My thoughts exactly....the faster you make it the faster you lose it because its HIGH risk. Returns are proportional to risk exposure.
What does it really take to earn $100k PA Passive Income
- Thread starter peastman
- Start date
My thoughts exactly....the faster you make it the faster you lose it because its HIGH risk. Returns are proportional to risk exposure.
I don't remember property prices dropping by 2/3rds in two years, even if you adjust for CPI.
I didn't generate the report or am a financial planner but it talks about Australian listed property. Which might mean there was a ~40% drop in listed properties during this time?
No - just listed property trusts. They got caught short with the (lack of) availability of debt and had to tap their shareholders for more equity in a big way. These days they have relatively low leverage - they look pretty fat and lazy to me actually.
By comparison, the value of the actual properties they held didn't change all that much - it went down a fair bit in some markets but overall the market just didn't trade much in the middle of the GFC because no-one could buy anything unless they had cash and very few buyers were (and are) in that position. Vendors focussed on re-financing (through equity mainly as debt was unavailable) rather than selling.
Overall it was an excellent lesson in why buying a LPT is NOT the same as buying a CIP... it looks like a share and smells like a share because it is a share!
Passive income
Hiya
Passive income is my favourite topic as i am inherently lazy by nature ha
Once my latest granny flat is done and i "convert" my low yield, high growth shares to high yield blue chip shares, i reckon i'll be two thirds there
(thanks Keithj for showing me the light
Paris, here i come....yeeha...
To the OP; these are 2 links that have challenged or helped me i hope
you will find them useful
http://www.financialsamurai.com/achieve-financial-freedom-slice/
and
http://forum.earlyretirementextreme.com/viewtopic.php?f=9&t=3422
Hiya
Passive income is my favourite topic
as i am inherently lazy by nature haOnce my latest granny flat is done and i "convert" my low yield, high growth shares to high yield blue chip shares, i reckon i'll be two thirds there
(thanks Keithj for showing me the light
Paris, here i come....yeeha...
To the OP; these are 2 links that have challenged or helped me
i hopeyou will find them useful
http://www.financialsamurai.com/achieve-financial-freedom-slice/
and
http://forum.earlyretirementextreme.com/viewtopic.php?f=9&t=3422
To answer the original question which I didn't, I think to make $100k pa passive income, it's important to have good market knowledge. Know your markets very well.
A lot of people invest into things (be it shares, properties or even business) without having a clue about what they're doing, and obviously they wouldn't know that they didn't have a clue that until fast forward 3-4 years they're actually sitting on negative equity (yes, some properties do fall in value) and the investment costs them money each month. I know a few people in this boat.
Don't really want to feed the trolls, but just talking generally, someone talked about the baby boomers being lucky to hit the 90s boom. Unfortunately being still in primary school in the 90s, I missed the entire boom. And being in high school in the early and mid 2000s, I also missed most of that boom. I could always sit around the room and complain about how unlucky I am to be born in the wrong generation. But really, be grateful you were even born with a healthy body.
Back on topic, it is still possible to hit $100k pa passive income despite having missed all these booms. Some things are harder now (eg general market-wide capital growth may not be as forthcoming as 1999-2001), but some things are easier. I used to be able to tutor people through Gumtree starting at $30/hr, increasing to $50/hr and at the end I was charging $100/hr during my first 2 years in uni. Not sure how many baby boomers could command this sort of pay at 18 or 19 years old and, even if they deserved it, could source the clientelle without the internet. The ability to work across states or countries and take your pick on the most lucrative jobs or ventures has never been more accessible and mobile. A lot of people of could fly to Hong Kong tomorrow, pick up a job at whatever pay and pay half the taxes they pay here if they wanted to. With housing subsidised. The ability to globalise your life - such as importing cheap jewellery from China and selling it to Australians, while living cheaply in Thailand, and running your business all through the internet (yes my 28 year uni old friend doing just this) and making a bucket load and putting it back into property has never been easier. Neither has access to information, data, cutting edge technology. You could've and many did swap A$ out at 1.02+ at the click of a button, and it would take 30 seconds to swap it all back if they fancied.
Making money has never been easier than this generation.
But there's more to life than that. Making money is just a means for you to do what you want. Maybe it's to retire and eat good food every day without working, maybe it's to holiday for the rest of your life without working. Some people make money so they can make more money later. Nothing wrong with that also.
A lot of people invest into things (be it shares, properties or even business) without having a clue about what they're doing, and obviously they wouldn't know that they didn't have a clue that until fast forward 3-4 years they're actually sitting on negative equity (yes, some properties do fall in value) and the investment costs them money each month. I know a few people in this boat.
Don't really want to feed the trolls, but just talking generally, someone talked about the baby boomers being lucky to hit the 90s boom. Unfortunately being still in primary school in the 90s, I missed the entire boom. And being in high school in the early and mid 2000s, I also missed most of that boom. I could always sit around the room and complain about how unlucky I am to be born in the wrong generation. But really, be grateful you were even born with a healthy body.
