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LOR, LOE, LOB, LOG.
!@#$ me!
Hi MTR, in my (potentially skewed) interpretation of LOE is essentially a once off. Say my debt is 1mill and value of portfolio is 2 mill. I go into bank whilst gainfully employed/ own a profitable business and top up to 80% ie walk away with $600K and NEVER come back to ask for money. That's potentially doable.
What you're probably referring to is LOG without a job/income ie living off growth where you periodically, say every year, go back to bank and ask for $50K because your portfolio went up by 5% that yr. That's the strategy that isn't going to work and fraught with danger of having to systematically sell down your portfolio.
The key to LOE is the size of the portfolio to start with as well as the LVR, coupled by a portfolio that's not bleeding you dry cashflow wise. Me personally, I'm not there yet but with some luck I will.
I would rather have a $10m portfolio with 70% LVR than a $5m portfolio with 30% LVR as long as the cashflow situation was under control.
As far as Sydney values are concerned I agree with you, a correction is on the cards. I'm factoring 10% across the board, worse in the West - places in the Blacktown LGA, etc, some parts of the Hills, those will be hit hardest. I'm fairly conservative in my numbers so I've used the 10% off numbers...hopefully for my sake it will be conservative enough. I've invested in Sydney since 1997 and have seen a fair share of ups and downs. The current boom is obviously that, an unsustainable boom, but Sydney will always be Sydney.
Again I'm sorry if I've hijacked this thread. Love to hear more stories from others more successful in reaching their goals of course.
Or LOW (Live Off Wife) if you're a stay at home dad
DT
put a new spin to this one, perhaps LOC, Live off a Cougar
As far as Sydney values are concerned I agree with you, a correction is on the cards. I'm factoring 10% across the board, worse in the West - places in the Blacktown LGA, etc, some parts of the Hills, those will be hit hardest. I'm fairly conservative in my numbers so I've used the 10% off numbers...hopefully for my sake it will be conservative enough. I've invested in Sydney since 1997 and have seen a fair share of ups and downs. The current boom is obviously that, an unsustainable boom, but Sydney will always be Sydney. .
DT
put a new spin to this one, perhaps LOC, Live off a Cougar
HE
I think its great that you road the boom and if you have the desire to up skill using your equity that can get you there much quicker, as you say the buy and hold is too slow, all to their own.
I retired 9 years ago riding the Perth property boom, mother of all booms from 2001-2006 just had to sit on your hands and throw a dart and you made money, similar to what is happening in Syd at the moment. When the market crashed there was blood on the street, and blue chip has still not recovered.
GFC hit in 2008/9 when people were running for cover I was buying hard in Melb market which was booming, I don't think many people even realised this. I used various strategies ie put plans and permits together and on sold to builders Melb is good for this, renos, buy and holds, and sold the lot prior to the market tanking.
Went on to USA, purchased 8 properties on to 9 now cashflow properties, 20% gross yields, currently due to the Aus$ tanking this is generating aroun d $120K gross. So I live off this and also rents and my developments.
Started networking with developers on SS and have just completed my second development in Perth and commencing my third in Melb demolishing in 1 month, 4 townhouses, using oc1 who is I believe one of the best as he has managed to make money in any market, I am not about to reinvent the wheel.
This is a nice strategy where you perhaps sell 3 own one outright, bread and butter areas and easier to source finance. Alternatively sell the lot if you are cash poor and grow the money in the early stages?? depending on your scenario.
So in fact I have actually not retired but formed a development business that generates income but its not a day job because I have choices I guess.
MTR
I look at it this way. You can buy your one $400k property with a 3% yield, while I buy two $200k properties with a 7% yield. The tide, when it comes in will raise the values of all properties (for instance, Sydney). Your $400k property will rise in value to $800k, and my $200k properties will rise to $400k. So, we are still roughly at the same level of assets & equity to how we both started at the beginning, right?
Fast forward, we've had a bit of CG & we both go & buy more property with the equity. With a presumption that we buy properties of the same value as the existing ones, you buy another two properties, bringing your total to three $800k properties (because the value's gone up), and I go out and triple my properties as well, but because I've already got three - I was able to sneak another one in at the halfway mark, remember - my holdings go up to nine properties, all worth around $400k. So....you now have assets of $2.4m & I have assets of $3.6m.
Skater,
I think your calculations above implies you are getting better overall return than someone investing in areas with high CG but lower yield.
You said you buy properties with 7% yield while HighlyGeared buys properties with 3% yield. But you have assumed both your properties double in value around the same time. To keep it simple let's say they double in 10 years. That means your properties overall return is 14.2% pa (7% yield and 7.2% CG) while highlygeared return is only 10.2% (3% yield and 7.2% CG).
The reason why many investors are prepared to accept lower yield is because the difference gets made up with extra CG.
Secondly, you say that Highlygeared is losing money because he is negatively geared, but you are also losing money by paying tax on extra income you make. It all eats into your overall returns, meaning less money to reinvest.
Don't get me wrong both strategies have been proven to work for different investors. The point is knowing the pros and cons of each strategy, and what suits your temperament and circumstances.
Cheers,
Oracle.
Not exactly. I was implying that my Sydney properties may be getting a similar amount of CG, but with a higher yield. I also said that what suits me, may not suit someone else.Skater,
I think your calculations above implies you are getting better overall return than someone investing in areas with high CG but lower yield.
