That is true, therefore, term deposits maybe better. Risk goes with greater reward and loss.
The end game
- Thread starter MMM
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That is true, therefore, term deposits maybe better. Risk goes with greater reward and loss.
If we are saying a 5% CG average across your portfolio is too optimistic then what's the point in using residential property to build wealth?
The running costs of a property investment business will set you back 2.5 to 3%, add in inflation and you are close to 5% and breaking even. And we haven't allowed for interest rate hikes which will come.
Whether you are funding your portfolio by leveraging your on paper equity (which is most of us) or through shear after tax dollars, its about running a business. What goes out must be less than what comes in.
I have 10 -15 years left to get this 'self funded retiree' thing to work. Sounds to me all the "residential property investment is fantastic" promotion is somebody elses 'self funded retiree' end game.
3M
The running costs of a property investment business will set you back 2.5 to 3%, add in inflation and you are close to 5% and breaking even. And we haven't allowed for interest rate hikes which will come.
Whether you are funding your portfolio by leveraging your on paper equity (which is most of us) or through shear after tax dollars, its about running a business. What goes out must be less than what comes in.
I have 10 -15 years left to get this 'self funded retiree' thing to work. Sounds to me all the "residential property investment is fantastic" promotion is somebody elses 'self funded retiree' end game.
3M
Mindset
Hiya
Just to add my 2c worth...
My mind boggles at all these huge amounts you guys come out with...
How about a different take eh?
You may need much smaller amounts if you consider retiring part of the year overseas
http://bl171w.blu171.mail.live.com/...mid=12fd15e6-9b71-11e0-9978-00237de461b8&fv=1
So, only thing is...do you have the mindset for it?
Hiya
Just to add my 2c worth...
My mind boggles at all these huge amounts you guys come out with...
How about a different take eh?
You may need much smaller amounts if you consider retiring part of the year overseas
http://bl171w.blu171.mail.live.com/...mid=12fd15e6-9b71-11e0-9978-00237de461b8&fv=1
So, only thing is...do you have the mindset for it?
Depends on your income.
An average wage earner won't get there in a fit with TD's.
A high income earner might, but then they are angsting over nothing...
Chuck a bit of the expendable into a few trendy IP's and go back to work.
My goal is to pay off the PPOR. After that disposable income will be huge,. I still plan to work for many years as I am only 27. But it should be much easier to acquire wealth after that point as well as treat our selves to lots of travel.
It depends on what sort of PPOR you and your partner are satisfied with. PPORs can range from 200k to 1 billion.
What if you can build a portfolio where by your wealth is appreciating faster than by how much you're paying off your PPOR?
Instead of putting it into your PPOR loan and it becoming dead equity until you've paid it off, put those same dollars into acquiring income producing assets and get it working for you now. You will not have to work as long and will be years ahead. The compounding affects gained over those years on your portfolio will be mind blowing.
We've built a portfolio where this is the case. There is no advantage to me paying off my PPOR and to this day its still not paid off because of the above. We're no one special. What we've done anyone else can do also.
Sure we could pay it all off in one hit today by offloading other income producing assets. Maybe it would give us a warm fuzzy feeling holding an unencumbered PPOR but what's the point financially doing that from where we've placed ourselves today??
In fact at one point we actually released our PPOR as security over our PPOR loan and transferred the security for the loan over to our investment portfolio. We had the PPOR title sitting in our hot little hands for a few months.
Sure we had that warm fuzzy feeling for a short period but that soon disappeared with the realisation of that dead equity burning a hole in our lost investments opportunity.
It is our belief that paying off ones PPOR before setting out down the wealth building road is an actual disadvantage both from a financial & lost opportunities perspectives.
The only limits one experiences are the limits one imposes upon them selves.
I hope provides some food for thought.
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Few people can earn a better rate of return from their investments than from paying off their non-deductible loan on their PPOR.
No, that is just a matter of perspective & not the case...those few people have acquired the knowledge and choose to apply that knowledge to earn a better rate of return than those who settle for paying off their PPOR first.
Big difference.
Read Jan's books ....
Have you ever actually read Jan Somers' books? If you have, time to re-read them because you're NOT with the program !! BTW this generous lady and her family provide this forum for FREE. No ad's etc. Huge respect !! LL
Thanks for the wise words. We are actually interested in acquiring investment properties (just settled on our first one recently), but knowing that after we acquire a few and let equity build up in them, that if we sell them down the PPOR would be paid off.
