Living off equity - myth or reality?
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hi all
just a little word of warning. markets do cycle and at the moment the share is moving and property is down
as property moves up so shares move down.
investing in mf's is great but they not all perform well
and some do cost more then they make after costs and can go negative itr doesn't cost you but you get little or no return.
so its not all roses in that garden.
you do need to invest across a couple of markets to have regular income.
value of investment I would quess its individual
just a little word of warning. markets do cycle and at the moment the share is moving and property is down
as property moves up so shares move down.
investing in mf's is great but they not all perform well
and some do cost more then they make after costs and can go negative itr doesn't cost you but you get little or no return.
so its not all roses in that garden.
you do need to invest across a couple of markets to have regular income.
value of investment I would quess its individual
Obviously a hot topic at the moment. API has a main story on it. Read lengthy article this morning and am none the wiser. Some advocate sell, others borrow more then theres debt reduction. Yes, the experts all say your options will depend on your own circumstances.. yada yada.. but in reality all I want is be able to turn the $1M equity or whatever to something I can live off.
I am also investigating this MF route but the problem I'm finding is working out which ones. Morningstar provides historical performance and fund info on just about every available retail fund. But the key is historical. BT had a stellar run in the 90s but those who invested in 2000 (on the back of solid results) will know what I mean by pain and may have been sworn off MFs as a result.
Like HandyAndy suggested you can margin loan up to about 70% but would have to pay roughly 8.5% interest. Could you do better with the 30% deposit? Perhaps stick to bricks and mortar and buy 2 undervalued IPs with 15% deposit? Or take up Macq's latest structured product - Fusion Funds with 100% loan? But I calculated that my cash break-even on that trade is >12%pa. After tax cost incl put option will be about 6%. Thats a lot of risk for performance that can vary from -40% to 40%pa.
All the information out there is quite confusing really. Perhaps I should just get on with it....
I am also investigating this MF route but the problem I'm finding is working out which ones. Morningstar provides historical performance and fund info on just about every available retail fund. But the key is historical. BT had a stellar run in the 90s but those who invested in 2000 (on the back of solid results) will know what I mean by pain and may have been sworn off MFs as a result.
Like HandyAndy suggested you can margin loan up to about 70% but would have to pay roughly 8.5% interest. Could you do better with the 30% deposit? Perhaps stick to bricks and mortar and buy 2 undervalued IPs with 15% deposit? Or take up Macq's latest structured product - Fusion Funds with 100% loan? But I calculated that my cash break-even on that trade is >12%pa. After tax cost incl put option will be about 6%. Thats a lot of risk for performance that can vary from -40% to 40%pa.
All the information out there is quite confusing really. Perhaps I should just get on with it....
Hi all,
LL, my question of why relates to the purpose of the investments.
For example if there was $6m in equity, and half of it was sold off to reduce loans to $0. IE $5m of the $10m sold off, cgt tax assuming max gains, would not be more than $1m. You have $5m in portfolio and have totally paid off all loans and CGT with the other $5m.
Assuming PPOR to be worth $500K?, then remaining portfolio worth $4.5m. At a 5% yield this would return an income of $225,000 before costs. Assumimng costs of 30% (high), this would still leave an income of $157,000 PA, and you do not have to worry about interest rates nor the return from the stockmarket!!!
If this is the level of equity required to LOE, in relative safety, then the alternative of living off rent, is even more secure, while still giving a decent income.
I am still yet to see how Jan Somers has it wrong in terms of retiring on the income from the rental properties compared to those who propose LOE.
If the reasons for holding heaps of property and sharemarket investments, while holding great debt are different to just living (as in retirement) off equity, then surely go for it. But if the real purpose is just to live comfortibly, while persuing other interests in 'retirement', then the sell down, live off rents, without any worries still holds the cards in my opinion.
bye
LL, my question of why relates to the purpose of the investments.
For example if there was $6m in equity, and half of it was sold off to reduce loans to $0. IE $5m of the $10m sold off, cgt tax assuming max gains, would not be more than $1m. You have $5m in portfolio and have totally paid off all loans and CGT with the other $5m.
Assuming PPOR to be worth $500K?, then remaining portfolio worth $4.5m. At a 5% yield this would return an income of $225,000 before costs. Assumimng costs of 30% (high), this would still leave an income of $157,000 PA, and you do not have to worry about interest rates nor the return from the stockmarket!!!
If this is the level of equity required to LOE, in relative safety, then the alternative of living off rent, is even more secure, while still giving a decent income.
I am still yet to see how Jan Somers has it wrong in terms of retiring on the income from the rental properties compared to those who propose LOE.
