We've done it!

[Rixter]

Hi Rixter,

Great thread.

At what age do you plan to retire from your current occupation?

And how do you think your strategy will cope if you live till 100 y/o?

Thanks.

9 years earlier than most peoples Superannuation Preservation Age.

Our strategy has been set up to continue on to our beneficiaries via our estate planned 3rd Generational Bloodline Trust.

 

[TPI]

So your heirs would need to know that selling your properties is not an option?

As continually LOE over time would potentially create a massive CGT problem wouldn't it?

 

[Rixter]

So your heirs would need to know that selling your properties is not an option?

As continually LOE over time would potentially create a massive CGT problem wouldn't it?

We can advise them however what they do after we are no longer around is long past our control.

CGT is triggered if/when the asset is sold. It would be a large amount but not as large as the sale proceeds.

 

[TPI]

We can advise them however what they do after we are no longer here is long gone out of our control. CGT is triggered if/when the asset is sold. Why would it be a problem?

Say you bought a property in 2013 for 500k.

Say it was worth $1M in 2020.

But, in 2020 the loan against the property was now 900k due to progressively drawing down on equity over time, and your heirs decided to sell the property in 2020...

CGT is calculated on the $500k gain, less the 50% CGT-discount, so on 250k (or a bit less than this after allowing for stamp duty/capital costs).

But the sale price of the property of $1M minus the 900k loan only results in a 100k left over.

This will actually be less than 100k after selling agent and legal fees.

And the eventual sale price of the property may be much less than the $1M bank valuation.

What's left over after the sale may not be enough to pay the CGT bill.

Hence the potential problem...

Just putting this out there for consideration/discussion.

 

[Rixter]

Say you bought a property in 2013 for 500k.

Say it was worth $1M in 2020.

But, in 2020 the loan against the property was now 900k due to progressively drawing down on equity over time, and your heirs decided to sell the property in 2020...

CGT is calculated on the $500k gain, less the 50% discount, so on 250k (or a bit less than this after allowing for stamp duty/capital costs).

But the sale price of the property of $1M minus the 900k loan only results in a 100k left over.

This will actually be less than 100k after selling agent and legal fees.

And the eventual sale price of the property may be much less than the $1M bank valuation.

What's left over after the sale may not be enough to pay the CGT bill.

Hence the potential problem...

Just putting this out there for consideration/discussion.

Using your example, who ever exposed themselves to that situation would have a problem for sure.

Lets assume as you suggest, a gain of $250k (putting aside all other sale costs). Thats the figure the tax is payable on - not the actual tax bill itself. With an 80% LVR as I suggest it's well covered. With the 90% LVR your example suggests that person would have issues. Its all about structuring your self correctly in the first instance.

 

[TPI]

Using your example, who ever exposed themselves to that situation would have a problem for sure.

Lets assume as you suggest, a gain of $250k (putting aside all other sale costs). Thats the figure the tax is payable on - not the actual tax bill itself. With an 80% LVR as I suggest it's well covered. With the 90% LVR your example suggests that person would have issues. Its all about structuring your self correctly in the first instance.

You're right, a lower LVR would reduce the risk of this happening, but still doesn't protect you against valuation and sale price risk (or volatility risk) and the timing of that risk, which can directly affect your retirement outcomes with this strategy.

If the loan was 800k instead but the property had to be sold at a certain time for 900k, you're still in a relatively riskier position than you otherwise could be.

Anyway, you've obviously considered and thought through all the issues involved so I'm sure you will be fine!

 

[Rixter]

You're right, a lower LVR would reduce the risk of this happening, but still doesn't protect you against valuation and sale price risk (or volatility risk) and the timing of that risk, which can directly affect your retirement outcomes with this strategy.

If the loan was 800k instead but the property had to be sold at a certain time for 900k, you're still in a relatively riskier position than you otherwise could be.

Anyway, you've obviously considered and thought through all the issues involved so I'm sure you will be fine!

Although loans are 80% LVR max, lifestyle drawing in todays dollars will be $100k once every 10 years per property.. Total portfolio LVR is <50 there abouts

 

[TPI]

Although loans are 80% LVR max, lifestyle drawing in todays dollars will be $100k once every 10 years per property.. Total portfolio LVR is <50 there abouts

Sure, you've got all your risk management in place.

At the end of the day you've got to do what you understand the most and what suits you the best, and this approach seems to suit you like a glove so respect to that!

 

[WASP]

Well ppl just thought Id post to let you all know we are 7 years into our 10 year CGA Strategy plan and settlement has just gone through this afternoon to now complete the property acquisition stage of our portfolio.

The property is a townhouse located in Cleveland Qld on a peninsula 300m to bay in one direction & overlooking canal living 170m in the other direction. In a complex of 6 others (2nd from the front) all owner occupied, and runs down the block between two streets.

