Retirment - Exit strategy

From: Paul Roberts


A question to pose - what are peoples exit strategy. What I mean is, when you have required enough equity in your portfolio, how do you access the capital as cash flow to finish wage work? I am aware of the strategy of selling X amount of properties and then decreasing debt to live on the remaining rent, but most people advocate never sell. I certainly don't want to sell and loose capital producers. If you never sell how do you access capital? Yes you can borrow against the properties and live on that but that falls under bad debt i e non tax deductible. Are there any other exit strategies other than the obvious of selling and reducing debt?
 
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Reply: 1
From: Anonymous


The ultimate way is to borrow to the max & keep pulling out equity to live off as your properties increase in value.

This income is tax free, as its borrowings.
That must be the best good debit I have ever heard of ?

Note always have enough life insurance to cover the amount of debit you have.

Then when you die you get the ultimate revenge on the banks when they have to pay out all your debit in full leaving your dependants a shit load of property debit free courtesy of the bank owned insurance company !And you have had a great many years spending and leaving off the banks money.

I dont know about you but I carnt wait !!!

Regards

Richie Rich
 
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Reply: 1.1
From: B F


Self funded retirement from your current occupation should not mean stopping investment.

I plan to use at least 25 percent of my gross investment income, to further my investment portfolio once I finish work.

Not many investment books discuss this, as they mostly talk about reaching the self funded point. However if you retire at 45 to 50 years of age (or even older for that matter), there is still a lot of time for the power of compounding growth to work for you.

So for me there is no exit strategy, as I will continue to borrow to invest until I drop. That's my two cents worth.

BF
 
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Reply: 2
From: Kristine .


Paul

There are different strategies for different times and stages in our lives.

I personally don't want any debt to follow me into retirement - when ever that may be (I may never retire!), so we are now moving into Stage 2 of our investment plan.

If each stage is progressing steadily then there's no anxiety, and you can focus on the business - and happiness - of today with peace of mind.

Cheers

Kristine
 
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Reply: 2.1
From: Mark Brokenshire


Hi Paul

One of my big frustrations in reading books on investment including property investment is the emphasis being on the end goal being retirement rather than living. My suggestion to you as well as looking at how to gain financial independence is to look at what you want out of life. What do you want to achieve with the rest of your life, who do you want to help, what relationships do you want to strengthen, what do you want to invent or help to invent etc etc. If your current job is not part of your strategy to live maybe you need to look at getting a new job or reducing the hours to concentrate on living.

Blessings
 
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Reply: 2.1.1
From: Mark Brokenshire


Hi Paul
For some reason I couldn't post all the reply this is the second part


My personal strategy is to invest in property that will give me income today that I can decide to use to live today or reinvest as I choose. I am working on increasing equity and income at the same time to vague goals balancing properties to meet them in the long term.

Blessings
 
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Reply: 2.1.1.1
From: G D


Hey... don't sweat the small stuff

(Hint...its all small stuff!)

There is a legal way you can turn capital gain to very low taxed income (less than 10% tax!)

Many people get hung up on this detail...

I always say "get out there and put together a $2million portfolio of the RIGHT 'capital growth' properties first"

and then you dont have to worry too much about repayments...

use "Interest only" loans of course...

and the exit strategy is waiting...

Capital gain to income ...

not "good debt(deductible) to...

bad debt(non-deductible) as suggested above!

Regards

Geoff Doidge

www.financialsuccesssystems.com

"capital gain is easy and property is fun"
 
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Reply: 1.2
From: Alan Hill




Good point about the Life Insurance Richie.

The concept of borrowing from increasing equity that bothers some is that you are accumulating increasing debt for your family if(not when!) you 'kick the bucket'. Mind you, this is relatively proportional, in that you should also be accumulating increasing ASSETS or you won't be able to continue borrowing anything!

But then as you say comes the final revenge on the banks and also one of the last financial benefits you can give your family.....your life insurance covering the debt payout(or at least a significant part of it).

Term Life Insurance is not really that expensive for the above opportunity costs it gives......and thanks again, that reminds me.....I need to increase my life insurance......albeit not as much as I would like too!

Note: Quality of life issues that were also mentioned are obvious and I would be the first to the agree that just making money for the sake of making money holds little appeal to me. Use the money to enhance your life and those around you. There's a good chance it will be around longer than you will!

Having said that......keep well all!




:)
 
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Reply: 2.1.1.1.1
From: Dale Gatherum-Goss


HI

My strategies will be different to most on this forum and that might well be because of the conservative nature of my profession.

I plan to retire at age 55 (or whenever I stop enjoying what i do) and we plan to have all the properties completely repaid by that time. Therefore, we will live off the rents each month and allow the properties to continue to grow in value.

Yes, I use P & I loans despite knowing the advantages of IO. This suits my strategies.

We have other investments such as our shares (which we hold at this stage) and my business which we will sell.

