financial Planner I am still welcome??
Geekay
No real point, just thinking out loud (is that okay?).
I was just considering if someone walked into my office, and said they wanted income of $150,000 a year in 20 years like Nat, but had nothing saved yet, what would they have to do.
Mathematical answer is to save $65,000 a year.
How could they do that? Lots of ways.
They might be like me and invest in property, and aim to achieve overall net compounding capital growth of $65,000 + a year.
It's a bit tricky to relate my scenario to property investments as you usually are using gearing to buy properties, and eventualy the loans need to be repaid. I wouldn't usually say that I am "saving" $65,000 a year, but I know I getting ahead overall each year with my properties.
Your comment about Financial Planners is, unfortunately, not that far from reality for the majority, me included.
To work as FP for one of the Dealer groups, makes recommending direct property investments to clients very problematical. There are all sorts of industry and dealer compliance issues.
FP's that specialise in direct property are in the minority, but many, like me, use property as part of their own investment strategy.
The old argument of shares V direct property continually goes on, is very polarising (ie you are either one or the other) and at present the share argument is winning hands down.
That is one reason I enjoy this forum, because I can get a different view from what the FP industry trots out. The forumites also know their stuff - I have learnt quite a bit already.
There you go.
I hope that having divulged I am a Financial Planner I am still welcome??
Geekay
Hi Garry,
What made it worse is that I had already divulged to the FP the amount of net worth I hold in my properties so I wasn't starting from zero - and she still said it was impossible.
I don't think that accumulating 7 or 8 million in assets in 20 years is impossible at all.
I have nothing against financial planners at all. I just realise their attitudes aren't compatible with my goals
Nat.
P.S - my net worth has risen by about $50000 and I have purchased another property since seeing her so I sure haven't let her attitude phase me at all.
What made it worse is that I had already divulged to the FP the amount of net worth I hold in my properties so I wasn't starting from zero - and she still said it was impossible.
I don't think that accumulating 7 or 8 million in assets in 20 years is impossible at all.
I have nothing against financial planners at all. I just realise their attitudes aren't compatible with my goals
Nat.
P.S - my net worth has risen by about $50000 and I have purchased another property since seeing her so I sure haven't let her attitude phase me at all.
Hi Garry,
You are most certainly welcome. It’s interesting to see your honest revelation that you personally use the property investment as a vehicle to achive goals, but it is hard to recommend it to your clients…
The problem with Financial Advisers is well described in the latest J.Somers book. Basically the term Financial Advisor is hijacked by the people who should be called something more specific to what they do – i.e. advice on shares and mainly managed funds investments. I was gald to find the answer to my questions in Jan’s book as I was really puzzled why FI don’t advice on property investments. I had several experiences from neutral to rather negative reaction about direct PI. It was even a stage awhile ago when I started to doubt my way was right, based on their advices.
You are most certainly welcome. It’s interesting to see your honest revelation that you personally use the property investment as a vehicle to achive goals, but it is hard to recommend it to your clients…
The problem with Financial Advisers is well described in the latest J.Somers book. Basically the term Financial Advisor is hijacked by the people who should be called something more specific to what they do – i.e. advice on shares and mainly managed funds investments. I was gald to find the answer to my questions in Jan’s book as I was really puzzled why FI don’t advice on property investments. I had several experiences from neutral to rather negative reaction about direct PI. It was even a stage awhile ago when I started to doubt my way was right, based on their advices.
Hi Nat. Good on you. Just keep pushing forward.
Hi Mikhaila.
You are right about the term FP, often one dimensional.
My target clients are retired and often use Centrelink income support to meet their income needs.
Some have accumulated money through investment property ( I wish more had), but find that in retirement they don't want the hassle of investment properties. Managed funds and direct equities seem to appeal most to the current retirees for simplicity.
I can see though, that with the the younger baby boomer generation and genx , property investment is more popular than with current retirees, and many will keep their property investments for some time after retirement, and hopefully, like most of the forumites (like me) want need to rely on Centrelink.
Geekay
Hi Mikhaila.
You are right about the term FP, often one dimensional.
My target clients are retired and often use Centrelink income support to meet their income needs.
Some have accumulated money through investment property ( I wish more had), but find that in retirement they don't want the hassle of investment properties. Managed funds and direct equities seem to appeal most to the current retirees for simplicity.
I can see though, that with the the younger baby boomer generation and genx , property investment is more popular than with current retirees, and many will keep their property investments for some time after retirement, and hopefully, like most of the forumites (like me) want need to rely on Centrelink.
Geekay
garry,
Of course you're welcome
Retirees do want to avoid hassles....what they aren't necessarily told is that investing in managed funds can result in their equity going backwards for periods.....nor are they often given alternatives.
People who want no hassles & are not presented with choices are easily manipulated.
EDIT: Sorry that last bit sounds wrong...it's no reflection on you personally, just a comment on the ease of deceiving people in this situation....
Cheers,
Aceyducey
Of course you're welcome
Retirees do want to avoid hassles....what they aren't necessarily told is that investing in managed funds can result in their equity going backwards for periods.....nor are they often given alternatives.
People who want no hassles & are not presented with choices are easily manipulated.
