Using a buy & hold strategy, in how many years did you reach financial independence?

[jingo]

Poor form Rixter.

Not everyone wants to live of the banks money or the missus wage.

Rixter,

Have you ever worked out the income your investments would give you from LOR? ie selling some and living off the proceeds of the remaining properties (or even investing in shares) rather than LOE? Would this still give you financial freedom, or do you need to rely on LOE to achieve this?

I just wonder how feasible LOE is going to be in the future - there are so many regulations being implemented at the moment in regards to borrowing......

 

[sash]

LOR is DOA.....not feasible over the longer term..though a hybrid with ..some LOR could work. The regulatory environment will make this harder and harder.

The govt seems to be protecting all the newbies from themselves....

Rixter,

Have you ever worked out the income your investments would give you from LOR? ie selling some and living off the proceeds of the remaining properties (or even investing in shares) rather than LOE? Would this still give you financial freedom, or do you need to rely on LOE to achieve this?

I just wonder how feasible LOE is going to be in the future - there are so many regulations being implemented at the moment in regards to borrowing......

 

[Rixter]

Poor form Rixter.

Not everyone wants to live of the banks money or the missus wage.

Poor form oc1 in your DD.

Not everyone wants to be an upstart developer either.

and other people who live in glass houses shouldn't go round throwing stones.

 

[travelbug]

We have basically been buy and hold. As you go along though you need to do minor fix ups and this then often (as it did with us) leads to renovations. This kick starts your equity and your yield.

A lot of people start with basic buy and hold then some jump yo other things (develop etc). Nothing is static. You make goals at the beginning then realise you underestimated the power of property then you revise your goals. So even if you plan on taking 30 years to develop a property portfolio it rarely happens that way. Some go ahead in leaps and bounds while others give up after a few issues with their first property.
Look at the % of people that have more than 5 properties and decide if you want to be in that % (1% I think).
The most important thing is to get started. Unfortunately it took me 50 years to get started. But I made up for lost time pretty quick.

 

[skater]

LOR is DOA.....not feasible over the longer term...

I completely disagree with this.

 

[oc1]

I completely disagree with this.

I think he meant LOE.

 

[skater]

I think he meant LOE.

Ah, ok then. Completely different. In that case, I agree.

 

[WattleIdo]

We have basically been buy and hold. As you go along though you need to do minor fix ups and this then often (as it did with us) leads to renovations. This kick starts your equity and your yield.

A lot of people start with basic buy and hold then some jump yo other things (develop etc). Nothing is static. You make goals at the beginning then realise you underestimated the power of property then you revise your goals. So even if you plan on taking 30 years to develop a property portfolio it rarely happens that way. Some go ahead in leaps and bounds while others give up after a few issues with their first property.
Look at the % of people that have more than 5 properties and decide if you want to be in that % (1% I think).
The most important thing is to get started. Unfortunately it took me 50 years to get started. But I made up for lost time pretty quick.

What a great combination of realism and inspiration. Plans are great but we all know that life is beyond our control. Great to see that buy and hold has worked for you travelbug.

 

[MTR]

depends how hard you go, how 'lucky' you get and how bad you want it. Once you're almost done the next thing you need is to get onto the right forums. This one's good for buying while you work but terrible for retiring

C yez!

Not sure why this forum is terrible in retirement and what is the forum for retiring? I am curious

Am guessing you believe most here dont share your end goals in terms of what income/asset base is required, not sure it really matters?? Also, I guess many investors I know who have retired from property, actually keep increasing cash flow/asset base/

Mtr

 

[Deltaberry]

5 and a half

 

[Rixter]

Rixter,

Have you ever worked out the income your investments would give you from LOR? ie selling some and living off the proceeds of the remaining properties (or even investing in shares) rather than LOE? Would this still give you financial freedom, or do you need to rely on LOE to achieve this?

I just wonder how feasible LOE is going to be in the future - there are so many regulations being implemented at the moment in regards to borrowing......

In answer to your question, LOE allowed me to attain financial independence and exit the rat race many years sooner compared to a conventional buy & hold LOR type strategy.

I think a lot people don't realise this and have not done the exercise of sitting down putting pen to paper to bring it more into perspective in relation to, firstly the exact income they require to obtain financial independence and secondly, the size portfolio one needs to accumulate in order to provide that financial independence income level in the first instance.

You see people bandying around figures of $100k but do they really understand the process of what's required and time frames involved to attaining this?

Using their $100k (todays dollars) target as an example, they would need to generate a pre-tax income of $165k to end up with $100k in the hand, allowing for tax (30%) & portfolio holding expenses (1%).

In order to generate that sort of rental income, at say 5% return, they would need to hold a property portfolio asset base of $3,300,000.00 completely paid off & owned outright mortgage free.

Putting aside all the usual LVR & DSR issues along the way in order to achieve this sort of outcome, have they really sat down to work out how many IP's they actually need to acquire, so as to sell down half their holdings to pay out the other half, in order to own them outright mortgage free, as their chosen Exit Strategy to financial independence? I dont think so.

Remember also, we are talking income in today's dollars without bringing CPI into the equation. So lets assume CPI of 3% over a long term 20 year buy & hold LOR investment strategy.

To generate the equivalent of $165k in TODAYS dollars, in 20 years time they would require $298k of rental income per annum and with a 5% yield in order to generate that income they would need to a mass a property portfolio of $6,000,000.00 completely paid off & owned outright mortgage free.

Now Im not saying it cant be done. Its just a bigger task.

Food for thought.

