Living Off Equity In Retirement

[BV]

Thank's for that BV, there is a world of reading [and goodness]there for me to wade through.

But being retired with nothing to do at 43 ???

If you look at some of my post's, you'll see Bloss and I have a half built 50 ft cat like the pic and plan on cruising her full time with a yearly project to help with the finances.

BB

BB, nice looking Cat,
Nice company too, I am sure you will enjoy your early retirement
There is nothing worse than retiring when you are too old to do anything...
Cheers

 

[BoatBoy]

BB, nice looking Cat,
Nice company too, I am sure you will enjoy your early retirement
There is nothing worse than retiring when you are too old to do anything...
Cheers

Never noticed the girl's

Unfortunatly my cat is'nt there yet, she has that half built look still, but another 18 mth's and she will be done, and she'll be debt free as well

BB

 

[MC98]

My wife and I expect to retire in 8 years time and we are not sure to what extent the banks will come to the party with high debt, considerable equity but limited income.
Please see figures below. We are three IPs away from our plan.

Age now 51 Age: At retirement 2015 = 59
ASSUMPTIONS CG 9%
INTEREST = 7.5%
RENTAL YIELD =4%
PPOR purch 300k in 1999 and est val in 2015 = 1191 OWING 200 000

IP 1 purch 255k in 2002 and est val in 2015 = 781 OWING 270 000

IP 2 purch 285k in 2005 and est val in 2015 = 674 OWING 300 000

IP 3 purch 365k in 2006 and est val in 2015 = 792 OWING 380 000

IP 4 purch 375k in 2007 and est val in 2015 = 747 OWING 390 000

IP 5 purch 385k in 2008 and est val in 2015 =703 OWING 400 000

IP 6 purch 385k in 2009 and est val in 2015 =645 OWING 400 000


In 2015

TOTAL EST VALUE =5 533 000
TOTAL DEBT = 2 340 000
LVR = 42%
lOAN [email protected]% = 175500
RENTAL INCOME @yield of 4% =173 680
Sundry costs LEVIES ETC. = 40k
Shortfall =42k
Living expenses for 2 in 2015 calculated on current amount of 80k x 1.03 pa
=101k

Will the lenders finance required borrowings of 143 pa, to maintain these expenses, given our only income is 173k rent?

Apologies if you have seen this posting on the main property page. It got buried in the middle of a CGT enquiry and I figured it belonged amongst the property finance threads.

All comments, greatly appreciated

Marco

Hi Marco,

I think you should get a grip mate,

Why is it necessary to have so much wealth. Cant you just sell the properties and live on the income generated from the sales?
If you cant live a reasonable retirement on that amount, which is probably going to be considerably more than most people have then doesn't it all sound just a little bit too greedy.

Why hang on to all those places, are you trying to generate wealth for the next life as well?
Live your life!!!!!!!

 

[BoatBoy]

MC98, firstly welcome to the forum, hope to see you post again.

Plenty of good info here that will help you understand the concept of property investment and in this instance "Living Off Equity".

By selling the property he will not enjoy future capital growth.

A large slice of the profit's made will go to "Little Johny" in Capital Gain's Tax.

If at a later stage Marco decides to get back into the market he will have to buy at the current value, not the value that he bought for years earlier.

He will also have to pay stamp duty and legal fee's again, all on the greater property amount.

Unfortunately selling can cost a lot, and it is like cutting of the head of the goose that lay's the golden egg.

Have fun

BB

 

[Bill.L]

Hi Marco,

While the plan/idea seems good overall, I have a question over the maths you have used.

If you are assuming 9% cap growth on each of the properties each year, then the value of your purchase in 2006 would be....

2007 $397,850
2008 $433,656
2009 $472,685

Yet the purchase price you have for each of the subsequent years is lower. As your purchase price is much lower the figures assume that you are going to purchase a lower quality IP or perhaps further out.

If you expect these properties to grow at 9% as well, then why don't you buy more of these now, as they would be cheaper than what you are currently buying???

bye

 

[MC98]

MC98, firstly welcome to the forum, hope to see you post again.

Plenty of good info here that will help you understand the concept of property investment and in this instance "Living Off Equity".

By selling the property he will not enjoy future capital growth.

A large slice of the profit's made will go to "Little Johny" in Capital Gain's Tax.

If at a later stage Marco decides to get back into the market he will have to buy at the current value, not the value that he bought for years earlier.

He will also have to pay stamp duty and legal fee's again, all on the greater property amount.

Unfortunately selling can cost a lot, and it is like cutting of the head of the goose that lay's the golden egg.

