Living off Equity
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Have you read Rixters post (dissertation) on LOE?
http://www.somersoft.com/forums/showpost.php?p=425864&postcount=2
http://www.somersoft.com/forums/showpost.php?p=425864&postcount=2
This has been covered many times...use the search function. 
Good luck...
Good luck...
This has been covered many times...use the search function.
Good luck...
Yeah, good luck using 'LOE' on the search function
You'll need to expand the term because 3 characters is too short. FFS.
Do a google search by typing in:
site:somersoft.com "LOE"
This gets you 147 results (as of now)
site:somersoft.com "LOE"
This gets you 147 results (as of now)
Mate,
LOE and Positive cash flow are usually mutually exclusive. People go the LOE route when their portfolio is more set-up as a growth over cash flow portfolio. If it was a high yield, low growth portfolio then you'd just spend the surplus cash flow.
The idea of LOE is to spend the surplus growth you get out of the portfolio. Key word "surplus". ie. you need to leave at least inflation rate growth in the portfolio to maintain your purchasing power in real dollar terms.
Anyway, I posted up some spreadsheet examples in the past on this topic when Steve Navra was still hanging around. I'm sure they're still lurking somewhere if they haven't been archived already. I am getting old now after all...
*edit* Quick search turned it up:
http://www.somersoft.com/forums/showthread.php?t=22559
http://www.somersoft.com/forums/showthread.php?t=26452
Links from 2005 and 2006. Have I really been here THAT long...
Cheers,
Michael
LOE and Positive cash flow are usually mutually exclusive. People go the LOE route when their portfolio is more set-up as a growth over cash flow portfolio. If it was a high yield, low growth portfolio then you'd just spend the surplus cash flow.
The idea of LOE is to spend the surplus growth you get out of the portfolio. Key word "surplus". ie. you need to leave at least inflation rate growth in the portfolio to maintain your purchasing power in real dollar terms.
Anyway, I posted up some spreadsheet examples in the past on this topic when Steve Navra was still hanging around. I'm sure they're still lurking somewhere if they haven't been archived already. I am getting old now after all...
*edit* Quick search turned it up:
http://www.somersoft.com/forums/showthread.php?t=22559
http://www.somersoft.com/forums/showthread.php?t=26452
Links from 2005 and 2006. Have I really been here THAT long...
Cheers,
Michael
I'd disagree with that. IMO, LOE & +ve c/f work together v. well together as a balance between having a steady & reliable income & also having the benefits of earlier retirement & tax efficiency that LOE provides.
See the Different Implementations of the LOE thread from 2006 for ideas about how to find a balance.
Pure LOE has always been risky - see Living off equity – a Reality Check thread, but after recent events even more so.
Not sure if these spreadsheets take volatility into account. Volatility of house price growth is the most important aspect of LOE - most spreadsheets assume a steady 7%pa growth which will give a nice warm fuzzy feeling, but is likely to fail in reality. See The Plan thread & particularly the spreadsheet attached to post #6.
Someone needs to stick a big fat link to all the REALLY common stuff at the top of the website, rather than in a stickied post somewhere ...
didnt want to start a new threadd plus couldnt find the other thread either
I assume I know the basics of living off equity,
so for arguments sake, say you buy now for $500k, worth $1m in 10 years
you go to the bank and get 80% out, which is $800k, so you have $300k in your offset
if you spend that $$ on lifestyle, eg hoklidays, cars, boats, plastic surgery or 300,000 $1 slurpees from 7/11
its essentially tax free income,
BUT you obviously pay home loan interest rates on it so its like having a 5% credit card with a limit of $300k, but the only difference is if you decide to sell the house, then the creidt card will be paid off
which brings me to my next point, I get that if you are going to refinance for the sole purpose of leveraging furhter, then thats damn great!
but since you are paying interest on it, and if you do spend it on lifestyle, then your cashflow goes down.....
is the above correct?
However, by keeping the asset and assuming it appreciates, then paying homeloan rates to fund your lifestyle via equity may be worth it
How do people other then to sell the property, manage to control/judge the balance between (if any ) further investment vs lifestlye?
I assume I know the basics of living off equity,
so for arguments sake, say you buy now for $500k, worth $1m in 10 years
you go to the bank and get 80% out, which is $800k, so you have $300k in your offset
if you spend that $$ on lifestyle, eg hoklidays, cars, boats, plastic surgery or 300,000 $1 slurpees from 7/11
its essentially tax free income,
BUT you obviously pay home loan interest rates on it so its like having a 5% credit card with a limit of $300k, but the only difference is if you decide to sell the house, then the creidt card will be paid off
which brings me to my next point, I get that if you are going to refinance for the sole purpose of leveraging furhter, then thats damn great!
but since you are paying interest on it, and if you do spend it on lifestyle, then your cashflow goes down.....
is the above correct?
However, by keeping the asset and assuming it appreciates, then paying homeloan rates to fund your lifestyle via equity may be worth it
How do people other then to sell the property, manage to control/judge the balance between (if any ) further investment vs lifestlye?
Unless you're going to use a fairly advanced strategy such as cashbonds, I wouldn't even get into this topic again.
The original post was in 2009. The lending environment back then was substantially different to what it is now and there were ways which you could borrow money and apply it to 'living off equity'. Those methods of borrowing money are now completely shut down.
The bottom line is you can't refinance once the money runs out, unless you have a source of income
The original post was in 2009. The lending environment back then was substantially different to what it is now and there were ways which you could borrow money and apply it to 'living off equity'. Those methods of borrowing money are now completely shut down.
The bottom line is you can't refinance once the money runs out, unless you have a source of income
i disagree with that, I dont do cashbonds either for the record
but you can still do 80% LVR on refinance, even higher
I dont know which lending policies you are talking about, but how can you not live off equity in 2014 with 80% LVR?
Say you have $5m in assets, and 2.5m in loans,
you could easily pull out 80% and have $1.5m in offset (obviously you have to be able to service it)
As the investor, with LOE, you don't need to worry about any of that stuff.
All of the control aspects within your life and judging is done by your Banker.
You get to carry on with your blissful LOE funded life until they decide to pull your plug.
Then you come back here and start a new thread starting with "please help me...."
I can imagine scenarios where LOE could work in the current environment. As others have said, ongoing LOE will no longer work, but a one-off draw down of available equity while still able to demonstrate serviceability could work.
eg If I have $10M portfolio with $7.5M debt with neutral c/f, that is expected to increase by $100K within 5 yrs.
I could draw down $500K today to give 80% LVR and live off the $100K tax free pa (inc paying interest on it) until the rent increased by $100K in 5 yrs time.
That could buy me retirement 5 years early.
eg If I have $10M portfolio with $7.5M debt with neutral c/f, that is expected to increase by $100K within 5 yrs.
I could draw down $500K today to give 80% LVR and live off the $100K tax free pa (inc paying interest on it) until the rent increased by $100K in 5 yrs time.
That could buy me retirement 5 years early.
Or
You could set up a LOC and live on the rents while paying the loan interest with the LOC. Interest could be deductible with careful planning.
Am I on the right track?
Is this even possible?
1st Rule of LOE is don't talk about LOE
lmao !
it will become a banned topic soon !LOE has fallen way behind in my poll: http://somersoft.com/forums/showthread.php?t=95619
Have to mention Dazz's comment: ...You get to carry on with your blissful LOE funded life until they decide to pull your plug. Then you come back here and start a new thread starting with "please help me...." - Classic Dazz commentary !
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