But if you just pay down your residential property portfolio to a low or nil LVR and use this as passive income...then that comes back to my original point about 'un-leveraged' (/very low leverage) residential property being a DUD investment (due to the low yield)...particularly in retirement when you need this passive income (as Sunfish added)...
I'd agree that IP is usually an inefficient way of generating retirement income - I'm not sure if you've read
this thread which asked the same question.
And just another thought, it would be interesting to do a poll here to see what % of your gross assets are accounted for by residential property...
If you're nearing retirement, and it represents a large proportion...I would say more than 60% of your total portfolio value in a growth asset (eg. residential propety or also shares) is large at the retirement stage...then I think you're really behind the 8-ball and that you're portfolio is very 'out of balance'...
Whose in this boat right now??
My asset alloc by Jan '08 will be -
IP & PPOR 33%
Shares 67%
Super < 0.5%
...and on an income basis
IP 5%
Shares 94%
I'd be wary of taking on board to much of Travis Morien (who I have a lot of respect for) - he's catering for the 'average' investor/retiree - anyone with multiple IPs will be way above that.
The problem with retirement asset allocation is that the share/IP cycle takes around 7-10 years from peak to peak. Transitioning between asset classes is best done in a small window during this cycle and that window isn't likely to coincide with your retirement plans.
My view is to have as big an asset base as possible & keep it in balanced growth assets with a reasonable yield. Don't sell when retirement approaches.
In the growth phase leveraging up using IP will eventually create servicability problems. Buying reasonably yielding shares (at the right time in the cycle) instead of low yielding IP will help servicability. Share incomes grow with their share price (that's what the P/E ratio is all about), so share income may be expected to grow at around 7%pa, rents usually grow at around half that. So the portfolio tends to be c/f neutral (or slightly -ve).
So when it's time to retire, the portfolio is already diversified, balanced, and reasonably yielding and is likely to be generating a reasonable income, have reasonable growth, and also be suitable for LOE. There's no transition period, it's already got good growth & yield.