If the reasons for holding heaps of property and sharemarket investments, while holding great debt are different to just living (as in retirement) off equity, then surely go for it. But if the real purpose is just to live comfortibly, while persuing other interests in 'retirement', then the sell down, live off rents, without any worries still holds the cards in my opinion.
bye
Hiya Bill
I believe there is no absolute right or wrong........thats what I have learnt, though I may be wrong (but never in doubt
What one person sees as a huge risk, another eats for breaky and vica versa.
Really comes down to risk profile and comfort level of the investMENT and the inVESTOR
ta
rolf
I believe there is no absolute right or wrong........thats what I have learnt, though I may be wrong (but never in doubt
What one person sees as a huge risk, another eats for breaky and vica versa.
Really comes down to risk profile and comfort level of the investMENT and the inVESTOR
ta
rolf
hi all
there is another group that do live off equity and do chew down there investments and sell off as they go.
and thats the groups that have no kids and wish to get rid of there money before they hit the ground
this group is in that nomad grey moving class and is a very powerfull group they have no longer any interest in investing
and have got to that level that they can sell down until there asset base is so small that they no longer care.
they do live off equity.
if you have 10 mil in equity at say 20% lvr and you want to live on 100k per year and just keep running up debt into loan yes it does destroy your structure and is the worse thing you can do but if you don't wish to leave the money or investment to anyone is the best way to do it.
there is always two sides to a coin and I know alot of people that are looking at the other side of the coin.
they are not educated investors they are people that have bought this house because it looked good then the next and so on and then they say I have 6 houses (usually all paid off) and with equity growth they paid 100k and are now worth 800k no one to give it to so lets live off it.
and sell down the same wy they made it run up the debt sell down run up the debt sell down.
and its this market that I think the reverse mortgage is aimed at.
my .002
there is another group that do live off equity and do chew down there investments and sell off as they go.
and thats the groups that have no kids and wish to get rid of there money before they hit the ground
this group is in that nomad grey moving class and is a very powerfull group they have no longer any interest in investing
and have got to that level that they can sell down until there asset base is so small that they no longer care.
they do live off equity.
if you have 10 mil in equity at say 20% lvr and you want to live on 100k per year and just keep running up debt into loan yes it does destroy your structure and is the worse thing you can do but if you don't wish to leave the money or investment to anyone is the best way to do it.
there is always two sides to a coin and I know alot of people that are looking at the other side of the coin.
they are not educated investors they are people that have bought this house because it looked good then the next and so on and then they say I have 6 houses (usually all paid off) and with equity growth they paid 100k and are now worth 800k no one to give it to so lets live off it.
and sell down the same wy they made it run up the debt sell down run up the debt sell down.
and its this market that I think the reverse mortgage is aimed at.
my .002
Hiya Gross
The SKI generation as they have been kindly named (for those not into TLA's thats Spend the Kids Inheritance arent such prolific users of Seniors Mortgage Products, simply because the flag fall LVRs tend to be quite low.
As you say, many of these people do sell assets down over time, having said that I dont know many people that have 6 houses only by accident
ta
rolf
The SKI generation as they have been kindly named (for those not into TLA's thats Spend the Kids Inheritance arent such prolific users of Seniors Mortgage Products, simply because the flag fall LVRs tend to be quite low.
As you say, many of these people do sell assets down over time, having said that I dont know many people that have 6 houses only by accident
ta
rolf
Handyandy,
hmmm ..you do have me thinking now! darn !
With these strategies I think your nickname maybe should "Nifty"
If not too public ( may be PM) would you mind advising what MFs you use ?
I agree LPTs are still "property" but the yields are attractive and they don't tend to "drop 30%" overnight ..hence my interest ...
Thanks for your contributions BTW..most creative and informative.
LL
Firstly HA thanks for your contributions on this subject. Would you mind pming me the same stuff LL has asked?
Thanks
Grimey
Bill ,
You're scenario is quite realistic, in general. But here's our point of view.
1) We're very happy and secure with our overall CURRENT position. No sleepless nights I can assure you !
2) Next ..it depends on where you want to be "in the future". If you're generally optimistic we think property will continue to double every 7 -10 years. So after 7-10 years our "10" becomes "20" and then "40" etc.
I think that's the "main game" here! Fun huh ??
LL
You're scenario is quite realistic, in general. But here's our point of view.
1) We're very happy and secure with our overall CURRENT position. No sleepless nights I can assure you !
2) Next ..it depends on where you want to be "in the future". If you're generally optimistic we think property will continue to double every 7 -10 years. So after 7-10 years our "10" becomes "20" and then "40" etc.
I think that's the "main game" here!
Fun huh ?? LL
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