Let me give you a different viewpoint. Again, there's some generalisations here, but look at it with an open mind. Of course, we all come into this with different circumstances, so what suits me, may not suit you.
That's right! With this, I am referring to my Sydney properties only. I do have other's that are regional, which still get CG, but not to the same extent as my Sydney properties.You said you buy properties with 7% yield while HighlyGeared buys properties with 3% yield. But you have assumed both your properties double in value around the same time. To keep it simple let's say they double in 10 years. That means your properties overall return is 14.2% pa (7% yield and 7.2% CG) while highlygeared return is only 10.2% (3% yield and 7.2% CG).
The reason why many investors are prepared to accept lower yield is because the difference gets made up with extra CG.
Well....no. I've paid little to no extra tax on the income. Lower priced properties still have depreciation, which can wipe out any extra tax liability.Secondly, you say that Highlygeared is losing money because he is negatively geared, but you are also losing money by paying tax on extra income you make. It all eats into your overall returns, meaning less money to reinvest.
Don't get me wrong both strategies have been proven to work for different investors. The point is knowing the pros and cons of each strategy, and what suits your temperament and circumstances.
Why jealous you have the equity to basically get into more creative stuff. I dont know about doing it in Syd now, I can only imagine what a deve site would cost.
Just thinking is central coast worth looking at?
Anyway better not derail this thread, its a good one
See, this is where we differ. From my perspective, blue chips come at a hefty price tag. So you end up with a large land tax bill. You also sacrifice yield, and I'm a yield kinda girl.I tend to average about 5% yield on purchase. In recent times, my lowest yield has been about 4.4% in Brisbane and highest has been 8.5% (on day one) in Blacktown LGA. That was my last purchase in Sydney in 2012.
I sacrificed on yield on that particular one in Brissy bc it was a (very) blue chip suburb with lots of knock down rebuilds going on. The value was in the dirt. Being a post war home (but readily rentable without any renos neccesary), its the kind of suburb where one can knock down the home, build a new spec 4x2x2 and sell it off/reval for $1.2+ million.
Having said that I do like the bog std 3 bed fibro homes you buy with a $2 or $3 in front and get 6% yield. But of late, I've been looking to populate my portfolio with more blue chip located properties...to the detriment of yield of course. They're nice to have and add a certain level of quality to your holdings but unfortunately keep you in the rat race longer (cashflow wise) if LOR is your goal.
See, this is where we differ. From my perspective, blue chips come at a hefty price tag. So you end up with a large land tax bill. You also sacrifice yield, and I'm a yield kinda girl.
Of course, you've probably got an income that can easily afford this, but I never really got over the trauma of 17.5% interest rates on our PPOR, and us both being redundant. Although we didn't lose the house, we had an extremely hard time through those years, and it's a long, long storey, so we won't go there.
So, when I look at an investment, I look at all the worst case scenarios. To me, an investment is not an investment unless it brings some kind of immediate returns. I don't mind taking a risk, but it's always a calculated risk, as I don't want to ever have to revisit how we lived early in our marriage.
I also wanted to give Hubby the choice over whether or not he needed to 'work' in as little time as possible, so holding onto negatively geared assets has never really been a part of our strategy. In saying that, there have been a couple of negatively geared places, but they have been with an end game in mind. For instance we've got a unit that we bought, because it was cheap, assuming that the market would move in a couple of years. Well, the market did move & it's more than double what we paid, so it's going. It was never going to be a part of our long term goals, just a means to reducing debt on the keepers.
BTW, that Blacktown one sounds like something I'd be all over.
Hehe, Hubby is on 6 figures nowadays too, & has been for probably the last 8 years, but prior to that, we were well below the average, so unlike a lot of others our age, we don't have a lot of Super, so this is it for us. I've always strived to cut expenses as soon as possible too, because the amount you need to retire on is a lot less, if you don't have those recurring little nasties, like a mortgage (PPOR) or rent.Huge income is a relative thing Skater and whilst I'm on a 6 figure salary, its def not huge.
I understand that, but you can hold onto more land before you reach the threshold if the value of the land is lower. While my Regionals aren't stellar performers CG wise, they do provide excellent cashflow and take up buggar all of the threshold.The land tax bill is also relative - irrespective of the value of purchase, my land tax component is normally 75% or higher of the val whether its Blacktown or Newtown.
But I take your point and if I bought a shedload of 6-7% yielders in Blacktown, Campbelltown and Penrith LGA up until 2013, I would def be in a stronger position cashflow wise. And who knows, perhaps in an even or better situation equity wise too. I know my West purchases have outperformed the more glamorous ones. What, wait a minute...
Bear with me as I skew this thread in my favour yet again....
I'm rather impressed with what some of the forumites have done including yourself Skater but bottomline/my reality is this:
Unless I can get my hands on a very sizeable loan in the near future to buy a commercial/resi/dev that will yield 10%+ net from day 1 (and I am working hard on this with one of my Banks), the 100% PURE LOR option won't be open to me for min. 15 years.
So the only plausible scenario I see that MAY allow me to pull the plug earlier (without selling anything Virgo or buying more) is:
- get properties to a self sustaining state - could theoretically happen within 24 months
- decelerate in terms of more purchases
- receive/manufacture another 25% of capital growth from where we are
- then go to bank/s and top up to 80%
- retire
Anyone got a better idea?