Living off equity

[investor2009]

Speak to Landlubber. MASSIVE portfolio though. Amazing effort

 

[peastman]

If we take these as fact:-

-Capital city property tends to increase in value over time.
-The power of gearing is huge.
-If you earn money, you have a legal and moral obligation to pay tax.
-Borrowing money to live on is bad debt.
-Borrowing money to buy income producing property that will increase over time is good debt.

LOE will work if instead of borrowing money to live on, you sell a property and buy another to replace it. Net proceeds of the sale are placed in some sort of pension fund that banks see as income.(Annuity or Super)

I have attached a spreadsheet that shows earnings.

 

[virgo]

Loe

I have clients (not many) who are doing it, they built their asset base, had the capital growth as well as super and prior to retirement over a couple of years, set up their loan facilities by refinancing and establishing facilities for long term retirement based on LOE mainly. The properties return an overall positive cash flow, not enormous but will grow over time.

If circumstances change, their strategy will be to sell their IP's over time to reduce debt, however the risk is that they are unlikely to be able to borrow again. They understand that so it was critical to put the facilities in place when they were working. Another benefit of using multiple lenders. They use a combination of LOC and offset facilities against IP loans.

.

I like this

My personal view is that living PURELY on LOE is dangerous...too much power in the hands of your bankers.

My retirement strategy is multi-prong and simple:

Cash flows will come from:

a) one third from net rents

b) one third from super pension (account based pension)

c) one third from bank deposits/share dividend.

I subscribe to this view:http://www.financialsamurai.com/achieve-financial-freedom-slice/


The idea for me is to hold on to my IPs as long as i can to reap capital gains long term PLUS to let compound interest work its magic on the account based pension....

The ideal situation is when you can draw down on your super monthly without touching the original Financial Nut...so that it will compound and grow...

However, if there were any gaps or if i want my hubby to retire 5 years earlier, the redraws/offsets/reverse mortgage will help plug it...

 

[Dazz]

Speak to Landlubber. MASSIVE portfolio though. Amazing effort

You need to read his posts more carefully.

Despite Landlubber's very impressive residential portfolio (+20 residential properties with a LVR of ~ 50%) he stated very recently that he does in fact L.O.E (Equity).....not L.O.G (Growth).

Misnomers and labels seem to reign supreme here in this tiny field. One slip or one misinterpretation of one single word, and your whole plan comes crashing down to the ground.

The way this LOE is sold to everyone as a great concept is that the investor acquires a sufficiently large enough portfolio, approaches the bank for a line of credit supported by the equity they have built up, pulls the pin from their job and then lives off the LOC, with the underlying assumption that the equity growth from the portfolio outstripping the cost of their retirement needs.

This is actually L.O.G., not L.O.E. as it is sold to the masses as a concept.

I don't see too many schemes being flogged where at the end of it, the investor is left with bugger all, and the next generation inherit nothing. Well, maybe not "nothing".....the Bank will step in waaaay before then and pull the plug on your retirement plans.

Clearly, Landlubber's portfolio, whilst being large, is not big enough, nor growing enough for him to L.O.G., and he is having to chew into his equity (by having to occasionally sell a property or increase his LVR) to sustain the cashflow drain of retirement.

It's a subtle difference, but one not lost on the Bankers who now control his retirement. His counterplan of having to sell the lot if the Bank comes a calling, doesn't sound that crash hot to me......CGT would be a killer, especially if all 20 were dumped in the same FY. His portfolio, acquired from 1986 thru 2008 is fully exposed to CGT liabilities.

Landlubber's decision to diversify (albeit only 10%) of his portfolio into a tax free environment which delivers dividends and imputation credits with little hassle seems like a sensible approach.

Relying on residential rents and paying tax on that income and expenses and putting up with all of the maintenance issues seems to be a 'less than optimal' end game, although some do deem to make it work - our very own Chrispy for example.

As someone who has been exclusively living off rent (LOR) for over 5 years now, I cannot attest to the long term stability of the strategy, but in both the short and medium term, it has proven to be stable enough to retire on.....enough such that the portfolio doesn't need to be sold off in chunks, and the LVR doesn't need to be increased, and one in which I don't have to shake at the knees every time I meet the Banks.