X2
I know of freinds/colleagues who are socking all thier extra money into the mortgage to try and pay it off in 7-10 years...to then be debt free, there is nothing wrong with that......IF they can be disciplined and pay more than what is required into thier mortgage!
We have enough equity in portfolio now after 8 years of investing where we could live debt free in our original PPOR (which is now an IP) and have approx half its value again sitting in cash if we sold everything.... but i personally prefer to have a much larger asset base growing(albeit slowly right now
) than to be debt free right now.i have a long"ish" 15 year timeframe from now to achieve the end goal i have set to get what i want out of investing....and it definitely involves taking on more debt!
Cheers,
Nathan
Hi sashatheman,
Certainly nothing wrong with selling some Ip's down to pay out debt - but just consider selling costs. They can be significant once capital gains tax and agents fees are taken into account.
You may be better off buying neutral ip's and just keeping them for the long term. There are many options available - some people choose to live off the rent and will retire their debt by selling down some ip's. Others like Rixter are planning to LOE. (Live off equity).
Of course, everyone has a different 'end game' and this may not fit into yours.
All the best with it.
Regards Jason.
Still I believe that the best advice for most people is to pay off their non tax-deductible debt first that is, their PPOR before considering investing. This is because most people will find it hard to generate returns greater than their home loan. Worse still, they lose on investments and find it hard to meet their mortgage payments.
Which means by age the average australian should start investing when ?
around 51 to 55 i when the av Australian pays their home off
Perhaps Way late, big risk, relegated to the "sort of equity rich" cash poor folk, reliant on gov handouts
ta
rolf
of course, then the PPOR will never become an IP, or will be sold to make way for a new PPOR ?
t
arolf
I find no evidence to suggest that the av aussie pays off their home at age 51. I would have thought late 30s and early 40s would see most people pay off their first PPOR. When you refer to age 51, I suspect that this is their second or third PPOR, in which case they need to live more frugally.
In order to live off equity you need a well located and big enough portfolio and knowledge how to do it, IMO.
Have you heard the saying, it's not timing the market but the time spent in the market? Well something along those lines....
Say between 25 to 65 years you may have a window of opportunity of 40 years. So the strategy for the younger people, would be to accumulate as much as possible (with contingencies) within 10-20 years and then let the next 30-20 years do its thing. How many cycles that will be I don't know, I do not have a crystal ball, but it would depend whether you bought well and for capital growth. Also, along the time, rents would increase, interest may fall (so you would lock in interest rates), or you could increase the equity (by many different ways...). At the end it would all depend upon your LVR and your portfolio size and quality.
There is a calculator somewhere on this site called "Somersoft Equity Charge Calculator V1.0". It's based on 80% equity, but in times like today I would suggest 50% may be more realistic, so put in your numbers and see how it will work for you.
You see, your strategy should be to extract LOE/LOC prior to your retiring of having serviceability with the amount and strategy you must fully understand and be comfortable with. A very GENERAL VIEW may be presented below:
E.G. Say along 10 years you have a portfolio worth around $5mill and $4mill in debts (80%). Say you stop accumulating and then the next cycle (say every 10 years) will look like: $10mill IPs and $4mill loans, then next cycle may be $20mill IPs and $4mill loans and the last 10 years cycle (based on 40 years example above) would look like: $40mill in IPs and $4mill loans. So now your LVR is only 10% and you have around 90% equity. Before retiring you may decide to draw down equity, sufficient enough for the next 10-15 years so you could live off. That could be a % of your portfolio you are comfortable with. The objective is to make sure the IPs increase more in value in that time relative to your draw down of equity plus interest - BUT YOU MUST HAVE A BIG ENOUGH PORTFOLIO AND THE NUMBERS YOU MUST BE COMFORTABLE WITH!
I am in the process currently establishing LOC not for the next purchase but to provide a buffer in the market should the need be for me to last the next 10 years. In that time, my well located properties, should grow faster than my LOC including interest. And if worst happens then and only then will I sell a property.
So it really is a numbers game, your level of risk, having the time in the market and understanding how to do it so it works for you - but it's possible!
Sorry .. but you're talking through your hat.
You can believe what you like, but that doesn't make it correct. What you're prescribing is a road to poverty. Read Jan's books. She presents real mathematical evidence that the best time to buy your first IP is "as soon as you can afford to." You're overlooking the benefit of leverage. With IPs leveraged at between 5:1 and !0:1 you don't need much growth to give a sigfificant IRR. LL
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