I think he meant that you PLAN to be financially independent where all of your rates of return are 5 percent. If you get more than 5%, then any extra you get is a bonus. For Steve, the key aspect is to get as many 5%s going as you can. There were six items possible ways.beeroll said:One thing troubled me a bit, though. I noticed that 5% was the suggested rate of returns on which to base decisions, but actually, total returns of 10% were claimed for both property and shares - via capital gains and income? Or was I missing something?
PPOR-Save on rent - 5% after you've paid off the house. (I still don't understand this. How does money not spent automatically earn me 5%).
PPOR-Capital growth - 5% is a fairly conservative assumption. He had 6.9% in his example.
IP - 5% yield
IP - 5% capital growth
Shares - 5% dividend
Shares - 5% growth. He had 10.9% in his example
It's 30% gross and about 15% yield after tax and costs. If you're getting 15% on the asset value, that's pretty good.
Mind you, if the asset value for the shares and IP value may be less than the amount you have on your house. Especially if you're starting out as a young family. eg. $400,000 house with $200,000 mortage may only leave $120,000 equity (@ 80% LVR) to play with. But you spin that into one IPs at 5%/5% and then after a bit of growth in the IPs, draw down the equity to place in shares.
After a bit of time, the shares may be more than property, or you may decide to focus more on property if that's your style.
Thanks to Peter for organising and to Steve for what was a very interesting talk.