Discussion in 'Property Market Economics' started by Perth Investor, 5th Aug, 2010.
So what are you LO....? The proceeds of the annuity...?
The profit made from the IP is used to purchase an annuity anywhere from 1 to 15 year term. You can then elect to have the annuity plus interest paid back to you monthly, quarterly, 6 monthly or annually.
And obviously shared between the repayments on the new debt and livingexp...?
That would depend if you have other income to cover IP holding expenses should the new IP be negatively geared. I would think over a 15 year period earlier purchases would be positively geared enough to offset the later purchased negative shortfalls if any.
Unfortunately it's more than just a few people that he has taken down.
People who were well off and all but retired or in a relatively modest self funded retirement are now broke or bankrupt having listened to all that Navra promised.
His model was not to dissimilar to the whole Storm debacle with lost of debt being utilised to reinvest into the Navra fund.
It is because of this heavy debt load when the GFC happened most of the 'customer's were in -ve equity situations and this kept the fund managers from liquidating the fund in a timely manner.
Bottom line is way to many people were over committed based on bad advice.
But aren't we supposed to be LOE only?
For funding lifestyle yes. There are internal cash flows (ie rents) within portfolio to fund holding costs. I hope this clarifies things for you.
So the rents hopefully cover the holding costs.
However if you are accessing say $100,000-200,000 pa increasing debt each year/compounding debt this will need to be considered.
IMO if I LOE I would want a reasonable property portfolio ie 5-10M and be around 50% LVR.
As a whole, the portfolio is neutral or positive geared.
I have modified my plan a little so I will next year have 8 IP's. This means I can sell one and buy another every 2 years giving 16 years growth every 2 years.
Dredfern, that sounds about right. Obviously $44k after tax is not a huge income, but far better than the pension. So to increase the amount, buy dearer properties and/or more of them. We have now decided on 8 properties and buy/sell every 2 years.
We will sell the first property next year. So far all going according to plan.
I see, I should have read this prior to posting, so not a huge amount that you are accessing each year.
Can you share the numbers....
Peastie ...when you sell #1 IP next year, can you run the numbers for me?
1. selling price ..less selling costs ( agents, legals)
2. payback the loan to the bank ...how much ?
3. your profit....how much?
4. less CGT ?
5. ...then what's the plan for the nett, after tax $$$ please?
I don't know if you have worked this out yet but Resi IPs make very poor retirement assets. Low yields, high running costs and a large amount of capital tied up that you can't access without having to "borrow" from a bank.
Hence the need for these complicated LOE strategies to get your money back.
Why not just sell up and invest in a balanced diversified portfolio or cash, Term deposits, bonds and Equities (both Australian and International)?
If your properties can't provide you with the retirement income you need just sell them.
LOE is just another way of saying "Reverse Mortgage". Reverse Mortgages are terrible ways to access your capital, over the long term the bank owns everything.
That would work, horses for courses. I am more comfortable with property.
Traditional LOE may be similar to a Reverse mortgage, but thats not what is being suggested.
Exactly. Sell one every 2 years and live of the proceeds. Just replace the one thats sold with another.
For me it's not worth selling up.
I'm getting now 15% return on what I paid some years ago, about 6% on current value. To sell, I'd lose a good portion on CGT. I'm better off keeping and living off rent.
Same here Geoff, returns on original purchase price is excellent.
I had my stable of rental properties in Melbourne, which we grew very gradually, paying off each one as went. So we always owned them.
I was then very fortunate in getting in to the Cairns market when it was very low and buying quite a few properties to simply hold and resell when they doubled in value. Although I had to pay CGT I came out miles ahead, paid off the mortgagtes on those properties and ended up with totally owned properties and cash in the bank.
My original stable would always have given me a decent rental income but the purchase and sale of the Cairns properties was the icing on the cake really. So I have been able to renovate and upgrade the Melbourne properties, in between travelling
As per your quote "turning negatives into positives", now I like that strategy very much
Interesting, Handyandy. Reminds me of the stories Jan Somers tells in her book 'Story by Story' of those who ended up loosing the lot by diversifying from resi into other assets.
I always enjoy reading your posts about your investment story, Chris. Yours is the classic buy and hold resi success story!
If you don't mind me asking, how long did it take you to become financially free? Many posts I read now days show people in a desperate hurry to reach financial freedom - but I have a hunch yours took some time?
hey chris, dont take this the wrong way but do you consider yourself lucky in the cairns market? ie did you go in predicting the bottom or did you get a bit lucky,
I see that some areas such as some of the highrises in qld going 10-20-30-40-50-60% below what they were at the peak, but im too scared to get in as I cant tell when they hit the bottom,
youd be pretty annoyed if you got in at 20% below thinking it was going to rebound only to lose antoehr 20%
PS: for the accountants, do you pay CGT or personal tax on refinance??
say buy for $250k, 10 years later its wroth $500k, refinance 75%, withdraw $375k, pay out $250k, that leaves you $125k, do you pay tax on this? since you havent sold the asset
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