The plan now is to let time weave its magical powers over the portfolio's compounding capital growth up until year 10.

Then its review time looking towards rat race exit, stage left!

Time for a couple celebration drinkies tonight

Hi Rixter

This was in 2007 but you also continued to acquire property after this, was there a change in plans from 10 Properties to 12 or ?

 

[Rixter]

Hi Rixter

This was in 2007 but you also continued to acquire property after this, was there a change in plans from 10 Properties to 12 or ?

Diversified further into an additional Sydney market as the opportunity presented itself, plus rolled our supers into a new SMSF to take advantage of a land banking investment opportunity within that entity also.

 

[D.T.]

Sounds good Rick, When does the "quit work and LOE" phase begin?

 

[Rixter]

Sounds good Rick, When does the "quit work and LOE" phase begin?

Have been partial LOE for about the last 10 years..fully exiting paid employment next FY.

 

[Jk200sx]

Hello Rixter,

Only stumbled on this tonight and read the whole thread - Well done and how are things now?


I have a couple of specifics:

Thanks R!

Also now that you've finished with the accumulation stage, are you just concentrating on paying down the debt now?

Youngin, you never pay any principle off the loans. You are paying interest only. The majority if not all of the interest component is serviced via the 10 years worth of rental income increases along the way -any minimal difference is simply capitalised.

I hope this helps.

So, over the time of accumilation, you pay of the principle, which I understand, but if you (and your partner) are working, you would obviously have plenty of additional cash lying around - what do you do with this? Wouldn't you offset some of your interest? or what?

MK,

That's an advantage of LOE some people don't realise. Once you're financially structured correctly you only need sufficient income to cover your interest component on lifestyle & portfolio holding expenses - not your actual lifestyle & portfolio expenses themselves.

Its a totally different paradigm that most of society is accustomed to. The poor/middle class are raised within a cash for income paradigm, where the wealthy are raised within a capital for income paradigm.

I hope this helps

This is probably a basic question, but can't seem to figure it out, but what is an LOE?

Can you also explain the purpose for the different LOC's you have and why?

Thanks,

JK

 

[chindonly]

LOE = living off equity.

He draws down on the equity available in the property, and uses it to live off.

 

[D.T.]

JK

You obviously haven't read the thread.

During accumulation phase rixter (and many of us) choose to pay interest only and leave the spare cash in offset accounts so that its improving cashflow and readily available.

LOE is living on equity, which essentially is retiring from work and using drawn down equity from property (usually in the form of a loc) as your everyday money source.

Different loc's are so that some can be for investment related costs and some for living costs. You dont want to mix the 2 because ones tax deductible and one isnt.

 

[redwing]

9 years earlier than most peoples Superannuation Preservation Age.
.

I wondered what age this was, so checked Superguide

Preservation age is at least 55 years of age and can be up to 60 years of age. Anyone born before 1 July 1960, has a preservation age of 55 years.

But I will tell you without having to ask. Next FY

Only a few more sleeps now....

 

[Rixter]

So, over the time of accumilation, you pay of the principle, which I understand

No, we havent paid off the principle. Interest only.

snipbut if you (and your partner) are working, you would obviously have plenty of additional cash lying around - what do you do with this? Wouldn't you offset some of your interest? or what?

During accumulation phase rixter (and many of us) choose to pay interest only and leave the spare cash in offset accounts so that its improving cashflow and readily available.

As we use LOC's and not offset accounts, additional income sits in our personal use LOC (if we dont spend it ) reducing the balance and therefore non-tax deductible interest payable.

 

[Rixter]

I wondered what age this was, so checked Superguide

Anyone born post June 30th 1965, preservation age is 60. But the way govt's keep shifting the goal posts (as is the latest case changing retirement age to 70) preservation age may change from how the current rule applies today.

[/QUOTE]

 

[Jk200sx]

Hello Rixter,



So, over the time of accumilation, you pay of the principle, which I understand, but if you (and your partner) are working, you would obviously have plenty of additional cash lying around - what do you do with this? Wouldn't you offset some of your interest? or what?

JK

I actually left out a few words early in the morning the other day when I posted my previous message - the first line should've read "...you do not pay of the principle..."

I'd be interested to know how these loans/ line of credits are set up, and what goes into/out of each one?

 

[Rixter]

I actually left out a few words early in the morning the other day when I posted my previous message - the first line should've read "...you do not pay of the principle..."

I'd be interested to know how these loans/ line of credits are set up, and what goes into/out of each one?

LOC's are secured against property. Each month all income go into them and expenses come out of them via online banking, auto direct debits, Bpay, cheque book & ATM cash withdrawls.