The major difference is in both the quantity and quality of the cashflow streams from your Tenants. Being able to prove on paper (to the satisfaction of your Banker) a guaranteed income stream from a Tenant such as a Govt Dept or multinational corporation over the next 15 years beats hands down (in the eyes of a Bank) a score of Mr and Mrs Averages who are exposed to all of the vagaries and ups and downs of modern life.

** Note well : I am not having a go at Landlubber. For a wage earner who has got off his laurels and built a portfolio up from his efforts is to be commended. All I'm trying to point out is, despite the impressive size of the portfolio, it is still not big enough or productive enough to sustain the load of retirement cashflow needs without having to eat into the portfolio.

 

[redwing]

You need to read his posts more carefully.

Despite Landlubber's very impressive residential portfolio (+20 residential properties with a LVR of ~ 50%) he stated very recently that he does in fact L.O.E (Equity).....not L.O.G (Growth).

Misnomers and labels seem to reign supreme here in this tiny field. One slip or one misinterpretation of one single word, and your whole plan comes crashing down to the ground.

The way this LOE is sold to everyone as a great concept is that the investor acquires a sufficiently large enough portfolio, approaches the bank for a line of credit supported by the equity they have built up, pulls the pin from their job and then lives off the LOC, with the underlying assumption that the equity growth from the portfolio outstripping the cost of their retirement needs.

This is actually L.O.G., not L.O.E. as it is sold to the masses as a concept.

I don't see too many schemes being flogged where at the end of it, the investor is left with bugger all, and the next generation inherit nothing. Well, maybe not "nothing".....the Bank will step in waaaay before then and pull the plug on your retirement plans.

Clearly, Landlubber's portfolio, whilst being large, is not big enough, nor growing enough for him to L.O.G., and he is having to chew into his equity (by having to occasionally sell a property or increase his LVR) to sustain the cashflow drain of retirement.

It's a subtle difference, but one not lost on the Bankers who now control his retirement. His counterplan of having to sell the lot if the Bank comes a calling, doesn't sound that crash hot to me......CGT would be a killer, especially if all 20 were dumped in the same FY. His portfolio, acquired from 1986 thru 2008 is fully exposed to CGT liabilities.

Landlubber's decision to diversify (albeit only 10%) of his portfolio into a tax free environment which delivers dividends and imputation credits with little hassle seems like a sensible approach.

Relying on residential rents and paying tax on that income and expenses and putting up with all of the maintenance issues seems to be a 'less than optimal' end game, although some do deem to make it work - our very own Chrispy for example.

As someone who has been exclusively living off rent (LOR) for over 5 years now, I cannot attest to the long term stability of the strategy, but in both the short and medium term, it has proven to be stable enough to retire on.....enough such that the portfolio doesn't need to be sold off in chunks, and the LVR doesn't need to be increased, and one in which I don't have to shake at the knees every time I meet the Banks.

The major difference is in both the quantity and quality of the cashflow streams from your Tenants. Being able to prove on paper (to the satisfaction of your Banker) a guaranteed income stream from a Tenant such as a Govt Dept or multinational corporation over the next 15 years beats hands down (in the eyes of a Bank) a score of Mr and Mrs Averages who are exposed to all of the vagaries and ups and downs of modern life.

** Note well : I am not having a go at Landlubber. For a wage earner who has got off his laurels and built a portfolio up from his efforts is to be commended. All I'm trying to point out is, despite the impressive size of the portfolio, it is still not big enough or productive enough to sustain the load of retirement cashflow needs without having to eat into the portfolio.

Isn't LOE the same as LOG, you are eating into the equity produced by previous years growth?

 

[D.T.]

Isn't LOE the same as LOG, you are eating into the equity produced by previous years growth?

Not sure he'll be able to reply to your question

 

[oc1]

Not sure he'll be able to reply to your question

Pity. He could have knocked some sense into newbies thinking they could retire on LOE/LOG by taking advice off people who have been using the strategy for a massive 6 months.