Hi All Variation on a theme here, mainly in the abstract. Feel free to critique or discuss, something that came to me when I was mentally debating the pros and cons of living on equity or living off the rent. Most serious investors in just resi properties on this site generally agree living off rent is a pretty long term solution and the only real way to do it is to branch out to Commercial or shares. I'm not saying don't do that, but I wanted to look at just resi and see where it takes me... So this model might qualify as somewhere in between the two (LOE and LOrent)and might convince some in the second camp to join the first camp? This model assumes we are in the "mature" part of the investment time line, i.e. buy a heap of properties now, wait 10-15 years, then do this: Assumptions: It's my model, so these are my assumptions! If you don't like 'em, get your own! It might be buy 5 properties at $300K each and then when they double you are in the "mature" stage and ready for this. But the specifics aren't that important... Combined Property Value: $3,000,000 Combined Debt Level: $1,400,000 Rental Yield 5% Interest Rate 7.5% Property Costs $1.5% Inflation Rate: 4% Therefore Year 1 (right now): Rental Income: $150,000 Property Costs: $45,000 Interest: $105,000 Net Rental: $0 Amazing, cashflow neutral, you'd think I planned this or something... Year 2: (next year...) Rental Income: $156,000 (increase with inflation) Property Costs: $46,800 (increase with inflation) Interest: $105,000 (no change, this is the point of investing, but I'll save that speech for another thread...) Net Rental: $4,200 Right that's it, that's my portfolio in X years time, depending on cap growth etc... Now what's the theory? LOE would involve saying something like: With a $3M portfolio, increasing at ~5% pa, I can take $150K pa and live on that, and I'll be sweet. And just borrow the $150K pa. In 10 years you will owe heaps more than you owe now, and this MAY stall if we have another banking / credit crisis, or very flat growth for 6years or so. Living off rents would involve saying something like: Increasing at $4,000 per year, my net rental needs to keep going up for about 15 years before I can live off the rents. By then the equity will be so massive I might as well live off that! I'm not discounting either of those two options but I'd like to look at it a slightly different way. My net rental of $4,200, what will that pay off? Well, at 7.5% interest, on interest only (is there another way?) it pays off a loan of $56,000. So if I got a loan of $56,000 and lived off that for a year(tax free, and the interest is being covered by the net rent, so I get the whole $56K) then my net rental stays the same, year in year out. My net equity increases by $100K pa, if 5% property value increases happen each year. If they don't then I'm only decreasing my equity by $56K, which means in the above example, I can go about 18 years before I get to the 80% of the $3M values, and that's a long time for prices to stay stagnant. So am I living off equity? Yeah I think so, but that is covered by rental, so I will never need an income to cover my interest expense. Is $56K enough? Well that's debatable, but not really worth debating. If it's not enough redo the numbers based on $6M worth of property and you will probably be able to live on $112K. If that's not enough (tax free remember!) you better buy more property. Obviously I would borrow more than $56K on day one. I would try and borrow $1M if I could get it (I'm quite persuasive), especially before I throw in the job, but the specifics aren't important... So anyway, that's what I'm thinking, what do you all think?