Great question

Dale
 
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Reply: 2.1.1.1.2
From: Dale Gatherum-Goss


Hi

As most of you know, I advocate using a trust to buy IP's.

One of the lesser known reasons is that if the trust borrows money against the value of its IP's, and uses that money to repay loans owing to you, the interest on that loan is tax deductible.

The trust can also borrow money against it's IPs to pay you a wage.

In this case, we don't have bad debt . . .

Just thought you might like to know.

Dale
 
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Reply: 2.1.1.1.3
From: Duncan M


> and the exit strategy is waiting...
>
> Capital gain to income ...
>
> not "good debt(deductible) to...
>
> bad debt(non-deductible) as suggested above!

Geoff,

Would you care to expand on the above a little?

Duncan.
 
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Reply: 2.1.1.1.2.1
From: Terry Avery


Dale,

I understand that when you own an IP in your own name that the interest on a loan is tax deductible and the principal repayment is not. This means that the principal repayment is not tax deductible and is therefore paid out of after tax dollars.

What is the situation for a company or trust?
Is the principal repayment treated as an expense and deducted from profit before tax is calculated? What is the tax treatment in this situation?

Thanks

Terry
 
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Reply: 2.1.1.1.3.1
From: Alan Hill


Dale,

Out of curiosity, under what specific circumstances, might Term Life Insurance become tax deductible?

Thank you.



:)
 
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Reply: 2.1.1.1.2.1.1
From: Dale Gatherum-Goss


Hi Terry!

>I understand that when you own
>an IP in your own name that
>the interest on a loan is tax
>deductible and the principal
>repayment is not. This means
>that the principal repayment
>is not tax deductible and is
>therefore paid out of after
>tax dollars.
>
>What is the situation for a
>company or trust?
>Is the principal repayment
>treated as an expense and
>deducted from profit before
>tax is calculated? What is the
>tax treatment in this
>situation?

No, the principle repayment is not tax deductible and is treated much the same as it would be for an individual. That is from cashflow.

Total repayment $1,200
Interest $400
Debt Reduction $800

Tax deduction still = $400

I'm happy to wear this given my goals.

Dale
 
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Reply: 2.1.1.1.3.1.1
From: Dale Gatherum-Goss


Hi Alan

Term life is tax deductible for your superannuation fund. It should not be tax deductible to anyone else . . .

Sorry.

Dale
 
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Reply: 2.1.1.1.2.2
From: Owen .


On 6/24/02 7:32:00 AM, Dale Gatherum-Goss wrote:
>Hi
>
>As most of you know, I
>advocate using a trust to buy
>IP's.
>
>One of the lesser known
>reasons is that if the trust
>borrows money against the
>value of its IP's, and uses
>that money to repay loans
>owing to you, the interest on
>that loan is tax deductible.
>
>The trust can also borrow
>money against it's IPs to pay
>you a wage.
>
>In this case, we don't have
>bad debt . . .
>
>Just thought you might like to
>know.
>
>Dale

This is interesting and made me think of something else you said in a later post. You are paying P&I on the loans the trust has taken out in order to buy IP's. How are you funding the extra payments?

Do you have positive cashflow IP's in the portfolio or are you loaning money to the trust from your personal income? Are these the loans you are talking about being paid back in the future when the IP's have the equity to borrow against?

Owen

"Gambling promises the poor what property performs for the rich – something for nothing"
 
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Reply: 2.1.1.1.2.2.1
From: Dale Gatherum-Goss


Hi Owen

You wrote:

This is interesting and made me think of something else you said in a later post. You are paying P&I on the loans the trust has taken out in order to buy IP's. How are you funding the extra payments?

Do you have positive cashflow IP's in the portfolio or are you loaning money to the trust from your personal income? Are these the loans you are talking about being paid back in the future when the IP's have the equity to borrow against?

Yes, to all of the above.

I have two very cashflow positive properties that nicely handles the loan repayments and all the other property related bills and still leaves me with spare cashflow to support the other two properties.

From time to time, Sue and I do loan funds to the trust to help with one thing or another.

And, yes, when we want, the trust can repay part or all of that loan to us as a tax free repayment of that loan.

Dale
 
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Reply: 2.1.1.1.3.1.1.1
From: Steve Mcleod


DALE,
WOULD TERM LIFE BE TAX DEDUCTABLE IF YOU OWNED A COMPANY ANY TOOK IT OUT ON YOUR OWN BEHALF, THROUGH THE COMPANY?

STEVE
 
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Reply: 2.1.1.1.3.1.1.1.1
From: Dale Gatherum-Goss


Hi

Yes, the company would be able to claim the cost as a tax deduction. However, the same cost would be subject to FBT and thus it doesn't really save any money at all and may indeed cost more.

Also, be wary of who would receive the money on a claim . . .

Dale
 
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