EDIT: Sorry that last bit sounds wrong...it's no reflection on you personally, just a comment on the ease of deceiving people in this situation....
Cheers,
Aceyducey
Allocated pensions are like a reverse mortgage. They pay you interest and some of the principal so that in 25 years time all your money has gone! There might be some left if the interest it earns is more than what you are paid but there are rules about how much you can take each year, including a minimum and maximum amount.
Not my idea of a good investment.
Imvestor mum
Not my idea of a good investment.
Imvestor mum
Hi Investor Mum.
At the risk of putting my financial planner hat on again, I offer the following comments.
An Allocated pension is not an investment,
It is essentially a tax structure, in which you can have investments.
You can invest in cash, property (even direct investment properties), shares (direct or managed funds), bonds etc.
You might have your own Self managed Super fund with investment properties, that you use to commence your Allocated Pension.
AP's pay zero tax earnings of the investments, which is nice.
Income drawn from an AP is very tax effective, usually zero tax.
If you invest your money in something earning you 5%, yes, you money will probably be all be paid back to you in 20 years. If you are a bit more agressiver, it will last a lot longer. And remember that just because income is being paid out to you, doesn't mean you have to spend it.
The govt have the minmum income payments because they don't want people leaving money forever in a zero taxed environment.
Have a good weekend.
Geekay
At the risk of putting my financial planner hat on again, I offer the following comments.
An Allocated pension is not an investment,
It is essentially a tax structure, in which you can have investments.
You can invest in cash, property (even direct investment properties), shares (direct or managed funds), bonds etc.
You might have your own Self managed Super fund with investment properties, that you use to commence your Allocated Pension.
AP's pay zero tax earnings of the investments, which is nice.
Income drawn from an AP is very tax effective, usually zero tax.
If you invest your money in something earning you 5%, yes, you money will probably be all be paid back to you in 20 years. If you are a bit more agressiver, it will last a lot longer. And remember that just because income is being paid out to you, doesn't mean you have to spend it.
The govt have the minmum income payments because they don't want people leaving money forever in a zero taxed environment.
Have a good weekend.
Geekay
Peter - nice spreadsheet.
I couldn't resist to see what could be done in 20 years
I changed the growth rate to 8% and would use an LVR of 80.
I also put in the equity for my main IP as the starting figures.
with an LVR 80%, after 20 years net worth is $43m, interesting to see if you drop that to 75% your final net worth is only $19m which is a huge difference. That extra 5% goes a long way, maximum leverage is powerfull especially in the early years.
This is a little unrealistic however as it would be difficult to service the loans for all those purchases each year without dipping into the equity using Steve Navra's cash bond technique.
That equity makes me drool...
Dan
I couldn't resist to see what could be done in 20 years
I changed the growth rate to 8% and would use an LVR of 80.
I also put in the equity for my main IP as the starting figures.
with an LVR 80%, after 20 years net worth is $43m, interesting to see if you drop that to 75% your final net worth is only $19m which is a huge difference. That extra 5% goes a long way, maximum leverage is powerfull especially in the early years.
This is a little unrealistic however as it would be difficult to service the loans for all those purchases each year without dipping into the equity using Steve Navra's cash bond technique.
That equity makes me drool...
Dan
B
brains
Guest
kierenk,
Youre right, i apoligise for jumping the gun. I just put my figures for the properties i have now and it comes up as $89 million in 20 years and only $4.9 in 10 years using 8% growth and 80% LVR. Thats amazing compounding! unless ive done something wrong.
Youre right, i apoligise for jumping the gun. I just put my figures for the properties i have now and it comes up as $89 million in 20 years and only $4.9 in 10 years using 8% growth and 80% LVR. Thats amazing compounding! unless ive done something wrong.
What is a reasonable maximum long term LVR?
From my earlier post,
The spreadsheet is a rough guide. Caution/Thinking needs to be applied to the inputs and acceptance of the results.
The spreadsheet input that I am least confident about is LVR.
What is a reasonable long term maximum LVR?
There are many variables, of course. The old CG v's Yield issue a prominent factor. Personal risk profile. General strategy.
I'd always like to keep a buffer of available & unused approved funds of about 10% of total borrowings. I think an actual used LVR of about 65% would be OK. (In reality would have about 110% of 65% = 72% approved.)
That is, spreadsheet input 65%.
Maybe I'll have different ideas after attending Steve Navra's course in Perth next month!
I would appreciate comments from others on a sustainable long term maximum LVR.
From my earlier post,
The spreadsheet is a rough guide. Caution/Thinking needs to be applied to the inputs and acceptance of the results.
The spreadsheet input that I am least confident about is LVR.
What is a reasonable long term maximum LVR?
There are many variables, of course. The old CG v's Yield issue a prominent factor. Personal risk profile. General strategy.
I'd always like to keep a buffer of available & unused approved funds of about 10% of total borrowings. I think an actual used LVR of about 65% would be OK. (In reality would have about 110% of 65% = 72% approved.)
That is, spreadsheet input 65%.
Maybe I'll have different ideas after attending Steve Navra's course in Perth next month!
I would appreciate comments from others on a sustainable long term maximum LVR.
