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So cadence, in relation to the initial example provided, allow $80-$100k for holding expenses.
Gotta luv property........and a glass of wine
Thanks Rixter for clarifying! So with the 230k cash flow positive, take away about 100k in IP costs, you end up with around 130k pa ... That's a really good number! I would be happy to exit the workforce with that kind of income stream .
Would you consider this more as an LOR strategy than LOE? Pardon my ignorance, I thought LOE involves refi to draw out more equity for living expenses? But this one sounds like you're just collecting rent to pay for IP expenses and left over for living costs, without the need to refi? Please feel free to correct me if I've misunderstood!
It sure beats getting out of bed each morning selling your life away for it.
After possibly utilising LOE to exit the rat race earlier, one could LOR at this stage if that's what suited them.
Thus, you have to ensure the withdrawal is sizeable and your overall LVR's at a palatable level.
Similar to my current strategy as well Rixter and a lot of similarities to me.
Whilst I would PREFER to LOR, I'd rather leave the JOB a few years early....and if the JOB doesn't bring you fulfilment, then freedom from it may. That's what's driving me at present.
IMHO the safest way to LOE is to make the equity withdrawals ONCE (and never ever again) before you call it quits. Thus, you have to ensure the withdrawal is sizeable and your overall LVR's at a palatable level.
What's a palatable LVR pre retirement? My personal view is that depends on the quality (and size) of your portfolio eg a portfolio peppered with properties in towns like Moree and Tamworth etc is inherently more risky than one filled with metro properties in the best of our major cities.
Having said that, there are no guarantees in life and past performance isn't a reflection of what comes next. But I'd rather bet on a unit or house 10kms out of the CBD doing its thing overtime for example than a stock standard regional property surrounded by oodles of land and a fairly stagnant population base. That's why the drivers for growth (rent and/or CG) are so important and you have to get this right before you purchase anything.
Part of me also thinks that if you weren't aiming to aggressively grow your portfolio in retirement (and it mightn't even be an option without PAYG/business income), what's the benefit of becoming wealthier each yr from an equity standpoint? Just so one can claim at their deathbed that they're worth $5 or $10m or $20m net? If you're in a position to use that equity to transform your life why not - you deserve to after spending 10-20 yrs building it.
That's why I think LOE is a strategy that shouldn't be dismissed but as said, with the caveats of :
1) a large portfolio - flock made up of quality IPs
2) manageable cashflow - it doesn't have to be $120K net + (otherwise you'd LOR) but it sure as hell can't be $120K negative I think the sweet spot is > $40K net +
3) one shot at LOE withdrawal
4) LVR at about 70% or less
5) conservative projection that in x years after retirement, you will be LOR in earnest
This isn't fin advice of course and its not for everyone, just a glimpse of what I intend to execute for myself.
Yes I made the mistake of being too heavily weighted to one market BN previously and have watched SYD from the sidelines with envyThe one shot at LOE withdrawal?? don't really get that one, what happens when you have chewed up "one off shot equity"?? do you then intend to sell down properties?? otherwise you are at the mercy of banks and their policies at that time, with no job it will be a tough gig.
70% LVR is too high, because you are accessing equity at this point so the LVR will end up higher, perhaps 80%+.
You are also only playing in 1 market in Australia, right?? Sydney, which means you are dependent on this cycle. If you play in 3 markets you at least can capture growth elsewhere. One market could be going sideways while another market is rising etc.
The one shot at LOE withdrawal?? don't really get that one, what happens when you have chewed up "one off shot equity"?? do you then intend to sell down properties?? otherwise you are at the mercy of banks and their policies at that time, with no job it will be a tough gig.
70% LVR is too high, because you are accessing equity at this point so the LVR will end up higher, perhaps 80%+.
You are also only playing in 1 market in Australia, right?? Sydney, which means you are dependent on this cycle. If you play in 3 markets you at least can capture growth elsewhere. One market could be going sideways while another market is rising etc.
Be interested to hear from anyone who has been using this strategy for 10 years plus.
I see a lot of properties (capital city) currently which in the past has grown 7%+ per annum, but lately in last 6-7 years has only grown at 2-3% per annum.
Being devils advocate here -
As per HG scenario, still have to be able to service/access funds of $2.1M at 70% on $10M portfolio with a day job with no additional securities, that's a tough one.
Also has anyone worked out compounding interest on $100,000 pa over a 10 year period, I don't see IR at all time lows of 5% staying at this rate forever. Compounding interest is very scary, watching your debt continually rise.
Need to incorporate all the taxes, rates, insurance, maintenance, property management pa. and this is also compounding debt on top of the interest.
It's all lovely stuff when you watch your properties rising, but when the market tanks, then reality check, review your bank statements. Debt rising but the properties are falling in value.
This would scare the hell out of me, because that end value of 10M portfolio could drop by 20%, which means even with a day job you probably wont be able to access equity and you can not sell if your debt is greater than the value of the property. If all you know is a rising market then is very easy to think that if you buy blue chip you are safe and they never fall in value, its a fallacy.
LOE is a strategy that may or may not work its dependent on so many factors, most importantly growth and funding and we have no control over these that's the problem and why its risky. I also assume that is why I don't see many investors go down this road.
Be interested to hear from anyone who has been using this strategy for 10 years plus.
MTR
That's how cycles work isn't it? 80% of growth in last 20% of time.
Have you got any examples of a property last sold in peak of Sydney boom (2003) and recently sold for double the price without any major renovations? This is a genuine question.
All the props I have held for 10 years have double/tripled along with their yields..those particular ones are not Sydney tho as I purchase there 4 years just gone so dont have first hand experience in that market of the time required.
All the props I have held for 10 years have double/tripled along with their yields..those particular ones are not Sydney tho as I purchase there 4 years just gone so dont have first hand experience in that market of the time required.
Ok.
Most of sample data I used for Sydney is between 2002-03 till 2012-13 there was barely 2-3% growth. The last 3 or so years have produced around 25-30% growth. They are just approaching doubling mark now. That means the doubling has taken 12-13 years. But when you look at the same property from 1992-2002 they all comfortably doubled in value.
Cheers,
Oracle.
Timing the market is important.
My Sydney portfolio is anywhere between 5-6% from 2003 to now (using a pseudo conservative val today, not frothy). So it's nothing t write home about from peak to peak. Timing the market is important.