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From: Dave
Hello everyone,
I've been trying to get answers to a particular issue for quite some time, but have only managed to get mixed and conflicting responses from the people I've spoken to. I'm hoping any experienced property investors and/or finance brokers may be able to help me out on this. You'd be doing me a fantastic favour.
Many IP seminars I've attended explain that it's possible to retire after 7 years by purchasing at least 1 IP each year. I'll provide a simplified summary of how they say this is possible, for the sake of simplicity and for those who don't know what I'm talking about.
Lets say that I buy 1 IP each year, in a good capital growth location, for $200,000.
At the end of the 7th year, provided the rent from my first couple of IP's covers the costs, I should be able to retire from my normal job (according to the 'guru's' at these seminars). If I have bought the right IP in the right location, property 1 should now be worth approximately $400,000. I get it revalued and refinance it to 80%...leaving me with $120,000 to do as I chose. Because I have increased the loan, I would have to pay interest on the $120,000, which would be $8340 per year. This would be paid a year in advance, leaving me with $111,660 to live off - tax free, because I haven't sold the property. This is the equivalent of a $220,000 salary. I would live off this 'equity' for possibly two or three years and then 'harvest the equity in the second property, which should have also doubled in value since purchasing it, and repeat this. Once I've 'harvested' the equity in all seven properties, I would go back to property one, which should have again doubled in value, and keep doing it all over again. True, there is the issue of spiralling debt, but because the IP's are refinanced to 80%, the debt is always less than the actual value of the IP's. This is typical of the NEVER SELL philosophy. However, it the proverbial hits the fan and I'd need to offload a couple of IP's, I'd still be making money on them.
Being new to this 'retirement plan' idea, I ran it past my finance broker. He said that for this to work, I would need to get ALL 7 IP's valued and refinance the lot, JUST prior to retiring in year 7, in an equity/line of credit type of loan. This is because, once leaving my normal job, the lenders would not be willing to refinance subsequent IP's, every second year or so, without an income source.
What If I sold two at the 7th year, paying a couple off, leaving the rental income from two or three IP's as my prime source of income? Would this enable me to adopt the strategy mentioned above? ie, harvest the equity in each IP to live off?
This is a fascinating concept, and I'm still unsure how, if at all, it's possible. I'd love to hear from anyone who can see how this would work and, even better, from any of you who are planning to do this or have already done so.
I hope to hear some feedback...and I think many of us in this forum would benefit.
Regards,
David
Hello everyone,
I've been trying to get answers to a particular issue for quite some time, but have only managed to get mixed and conflicting responses from the people I've spoken to. I'm hoping any experienced property investors and/or finance brokers may be able to help me out on this. You'd be doing me a fantastic favour.
Many IP seminars I've attended explain that it's possible to retire after 7 years by purchasing at least 1 IP each year. I'll provide a simplified summary of how they say this is possible, for the sake of simplicity and for those who don't know what I'm talking about.
Lets say that I buy 1 IP each year, in a good capital growth location, for $200,000.
At the end of the 7th year, provided the rent from my first couple of IP's covers the costs, I should be able to retire from my normal job (according to the 'guru's' at these seminars). If I have bought the right IP in the right location, property 1 should now be worth approximately $400,000. I get it revalued and refinance it to 80%...leaving me with $120,000 to do as I chose. Because I have increased the loan, I would have to pay interest on the $120,000, which would be $8340 per year. This would be paid a year in advance, leaving me with $111,660 to live off - tax free, because I haven't sold the property. This is the equivalent of a $220,000 salary. I would live off this 'equity' for possibly two or three years and then 'harvest the equity in the second property, which should have also doubled in value since purchasing it, and repeat this. Once I've 'harvested' the equity in all seven properties, I would go back to property one, which should have again doubled in value, and keep doing it all over again. True, there is the issue of spiralling debt, but because the IP's are refinanced to 80%, the debt is always less than the actual value of the IP's. This is typical of the NEVER SELL philosophy. However, it the proverbial hits the fan and I'd need to offload a couple of IP's, I'd still be making money on them.
Being new to this 'retirement plan' idea, I ran it past my finance broker. He said that for this to work, I would need to get ALL 7 IP's valued and refinance the lot, JUST prior to retiring in year 7, in an equity/line of credit type of loan. This is because, once leaving my normal job, the lenders would not be willing to refinance subsequent IP's, every second year or so, without an income source.
What If I sold two at the 7th year, paying a couple off, leaving the rental income from two or three IP's as my prime source of income? Would this enable me to adopt the strategy mentioned above? ie, harvest the equity in each IP to live off?
This is a fascinating concept, and I'm still unsure how, if at all, it's possible. I'd love to hear from anyone who can see how this would work and, even better, from any of you who are planning to do this or have already done so.
I hope to hear some feedback...and I think many of us in this forum would benefit.
Regards,
David
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