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

[oracle]

Would be interesting to see the historic rates for areas in and immediately adjacent to Sydney's metropolitan area Satellite cbd's.

I like to see real property sales data. Since median/averages have lot of variables (aka renovation, sub-division, change in zoning) etc. etc. which might look like they are comfortably doubling in value but the owner/investors have invested money into renovating property or they have enjoyed bit of luck due to zoning changes which might not be repeated in future.

Cheers,
Oracle.

 

[oracle]

My Sydney IP has had a conservative 50% CG in 4 years... and 35% yield increase.

How confident you are similar growth rates will be repeated over the next 4 years?

Cheers,
Oracle.

 

[Rixter]

When you are in your retirement phase and doing LOE..you are not going to be actively buying/selling timing the market. You need to factor in conservative growth estimates to your portfolio growth going from peak to peak. The question is what if that cycle (peak to peak) keeps getting longer and longer and even your most conservative growth estimates turn out to be too high?

I think you will find HG maybe LOR by then...Planning to LOE a few years.

 

[Rixter]

I like to see real property sales data. Since median/averages have lot of variables (aka renovation, sub-division, change in zoning) etc. etc. which might look like they are comfortably doubling in value but the owner/investors have invested money into renovating property or they have enjoyed bit of luck due to zoning changes which might not be repeated in future.

Cheers,
Oracle.

Yes mate...thats what I was referring too, historic sales rates.

 

[Rixter]

How confident you are similar growth rates will be repeated over the next 4 years?

Cheers,
Oracle.

By 2020 ideally for it to have doubled.

 

[Highlygeared]

Correct, timing can make a huge difference. Also remember thread on Somersoft warning there could be a potential correction coming to Sydney market over next 2-3 years. That will bring your average growth down even more.

When you are in your retirement phase and doing LOE..you are not going to be actively buying/selling timing the market. You need to factor in conservative growth estimates to your portfolio growth going from peak to peak. The question is what if that cycle (peak to peak) keeps getting longer and longer and even your most conservative growth estimates turn out to be too high?

Cheers,
Oracle.

I'm factoring 4% average growth per annum, and 3% rental growth. It won't be linear, it might even go backwards but that's what I'm factoring.

Do you think that's too aggressive (serious question, not rhetorical)?

 

[oracle]

I'm factoring 4% average growth per annum, and 3% rental growth. It won't be linear, it might even go backwards but that's what I'm factoring.

Do you think that's too aggressive (serious question, not rhetorical)?

I think that's conservative. But the question is when you factor in holding costs (which apparently always seems to rise above inflation for eg. rates, insurance, maintenance costs) does it still offer the best return for the efforts you put in and the risks you take?

Will you continue to enjoy passive retirement if you started to worry about growth rates?

Cheers,
Oracle.

 

[Highlygeared]

I think that's conservative. But the question is when you factor in holding costs (which apparently always seems to rise above inflation for eg. rates, insurance, maintenance costs) does it still offer the best return for the efforts you put in and the risks you take?

Will you continue to enjoy passive retirement if you started to worry about growth rates?

Cheers,
Oracle.

Hi Oracle -probably would bug me, but I've factored in a 3% rise pa for those expenses as well. Can't factor in rent rises and not rises on cost side ie can't have your cake and eait it too

Plus my yearly budget includes $30K for travel/fun every year.....that's a discretionary expense I can ditch if need be. Shame if I had to.

Plus, there's no reason I can't do something ie personal exertion to earn extra cash bc retirement doesn't necessarily mean watching the tele all day long. Wife or I could even go back into the workforce. If a shortage does develop and say, its $50K per annum, I'm surely two fairly intelligent and not so old people can do something to muster up $50K.

 

[MTR]

Hi MTR, I've pretty much modeled all the numbers over the next x years and as long as modest rent increases take place and interest rates are mitigated then it is doable. At some point in the future, LOE will transition to LOR as rents rise. But you're right it is more risky in that what you model won't transpire in reality eg rents don't rise, catastrophic falls in property values, etc etc. But one has to make the judgement call of how much risk one is prepared to tolerate.

I don't think any one investment strategy is 100% foolproof eg what if the locales of your Atlanta portfolio turn into the new Detroit, what happens if demographic changes take hold and property values crash 50% etc. What if you can't rent the property out for months at any price? Pretty unlikely and doomsday scenarios but I'm merely making the point that there's risk in everything we do. Having said that I know/think your US portfolio only makes up a small % of what you own so it's probably not a fantastic example.

Re; the LOE cashout, I intend to do all top ups whilst I'm gainfully employed - I don't intend to refi and cash out after retirement bc put simply, the bank's 'computer says no'. So that top up has to be large enough and last long enough to get me to LOR.

Or I could stay in the game for an additional 10 yrs for example and play it safe. More surity but what value do you place on happiness.

I don't have all the answers of course but of all the options staring me in the face, this is the only one that'll get me to my goal sooner. What happens after that will be a combo of factors I can control and ones I can't. I don't require stellar growth in property values or rents but as long as it keeps up with CPI, that would be adequate.

A diversified portfolio is important - I'm spread across 3 but mainly 2 (in Oz). I intend to add Perth to the mix in a while. Is that diversified enough - who knows? Time will tell I guess.

I think we may be talking chalk and cheese here. Difference is I don't have any debt on my US properties. I am not reliant whatsoever on growth of US properties. US properties crashed 70% in 2007, US markets today have recovered even Detroit, though I would not touch this area.

