5% CG is a very high worse case scenario, fairly optimistic really.
Worse case scenario would be more like -3% for the next 10 years.
That is true, therefore, term deposits maybe better. Risk goes with greater reward and loss.
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5% CG is a very high worse case scenario, fairly optimistic really.
Worse case scenario would be more like -3% for the next 10 years.
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
THIS is why I changed my tune:
157 properties @ an average price of $350,000
$54,950,000 in property.
Total borrowing: $35,700,000
Equity: $19,250,000
Interest bill: $2,674,875 p.a.
Total income $50,240 per week
Total interest cost: $51,439 per week.
Other costs (approximately): $1,099,000 p.a.
Shortfall: $1,161,348
Estimated capital growth: $4,320,000 p.a. at 8%
Share portfolio required to generate sufficient income to cover shortfall (approximately): $6,000,000
Or:
Sell and use profit to combine with covered call portfolio (approximately $26,000,000) at 24% p.a. equals gross yield of $6,240,000
Capital growth estimate 3% p.a. $780,000
Net cash flow gain = $1,920,000 + franking credits of $720,000 p.a.
Total gain (capital + income) = $3,420,000 p.a.
Debt = ZERO!!!
Now, it didn't turn out exactly like that but I am sure you get the picture!
That is true, therefore, term deposits maybe better. Risk goes with greater reward and loss.
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.
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.
What if you can build a portfolio where by your wealth is appreciating faster than by how much you're paying off your PPOR?
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 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.
Few people can earn a better rate of return from their investments than from paying off their non-deductible loan on their PPOR.
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 !! LLFew people can earn a better rate of return from their investments than from paying off their non-deductible loan on their PPOR.
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.
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.
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.
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
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.
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.
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
In order to live off equity you need a well located and big enough portfolio and knowledge how to do it, IMO.Thanks all for your comments.
The reason I am focusing on the end game is because if I am to use residential property to build a passive income, it is going to take at least 15 years. At 45 I have only one shot at it.
The easiest thing it seems is to sell a property or two, use the realized capital to buy an passive income generating asset such as shares, and use the income to prove serviceability.
However, my rough calcs tell me I would need to realize about 4M gross.
ie. 4M -tax = approx 2.7M
Invest this nett in a conservative 5% return fund to generate 100K gross income.
To generate the 4M would mean selling pretty much all your portfolio.
Isn't the idea to farm your properties and milk them not slaughter them? I am looking to nurture the portfolio so that my children can benefit when I am long gone from this world.
Are there any books I can read which go beyond talking about how to build a portfolio but actually talk about how to use that portfolio to fund your lifestyle. In detail.
I have all of Michael Yardney's books and his LOE explanation and Steve Navra's Cash bond technique.
What else is there?
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. LLStill 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.