LOE Model

[D.T.]

So LOD (living on dividends) is the trend now?

If someone had set themselves into an LOE structure would they now be screwed due to Geoff's remarks about reduced bank willingness? They'd just have to come up with another exit plan since presumably they'd have equity, right? (Similar to LL's)

 

[geoffw]

If they had already set themselves in a LOE structure tey would have been fine. It's people starting now who would have difficulty doing the same.

LOD would involve margin lending, and I don't know the criteria which could be applied by the banks towards that now.

 

[redwing]

After many years of tenants and agents and their BS and repairs we're quite warming to shares with 8 -10% grossed up dividends and no rates, no repairs, no damaged properties, no insurance etc etc etc.

As long as you're not leveraged up the wazza also, the GFC handed out a nasty dish to many retiree's

We're looking at both as part of our retirement, can I call it LORD, after all you also need to have faith

Living On Rents & Dividends

Throwing an Interest and Equity strategy in there would give you LORDIE, cycling through these to take advantage of cycles would give you LORDIE, LORDIE

 

[landlubber]

Oh LORDIE LORDIE !!!

Actually Redwing, there is some truth in your LORDIE jest. Living On Rents, Dividends, Income (i.e, fixed income (i.e. bonds etc )) & Equity is about it.
I still think property ( Dazz can argue industrial/commercial vs resi etc ) is the most enduring store of wealth, if only for the simple reason that it's hard to lose and difficult, but not impossible (for the financial-white-shoe-brigade) to steal !
Our strategy (for the next "5 years or so) is hold our leveraged (about 50% LVR) properties outside our SMSF; and hold "other investments" (particularly fully franked shares) un-leveraged in our SMSF, which is in pension phase and hence is a tax free environment ...until the gov't changes it !!!!!!) But, it still remains that somewhere along your track you have to build up equity. You have to buy an asset and increase it's value. If, as we did, you have the biggest growth in the history of debt (of all types) as the-wind-at-your-back ...well, then you can kid yourself that you're a wise investor ....LL

 

[MTR]

I know someone who tried LOE over the last 5 years and now they have nothing, the last property they sold was their family home about 4 months.

What they did was play in the same property market rather than diversifying, the property market crashed, they still continued to LOE. IMO they also did not have enough equity/properties to reduce risk.

I guess we have seen so many changes, ie banks, GFC etc. Many have probably realised they need to review their strategies, negative gearing and LOE probably do not cut it anymore.

Anyone know what has happened to Michael Y, I bet his not preaching this model anymore???

 

[geoffw]

Michael is still out and about. But I thought that it was actually Mr Navra who was advocating LOE especially with annuities (cash bonds).

 

[MTR]

Michael is still out and about. But I thought that it was actually Mr Navra who was advocating LOE especially with annuities (cash bonds).

Hi Geoffw,
Yes, I new Navra did, not sure what happened to him.

Michael Y, I thought the same, I know he recommends blue chip, highly neg stuff that will double every 7-10 years and I assumed LOE??

 

[landlubber]

LOE maybe ..... but never LOGE

I know someone who tried LOE over the last 5 years and now they have nothing, the last property they sold was their family home about 4 months.

The last five years have been a good acid test for sure. RBA with all it's economic "brains" puts IRs up, and no sooner brings them down again. How do you ever make sense of this rubbish ? What used to scare me was some (many?) LOE spruikers were in fact promoting LOGE ....i.e. live on the GROWTH in equity. Put simply; own $1mill in property; goes up 10%; spend the $100K equity; goes up 10% again; repeat ....
Anybody who read Jan's book that clearly says "property does not increase in value linearly nor every year" knew that proposal was flawed. I feel sorry for them. LL

 

[MTR]

The last five years have been a good acid test for sure. RBA with all it's economic "brains" puts IRs up, and no sooner brings them down again. How do you ever make sense of this rubbish ? What used to scare me was some (many?) LOE spruikers were in fact promoting LOGE ....i.e. live on the GROWTH in equity. Put simply; own $1mill in property; goes up 10%; spend the $100K equity; goes up 10% again; repeat ....
Anybody who read Jan's book that clearly says "property does not increase in value linearly nor every year" knew that proposal was flawed. I feel sorry for them. LL

Hi LL
THanks for sharing your experience I find it very interesting. Do you think will eventually sell all your properties??

MTR

 

[Peter_Tersteeg]

LOE doesn't really work in isolation any more, you simply can't continually borrow more money without a decent income to support the borrowing.

Most people who still do it successfully are already in a position where they could live off other income sources such as rent. The LOE stragegy simply enhances their already strong position.

It's almost a case of, "If you don't already know how to do it, you're not in a position to do it anyway."

 

[landlubber]

Only time will tell...

