Living off equity – a Reality Check

[Gordon Gekko]

Hi All,

There have been heaps of posts of late on "How are you planning on retiring" "Living off equity" and so on.

My plan is: (please please tell me if this all sounds too simple or just wrong)

Buy as many median priced IP's as i can possibly service, hoping to own 2.5 - 3 mil in IP's, sell the lot. (I know, CGT) But i don't want to own IP's when i retire, i see IP's as a vehicle to get where i want to go, not a lifestyle.

Invest the money into income producing investments, cash (bank), shares (bluechip dividends) So what i am saying is to live off the interest and dividends, making sure that i reinvest a couple of % each year to keep the "balance" level.

Would love some comments and i am sure i will get them

GG

 

[Steve Navra]

Buy as many median priced IP's as i can possibly service, hoping to own 2.5 - 3 mil in IP's, sell the lot. (I know, CGT) But i don't want to own IP's when i retire, i see IP's as a vehicle to get where i want to go, not a lifestyle.

Invest the money into income producing investments, cash (bank), shares (bluechip dividends) So what i am saying is to live off the interest and dividends, making sure that i reinvest a couple of % each year to keep the "balance" level.

I'm writing about exactly this, at this very minute!!

 

[Corsa]

And you could say - "No-worries mate, you obviously don't need the first 4 pages of my strategy, you're onto to the last page. Sit down, have a cup of tea, this is the plan - here's a spreadsheet of your personal situation."

And they I'd say, "Wow, the numbers looks great, but what about -

• the risks you peceive
• what is the assumed worst case scenario
• what buffers are required
• exit strategies employed as attitude to risk changes
• at what point is retiring using LOE viable - I realise it is different for everyone, but give an example using $100Kpa nett
• asset allocations
• any adjustments that may be required if worst case scenario happens
• is any active time/effort required (in retirement) to monitor/adjust anything
• is LOE the solution for everyone, or are there categories of (possibly risk-averse) people it is unsuitable for

And also explain your answer in the context of 22 yrs (and counting) of 0% growth in Japan that no-one ever thought could possibly happen."

Cheers,

Keith

Dear Keith

I am reading your posts, and I fear that they are crossing the line a bit in my opinion.

Steve is clearly in the business of Wealth Creation and Financial Planning, however I dont think that you should expect a lot of this validation for free via the forum. I also think a lot of this has been answered in a number of posts on this topic before.

If you have these kinds of questions on how you can make it work for you, I think that you should contact Steve, have a coffee and go through your situation.

Yes, we are very lucky here on Somersoft, with some very clever people who contribute much of there time responding to various peoples situations and scenarios, including people like Steve who obviously contributes on the forum a lot probably both from a personal and professional point of view.

Perhaps I am posting out of context a bit, but I think that what you are asking Steve to provide is more than what should technically be expected to be provided - more importantly when Steve does this kind of thing for a living.

Best Wishes

Corsa

 

[Pete]

Corsa,

While appreciating your comment, Steve is doing this voluntarily. I trust that he will let us know if we are asking too much.

cheers,

 

[Corsa]

So where are you??

Come by and I will continue the conversation

Regards,

Steve

Pete

I think that he has.

In anycase, if Steve is happy to answer Keithj specific posts about his situation, then that is his perogative, I just personally don't like the posts that I am reading. I dont like the whole thought of "Give an inch..and people take a mile", I have been in that situation myself before.

I dont mind the general motherhood posts, I think Steve is a great asset to the forum and I am appreciative of all who have contributed to this post and others to get this topic out on the table.

Best Wishes

Corsa

 

[plumtree]

Dear Simon,

You are right that property and land will always be valuable and even more so in the long run. It is very definately a 'supply and demand' thing as you clearly point out. However, LOE is reliant upon property values increasing. What say the next 10 to 20 years remain relatively stable at the very worst.
This LOE theory will be a shaky proposition by my guess. I am looking very hard at the concept with the idea in the back my mind that this is good stuff but also at the back of my mind I have this nagging suspicion that the formula's basic precept of continual growth is flawed.

 

[Pete]

thanks, Corsa

 

[beeroll]

Japan has not had 0% growth...

Hi all,

Really interested to see where Steve takes us next. Here's a difficult question for you, though, Steve - when the 'tahs play a South African team, who are you barracking for ;-)

Now, someone mentioned Japan and its 0% growth in property prices over the last 22 years. That's not quite true. Prices are a little higher in Tokyo now than they were in 1983. However, prices dropped very sharply from their peak in 1990/91 - about 40-60%, depending on the kind of property. They have been steadily decreasing ever since. You can see the chart for condominium prices p/sq.m here:
http://www.reinet.or.jp/e/mjr/200403.htm#g11

The Economist has a chart of price and growth indicators for markets around the world. They are bearish on real estate, and have been for a while now. The latest article is here:

http://www.economist.com/finance/displayStory.cfm?story_id=3722894

Two interesting things to notice: first, Japan shows -25% growth for the period 1997-2004. That would be a very bad outcome for LOE, I would think. Negative income!

Second, Australia topped this same chart in 2002, now it is down among the cellar dwellers like Switzerland and Singapore.

Not quite Japan or Germany yet, though

Cheers,

Ben

 

[simonjulie]

Hi Plumtree
All I can say is "When growth there it's good and when it's not it's time to look for other profitable avenues of investment."
I think Steve said that earlier in another way.
All good strategies work really well until the platform on which they are established changes. I suppose that is why we have to continue to strategize and that is to keep up with the trends and influences of current economic environments.IMHO, I do not believe that there is one sure fire can't beat it formula that works in every situation with the exception of "spend less than you earn and invest the surplus wisely"
Kind regards
Simon

 

[plumtree]

Thanks Beeroll, I was beginning to think my research was screwy. Your references seem to support the idea that LOE is a weak concept if long term market stability is possible. Which I think is exactly what we should anticipate.