 

[hugh72]

Agree with this but properties purchased 20 years ago which were 5% yield at time of purchase may be returning 10-15% very conservatively and this could improve the time frame for being able to retire before CG is considered IMO

 

[Rixter]

Agree with this but properties purchased 20 years ago which were 5% yield at time of purchase may be returning 10-15% very conservatively and this could improve the time frame for being able to retire before CG is considered IMO

Remember though, $6M debt free portfolio required. How many IP's are required to be serviced with that rental income before selling down? Do the maths.

 

[D.T.]

Remember though, $6M debt free portfolio required. How many IP's are required to be serviced with that rental income before selling down?

Since you're talking about a 20 year timeframe, wouldn't only $2M portfolio be required because it'd go through 2 cycles and be $6M by year 20?

 

[hugh72]

Remember though, $6M debt free portfolio required. How many IP's are required to be serviced with that rental income before selling down? Do the maths.

Not many if you were lucky enough to catch the Sydney boom IMO

 

[skater]

You see people bandying around figures of $100k but do they really understand the process of what's required and time frames involved to attaining this?

I think this is just a nice round number & little has been done to work out exactly what is needed.

Using their $100k (todays dollars) target as an example, they would need to generate a pre-tax income of $165k to end up with $100k in the hand, allowing for tax (30%) & portfolio holding expenses (1%).

I disagree! If the figure is for their 'family' income, then the amount is only $50k each in a couple situation. After you take depreciation into account, there is not a lot of tax to pay.

In order to generate that sort of rental income, at say 5% return, they would need to hold a property portfolio asset base of $3,300,000.00 completely paid off & owned outright mortgage free.

Woah! Hold on a minute! What if the return was 8 or 9% on purchase price? The asset base needed can realistically be a lot less.

Putting aside all the usual LVR & DSR issues along the way in order to achieve this sort of outcome, have they really sat down to work out how many IP's they actually need to acquire, so as to sell down half their holdings to pay out the other half, in order to own them outright mortgage free, as their chosen Exit Strategy to financial independence? I dont think so.

I can't speak for anyone else, but yes, I have. We've got a sizeable portfolio, and are in sell down mode at present, but of all the properties, we are only selling 4. We are NOT paying down anything other than the PPOR (already done), and are keeping funds in offset accounts. There's plenty of properties sitting there, should we need/want to sell down others at a later time, plus plenty of income coming in. Lots of depreciation as well as some NRAS payments and we will be paying NO tax whatsoever.

To generate the equivalent of $165k in TODAYS dollars, in 20 years time they would require $298k of rental income per annum and with a 5% yield in order to generate that income they would need to a mass a property portfolio of $6,000,000.00 completely paid off & owned outright mortgage free.

Like I said, we don't need anywhere near $165k.

Now Im not saying it cant be done. Its just a bigger task.

Food for thought.

I don't think it's that big a task at all, BUT, like Rixter, you have to be in the game for a while. Buy stuff with good cashflow, hold, buy more stuff with good cashflow, hold. Rinse & repeat as many times as you can, spreading the risk around the country, to limit the bracket creep of land-tax. After a good many years (at least one cycle, but better if you get two), you should be in a position to leave the workforce, if that is your wish.

Just another perspective!

 

[beachgurl]

Congrats on paying off your home Skater! You've worked very hard and intelligently on your portfolio to get to this point. I agree that big incomes are not necessary if you don't have any non deductible debt.

 

[Rixter]

I think this is just a nice round number & little has been done to work out exactly what is needed.

I disagree! If the figure is for their 'family' income, then the amount is only $50k each in a couple situation. After you take depreciation into account, there is not a lot of tax to pay.
Woah! Hold on a minute! What if the return was 8 or 9% on purchase price? The asset base needed can realistically be a lot less.

I can't speak for anyone else, but yes, I have. We've got a sizeable portfolio, and are in sell down mode at present, but of all the properties, we are only selling 4. We are NOT paying down anything other than the PPOR (already done), and are keeping funds in offset accounts. There's plenty of properties sitting there, should we need/want to sell down others at a later time, plus plenty of income coming in. Lots of depreciation as well as some NRAS payments and we will be paying NO tax whatsoever.

Like I said, we don't need anywhere near $165k.



I don't think it's that big a task at all, BUT, like Rixter, you have to be in the game for a while. Buy stuff with good cashflow, hold, buy more stuff with good cashflow, hold. Rinse & repeat as many times as you can, spreading the risk around the country, to limit the bracket creep of land-tax. After a good many years (at least one cycle, but better if you get two), you should be in a position to leave the workforce, if that is your wish.

Just another perspective!

Yep, most haven't sat down to work it out and have no idea where they're going because of it.

There is as many ways as there are investors.. we're all different - all starting from various financial positions, living arrangements, income goals, time frames and personal risk profiles. All will vary

Throwing the example out there to provide an indication of possible requirements & time frames to achieve certain goals.

In answer to Jingo question the buy and hold strategy Ive used has allowed me to shorten the time frame requirements to attain financial independence of equivalent income.

 

[jingo]

In answer to Jingo question the buy and hold strategy Ive used has allowed me to shorten the time frame requirements to attain financial independence of equivalent income.

Hi Rixter,

Thanks for clarifying the reason for you deciding to LOE. I also asked whether you'd worked out whether it would be feasible for you to divest your properties and invest the proceeds in shares/index funds and live off dividends.

My concern with LOE is tighter lending requirements going forward. Does this concern you with your LOE set up??

 

[Ari_X]

Up to 22 IPs...and working on another couple.

Have sold 2 which I have regreted....holding for at least one cycle (10 years) gives you the best results.

Fantastic results Sash!! Just curious at what number are you going to slow down I.e. what is your end game?

And were your properties so far just buy renovate and hold or have you dabbled with developments?

Ari