MTR... I don't think so. For all it's foibles ( I reckon ) it's still the best store of wealth. (Hard to lose ( don't laugh, this is important as you get older ..) hard to steal) etc. and a good inflation hedge. But we are culling-our-herd as in previous post due to the tax-free attraction of the SMSF pension phase. The pension income we draw is not just tax-free, it's non reportable. IOW it's not counted as income as far as our property "business" (outside our SMSF) is concerned. Them's the rules !! LL

 

[geoffw]

Hi Geoffw,
Yes, I new Navra did, not sure what happened to him.

Michael Y, I thought the same, I know he recommends blue chip, highly neg stuff that will double every 7-10 years and I assumed LOE??

Navra crash bombed in the GFC. Taking some people with him.

I know MY advocates growth property. Highly neg isn't a prerequisite- he gives strategies for reducing outgoings. I can't speak for his views on LOE.

 

[redwing]

Navra crash bombed in the GFC. Taking some people with him.

I know MY advocates growth property. Highly neg isn't a prerequisite- he gives strategies for reducing outgoings. I can't speak for his views on LOE.

In Chapter 23 of MY's book he discusses the concept of living off the increased equity of your properties

Here's an old spreadsheet from the interweb, note kudos to James GG and somersoft reference

 

[Intrinsic_Value]

LOD would involve margin lending, and I don't know the criteria which could be applied by the banks towards that now.

LOD with margin lending is working jus fine, at least for this cycle.
Of course with most margin lending accounts there are day to day system reviews of the LVR ratio. If the ratio falls below the required, one only usually has 24hrs to rectify it, so its different to property.

There are some international investments banks that offer a general LVR ratio over the entire portfolio (but with a fixed lending limit, higher limits need to be applied for).

I am under such a situation, its good for me, as i can effectively margin lend against small and micro cap stocks which normally wouldnt be allowed under more traditional margin lending structures.

To reduce risk that the lender takes my securities from a 'storm financial' type situation, i pay another financial institution to act as custodian for my securities.

The securities go into a seperate custodian account, against which no borrowings are allowed by the institution (ie the custodian cant borrow against my shares). Obviously this costs money, in my case i have to pay 25 basis points of the entire value of the portfolio (around $10k a year for this service)

 

[peastman]

We are getting close to our next phase and will start LOE probably next year.

I have done a spreadsheet that covers all sorts of scenarios, interest rates , inflation, capital growth, it still works.

Recently I have been checking with banks about putting proceeds into an annuity to qualify as income to support a loan, the answer has been "no problems, that will work fine". One issue was raised that at a certain age, banks will not lend any more money, but on investigation I have found that is true if a PPOR is used as security, but not if security is from investment properties.

Bring on next year

 

[Rixter]

Recently I have been checking with banks about putting proceeds into an annuity to qualify as income to support a loan, the answer has been "no problems, that will work fine".

Ditto here also.. Still works.

All the best for next year Peastman. Im doing the same then as well - fully LOE. We've been partial LOE for years.

 

[Oscar]

LOEv (Living off Everything)

Not trying to be cute, but currently having a ball living off rent (Oz resi), high yielding rent (US resi), dividends (Oz share funds), international dividends (US shares), high income (J.O.B), interest (cash in bank), and capital growth in most of these asset classes. Yes my job is an asset as well.

Almost bought a CIP in Ireland but the banks weren't playing. 25% return on about 450K euros. Time to make some more hay while...........

hope your investing is fruitful.

LOEv

 

[The Fence]

Hi there peastman!

Just had a look at your blog and have a question if I may.

Your plan says after the 15 yrs to sell one and buy one right?

But your workings don't account for the buying of the new one.

You show profit from the selling but no explaining on how to buy the new ones?

 

[peastman]

Hi there peastman!

Just had a look at your blog and have a question if I may.

Your plan says after the 15 yrs to sell one and buy one right?

But your workings don't account for the buying of the new one.

You show profit from the selling but no explaining on how to buy the new ones?

Banks require 2 things to lend money. A deposit or equity, and income.

The portfolio grows over time to give the equity.

The proceeds of a property sale is placed into an annuity which the banks class as income.

 

[dredfern]

Banks require 2 things to lend money. A deposit or equity, and income.

The portfolio grows over time to give the equity.

The proceeds of a property sale is placed into an annuity which the banks class as income.

Hi Peastman,

Are you using your 15 year strategy now yourself?
I would be interested to see the numbers inflation adjusted.

If we were at the 15 year mark now (assuming prices had similarly tripled) could we just say,

250,000 sell price
83,333 less purchase price
166,667 Gross profit
10,000 less buying/selling costs
23,650 less CGT
133,017 Net profit

44,339 per year for next 3 years?