 

[plumtree]

Thanks Simon and don't forget " when the going gets tough, the tough get going" but what is your opinion on LOE when faced with the possibility of 20 years no growth in property.

 

[Steve Navra]

Perhaps I am posting out of context a bit, but I think that what you are asking Steve to provide is more than what should technically be expected to be provided - more importantly when Steve does this kind of thing for a living.

Corsa,

While appreciating your comment, Steve is doing this voluntarily. I trust that he will let us know if we are asking too much.

Hi Pete and Corsa,

Thank you for the kind sentiment.




I am happy to see anyone at my office FREE!
(book an appointment first please)




I don’t charge fees and am always happy to chat about investing. (Thank goodness I love my hobby)



If a client sees value and enlists my help to set up structure, acquire assets etc; then I might earn a commission for placing this business.


Regards,
Steve

Here's a difficult question for you, though, Steve - when the 'tahs play a South African team, who are you barracking for ;-)

The BRUMBIES



PS: Halfway through chapter 2 . . . after the rugby

 

[simonjulie]

Thanks Simon and don't forget " when the going gets tough, the tough get going" but what is your opinion on LOE when faced with the possibility of 20 years no growth in property.

I have not experienced 20 years. But down here in the "Promised Land"(ACT) we see some long periods of "Growth droughts" but fortunately rental yields have seen us ,personaly, through those times. We have historically seen slow growth and negative growth in some areas of Canberra through the early to late nineties.
I'm not scared. Just flexable
Kind regards
Simon

 

[keithj]

I think that he has.

In anycase, if Steve is happy to answer Keithj specific posts about his situation, then that is his perogative, I just personally don't like the posts that I am reading. I dont like the whole thought of "Give an inch..and people take a mile", I have been in that situation myself before.

I dont mind the general motherhood posts, I think Steve is a great asset to the forum and I am appreciative of all who have contributed to this post and others to get this topic out on the table.

Hi Corsa,

Just got back from making the kids tea.

I'm sorry if the post you mentioned came across badly (as a s/w engineer I can relate to quolls post). I was trying to get across to Steve that I could conceive a scenario where the post retirement phase could be completely decoupled from the pre retirement phases, and therefore the pre-retirement phases of his whole strategy could be skipped for the purposes of this thread.

I also apologise if it appeared that I was trying to get free advice - I'm asking specifically generic questions that anyone on this forum who is considering LOE in retirement should ask as part of their Due Diligence.

As I've said - I have retired - I don't use LOE. I have also said in this thread that I couldn't answer to my satisfaction the questions I have asked Steve, so I don't use LOE.

As I'm looking at LOE from the other side of the retirement fence, I believe my perspective may be different from many others (simon & julie are notable exceptions).

Cheers,

Keith

 

[Corsa]

Thank Keith for clarifying your post.

No worries, its all good.

Best Wishes

Corsa

 

[Gordon Gekko]

Originally Posted by Gordon Gekko

Buy as many median priced IP's as i can possibly service, hoping to own 2.5 - 3 mil in IP's, sell the lot. (I know, CGT) But i don't want to own IP's when i retire, i see IP's as a vehicle to get where i want to go, not a lifestyle.

Invest the money into income producing investments, cash (bank), shares (bluechip dividends) So what i am saying is to live off the interest and dividends, making sure that i reinvest a couple of % each year to keep the "balance" level.

I'm writing about exactly this, at this very minute!!

Steve, are you saying, in you view, that i am on the right track ??

GG

 

[keithj]

Originally Posted by Gordon Gekko

Buy as many median priced IP's as i can possibly service, hoping to own 2.5 - 3 mil in IP's, sell the lot. (I know, CGT) But i don't want to own IP's when i retire, i see IP's as a vehicle to get where i want to go, not a lifestyle.

Invest the money into income producing investments, cash (bank), shares (bluechip dividends) So what i am saying is to live off the interest and dividends, making sure that i reinvest a couple of % each year to keep the "balance" level.



Steve, are you saying, in you view, that i am on the right track ??

GG

Patience GG, patience. You only have to wait till after the rugby for chapter 2. I have to wait till chapter 5!

Cheers,

KJ

 

[Sultan of Swing]

NOOOOOO.. I love being guided through a thought process, asking someone to cut to a summary in a discussion is a sure fire way to leave 90% of the readers unclear on great swathes of Steve's approach.

I agree

Please be patient Keith, I want as much detail is i can get, print it off and publish a book (Just kidding)

Seriously, the detail is important and it sounds as if most here appreciate the time and effort you're putting into this for us Steve and would hate to see anything missed out.

Thanks again

 

[Alan H]

The Japan example is interesting.

One of Steve's basic premises of 'Rental Reality' is one that immediately gelled with me and made abundant sense. (Some of Steve's other ideas took me a little more time to absorb and some I am still pondering about for my present situation. This is probably not a reflection on the ideas so much as my absorbtion level.

I don't have the figures, but it would be interesting to know, had Steve been buying in Japan, when he would have stopped buying based on 'Rental Reality'.

As it's an example that often gets bought up, have you ever looked at that out of interest Steve?

 

[beeroll]

Steve Navra mumbled:

The BRUMBIES

Should have known you would back Australia's "winning" team!

B