Hi all,
Thinking seriously about LOE (Living off Equity) starting early next year. Here are the numbers:
The attached spreadsheet shows it will take approximately 9 years for that initial $560k to run out, due to the interest on the increased borrowings being continually capitalised. However at that point I should have approximately $938k in available equity at 80% to draw on. This obviously assumes property portfolio is growing at 5% annually.
Once the $560k runs dry, I will need to work out a strategy that will convince the bank to continue to lend me money without any income (Cashbond, Low Doc, capitalising interest?)
Its kinda like a race between the increase in property equity vs the snowballing effect of the capitalising of interest. If you change the annual growth of the portfolio of to 3% then the LVR accelerates upwards much faster and the strategy is less sustainable.
Even at 5% pa property growth, the LVR eventually starts increasing upwards, however our contingency plan is that the missus and I would most likely at some stage do some part time work / consulting or start a business. I am sure that over the next 27 years we will earn some sort of income before accessing any sort of Superannuation.
I am really over work at the moment and would love nothing better than take a year off in 2014 (as a minimum), do some travelling, and then reassess what I want to do with my time .
Anyways, would appreciate any thoughts on whether this stategy seems feasible and if there are any alternative strategies that would allow me to not have to work ASAP.
Cheers
Thinking seriously about LOE (Living off Equity) starting early next year. Here are the numbers:
- Current Assets: $2.31M (incl PPOR)
- Current Liabilities: $1.298M
- LVR: 56%
- Income required to cover annual expenses: $40k
- Note 1: The low amount of $40k pa is due to Frugal living (see http://www.mrmoneymustache.com/2012/10/08/how-to-go-from-middle-class-to-kickass/ for further info)
- Note 2: the $40k includes current property cashflow shortfall of $10k pa
- Note 3: I have allowed for this $40k living costs to increase by 3% inflation every year
- The plan is to have $700k PPOR fully paid off by early next year with an 80% LVR $560k line of credit available to start LOE.
The attached spreadsheet shows it will take approximately 9 years for that initial $560k to run out, due to the interest on the increased borrowings being continually capitalised. However at that point I should have approximately $938k in available equity at 80% to draw on. This obviously assumes property portfolio is growing at 5% annually.
Once the $560k runs dry, I will need to work out a strategy that will convince the bank to continue to lend me money without any income (Cashbond, Low Doc, capitalising interest?)
Its kinda like a race between the increase in property equity vs the snowballing effect of the capitalising of interest. If you change the annual growth of the portfolio of to 3% then the LVR accelerates upwards much faster and the strategy is less sustainable.
Even at 5% pa property growth, the LVR eventually starts increasing upwards, however our contingency plan is that the missus and I would most likely at some stage do some part time work / consulting or start a business. I am sure that over the next 27 years we will earn some sort of income before accessing any sort of Superannuation.
I am really over work at the moment and would love nothing better than take a year off in 2014 (as a minimum), do some travelling, and then reassess what I want to do with my time .
Anyways, would appreciate any thoughts on whether this stategy seems feasible and if there are any alternative strategies that would allow me to not have to work ASAP.
Cheers