Have fun

BB

hi BB,

I guess thats exactly my point,

Why do you need future capital growth in your retirement years, isn't an income stream good enough? OK so you die with more capital (unrealised thou)

Re sharing the windfall with Johnny, well, you made that windfall with virtually none of your own money anyway, it looked to me as thou all of the money for the IP was borrowed. So why not pay a bit of it in Capital gains tax, you are still well ahead.

Re entering the market in the future, do you really need to be having an investment strategy in your later years,just spend the dough. In any case there is always your residence if needed.

I am not against attempting to make yourself independant in retirement and living comfortably and using property as a means to achieve this, I'm just not convinced that its necessary to pass off the planet with a huge wad of dough.

MC98

 

[Rickson]

Dear MC98

Thank you for raising one of my favourite topics.

It used to be, and in some quarters still is, the favourite advice of the financial planning and superannuation industries, that people, on retirement, should buy some form of allocated pension or income product.

The problem that I see is that people are living longer. It used to be quite common that people, mainly men, retired and some died within a few months, while the median age of death was less than ten years. Probably quite profitable for the providers of the income products.

Now, living healthy lives into the 90s is becoming more common.

I think that retired people need growth assets, and not income products alone. Maybe income products have some place in retirement strategy, but I think that any structured products are expensive and more likely to favour the financial services industry, than individual consumers. That word "consumption" is relevant - we should all keep producing with growth assets rather than consuming.

There may be an argument for consuming the asset base in the last decade of life - the problem is figuring out which decade this will be. And, of course, some people, through investing and other choices, are able to retire early.

Also, though I don't want to make my children wealthy, without requiring effort of their own, I think that IPs are a family business. The children are welcome to some return on the many renos, and the many house inspections.

 

[kissfan]

In post #7 of this thread, I suggested to possibly sell an I/P or 2 (on retirement or whenever feasible)) to reduce or hopefully pay out debt. This would provide an income stream from existing I/P's and still give growth from the same existing I/P's.

So with the income side of things taken care of, if you choose, you can still draw down further equity from the growth which can be used to purchase more I/P's or, what I think is a better way, mgd funds/shares which will provide even more income (all things going to plan).

The option to LOE is still there.

I've basically just repeated what I said before, but I think MC98 is referring to something similar.

Am I correct in that assumption MC98?

Regards
Marty

 

[BoatBoy]

Kissfan and MC98, I can see where you are both coming from, and when I am 60 ish + I /we will probably start doing something similar , as Bloss and I do'nt and wont have kid's to leave anything to, so a sell off at the end makes sense I 'spose.

I realize it's Marco's post, but in our example we will be "retireing " at 43 ish, so a fire sale of our stock would be a bit premature me thinks.

BB

 

[kissfan]

but in our example we will be "retireing " at 43 ish, so a fire sale of our stock would be a bit premature me thinks.

Hi BB.

I'm only suggesting to possibly sell off a small part of your portfolio, i.e do the sums to work out how many I/P's (if sold) it would take to reduce your debt enough that the remaining rents provide enough income to live on.

I'm all for keeping the other I/P's to accumulate further growth.

There are so many different scenarios to ponder and everyones situation and risk tolerance will be different. I suppose the bottom line is how many I/P's one has to work with, equity, LVR, the time frame they are looking at and how much they require to live on for this to be "do-able".

Regards
Marty

 

[BoatBoy]

Hi BB.

I'm only suggesting to possibly sell off a small part of your portfolio, i.e do the sums to work out how many I/P's (if sold) it would take to reduce your debt enough that the remaining rents provide enough income to live on.

I'm all for keeping the other I/P's to accumulate further growth.

There are so many different scenarios to ponder and everyones situation and risk tolerance will be different. I suppose the bottom line is how many I/P's one has to work with, equity, LVR, the time frame they are looking at and how much they require to live on for this to be "do-able".

Regards
Marty

Hi Marty,


All our ip's are all in good spot's and rent well with good tenant's, so no dud's to offload.

We have a 45% LVR at the moment on our 6 IP's, and if we sell half we'll almost own 3 as we'll have to pay cap gain's tax on the sale .

We would then only have $840/week before tax, managment, rates etc,etc in rent coming in which sound's pretty good, until one sit's vacant for a couple of week's [ if and when ]

Plus HTW reckon's Rocky will do another 30% next year like it has for the last 3, so a bit of cap growth could go down the gurgler to the tune of half a mill +

Ouch.

Have to keep investigating this LOE thing, can't bring ourselve's to selling 'em yet.

BB