So what options have you looked at besides LOE?? and how soon would you pull the pin if you went down this route??

I agree with you with regards to retiring, most of the investors I know who have retired have gone on to start up businesses related to property, ie mentoring, developing, BA etc etc. and have continued generating income, not reliant on just rents, at the end of the day property does not generally provide high return.
The only thing is you dont want to replace you day job with another job, it makes no sense unless you call the shots and you are enjoying what you do.

MTR

 

[Highlygeared]

I think we may be talking chalk and cheese here.

Difference is I don't have any debt on my US properties/

I am not reliant whatsoever on growth of US properties, though they have doubled plus some. If they fall back to my original purchase prices of 70% I wont be too worried as I wont be accessing equity and I wont be selling. Though if I did decide to sell at purchase prices in 2011 I still get to make money because of the currency play.

US properties crashed 70% in 2007, US markets today have recovered even Detroit, though I would not touch this area.

So what options have you looked at besides LOE?? and how soon would you pull the pin if you went down this route??

Could always go down and reduce debt, and find another market or another strategy.

I agree with you with regards to retiring, most of the investors I know who have retired have gone on to start up businesses related to property, ie mentoring, developing, BA etc etc. and have continued generating income, not reliant on just rents, at the end of the day property does not generally provide high return.
The only thing is you dont want to replace you day job with another job, it makes no sense unless you call the shots and you are enjoying what you do.

MTR

Hi MTR, I'm actually at a bit of a loss as to how to change tack to a hi yield investing scenario. Only because I have a knack of buying well and getting instant equity in metro areas, and have stuck to that formula.

I've traditionally struggled to find houses or apartments that generate close to or beyond 7%+ on purchase without resorting to building a granny flat or renting out room by room, or developing. I have found a couple of gems on the odd occasion but they're far and few between - and mostly attributable to good timing or negotiation on my part.

Maybe I have too much of an affinity for metro areas and should broaden my horizons. You've read that Cairns example purchased by Nathan - I'll never benefit or be disadvantaged from that sort of purchase bc I don't buy IPs like that. Same with mining areas - could've made a motza but could've gone the other way too. That's why I stick with boring and vanilla, because it comes with some predictability.

That's what I need now - to move into low risk, hi yield investments that don't involve copious amounts of cash to tip in on purchase. My base, foundation portfolio is for the most part sorted. I just need to finish this journey off! But how is the question and via what??

I'll be working for 3 years more at very least.

 

[oracle]

Hi MTR, I'm actually at a bit of a loss as to how to change tack to a hi yield investing scenario.

Have you read the High Yield Shares thread - here?

Cheers,
Oracle.

 

[Highlygeared]

Have you read the High Yield Shares thread - here?

Cheers,
Oracle.

I have Oracle. Problem is bc my portfolio is negative I don't have cash to put in the market per se ie it will essentially be borrowed funds/equity.

But I do see the benefit eg franked divs at 6%, cost of borrowing at 4.4-5% with no maintenance, tenant repairs etc etc.

Might be an option though, and from a personal risk tolerance perspective, I'd be more likely to go for stocks vs CIP.

 

[MTR]

I think that's conservative. But the question is when you factor in holding costs (which apparently always seems to rise above inflation for eg. rates, insurance, maintenance costs) does it still offer the best return for the efforts you put in and the risks you take?

Will you continue to enjoy passive retirement if you started to worry about growth rates?

Cheers,
Oracle.

... And interest rate another major worry. I was investing when interest rates hit 18% ouch

 

[D.T.]

... And interest rate another major worry. I was investing when interest rates hit 18% ouch

What were yields at that time?

 

[Green Grass]

Hi all. I am new to the forum, currently looking for my first IP and looking to buy 1 at least every 2 years over a 15 year horizon. Thanks to all those who have posted. Highly inspirational for someone starting out.

GG

 

[lenojd]

Some really really good discussion here guys - thanks and please keep it going!

Re whether property will continue to double every 7-10 years, does it matter if there is sufficient growth?

If Rixter has a number of IPs in his portfolio that have already 'doubled' he theoretically has equity that probably extends beyond what he requires or needs each year over a period of time, let's say 10 years.

Now, if the portfolio is + geared and is growing modestly, won't the compounded effect of even small % growth on a large base theoretically mean that over time if becomes low risk as LVR drops?

For eg. If you start with a $5m portfolio at 50% LVR, LOE up to 70% LVR i.e. $1m, even if the portfolio only grows by 50% over the next 10 years, that still:

$3.5m of debt, with a $7.5m asset base, ~46% LVR which is better than the starting position.

Doesn't that stack up?

 

[lenojd]

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!

Now please correct me if I am wrong as I am trying to get my head around this as well but rather than LOR with the 130k pa 'taxable income' can't you use the 'income' to go to the bank to continue to use the LOE strategy?

130k pa can be used to borrow the next round of equity from the bank (say 10 years at $x per year), whilst asset base continues to rise, rents continue to rise, relative cost base reduces? So over time it becomes more cash flow + and easier to execute?

 

[jmillar]

Excuse the ignorance but what is LOE/LOR? I searched the 'Frequently used abbreviations' thread and did a Google search and couldn't figure it out!!

Cheers

 

[Coota9]

I could be wrong

LOE Living Off Equity
LOR living Off Rent

Coota

 

[skater]

I could be wrong

LOE Living Off Equity
LOR living Off Rent

Coota

Correct!