Back on topic, it is still possible to hit $100k pa passive income despite having missed all these booms. Some things are harder now (eg general market-wide capital growth may not be as forthcoming as 1999-2001), but some things are easier. I used to be able to tutor people through Gumtree starting at $30/hr, increasing to $50/hr and at the end I was charging $100/hr during my first 2 years in uni. Not sure how many baby boomers could command this sort of pay at 18 or 19 years old and, even if they deserved it, could source the clientelle without the internet. The ability to work across states or countries and take your pick on the most lucrative jobs or ventures has never been more accessible and mobile. A lot of people of could fly to Hong Kong tomorrow, pick up a job at whatever pay and pay half the taxes they pay here if they wanted to. With housing subsidised. The ability to globalise your life - such as importing cheap jewellery from China and selling it to Australians, while living cheaply in Thailand, and running your business all through the internet (yes my 28 year uni old friend doing just this) and making a bucket load and putting it back into property has never been easier. Neither has access to information, data, cutting edge technology. You could've and many did swap A$ out at 1.02+ at the click of a button, and it would take 30 seconds to swap it all back if they fancied.
Making money has never been easier than this generation.
But there's more to life than that. Making money is just a means for you to do what you want. Maybe it's to retire and eat good food every day without working, maybe it's to holiday for the rest of your life without working. Some people make money so they can make more money later. Nothing wrong with that also.
100k p.a. indexed passive income has been my holy grail for the past half decade or so. It is a topic that I think about a lot as it is the magic number that marks financial freedom for me and obviously, many others. For me, once I hit this number, I can stop working for money.
I fully agree with observations that this takes anywhere between 2.5 mil to 3.5 mil of unencumbered income producing assets, be they cash, annuities, resi IP, comm IP, shares, LICs, ETFs. Debate ranges from a 3 to 5% yearly yield from this asset base. Preferably this asset base is diversified so that some component is always generating something. I currently hold most of my retirement asset base in cash and direct share holdings in about a 60/40 configuration. There is no loan at all. Currently, I am at the 2.4m mark in an overall net worth situation of approx 3.6m. The remaining 1.2m consists of PPOR, owner occupied comm IP within SMSF and super from my employee days.
I am looking to purchase an investment comm IP via a loan whilst I am still working to utilise the tax advantages. The deposit will be via equity from PPOR and using some cash holdings. I suspect that I will want a conservative LVR for the comm IP e.g. 50% so that I can continue to hold it using passive income from other sources should I stop working.
I expect to work for another 5-6 years or so. Post active / full time work, I suspect that my holdings will purely consist of cash, deposits (20%) and shares / ETFs (80%). My first goal is that I am aiming for 3m to be safely in the "middle of the road" and at the same time, not having to work a day longer than necessary. The major delay that I see in this program is that I wish to upgrade PPOR from the current 800k to 2m. This means that the overall net worth needs to about 5m. This will delay my retirement plans but I figure that the PPOR will also be part of a diversified asset base to generate an income stream as time goes on. Once I reach a certain age, the plan would be to downsize the PPOR or enter into a reverse mortgage situation. Given the short 5-6 year time frame that I have to reach the 100k p.a. passive income and to upgrade PPOR, I am not that keen to be highly leveraged. I may have to consider some part time work post 5-6 year window.
I don't find the road to 100k passive income easy in any way. It has involved and continues to involve a lot of back busting effort.
I fully agree with observations that this takes anywhere between 2.5 mil to 3.5 mil of unencumbered income producing assets, be they cash, annuities, resi IP, comm IP, shares, LICs, ETFs. Debate ranges from a 3 to 5% yearly yield from this asset base. Preferably this asset base is diversified so that some component is always generating something. I currently hold most of my retirement asset base in cash and direct share holdings in about a 60/40 configuration. There is no loan at all. Currently, I am at the 2.4m mark in an overall net worth situation of approx 3.6m. The remaining 1.2m consists of PPOR, owner occupied comm IP within SMSF and super from my employee days.
I am looking to purchase an investment comm IP via a loan whilst I am still working to utilise the tax advantages. The deposit will be via equity from PPOR and using some cash holdings. I suspect that I will want a conservative LVR for the comm IP e.g. 50% so that I can continue to hold it using passive income from other sources should I stop working.
I expect to work for another 5-6 years or so. Post active / full time work, I suspect that my holdings will purely consist of cash, deposits (20%) and shares / ETFs (80%). My first goal is that I am aiming for 3m to be safely in the "middle of the road" and at the same time, not having to work a day longer than necessary. The major delay that I see in this program is that I wish to upgrade PPOR from the current 800k to 2m. This means that the overall net worth needs to about 5m. This will delay my retirement plans but I figure that the PPOR will also be part of a diversified asset base to generate an income stream as time goes on. Once I reach a certain age, the plan would be to downsize the PPOR or enter into a reverse mortgage situation. Given the short 5-6 year time frame that I have to reach the 100k p.a. passive income and to upgrade PPOR, I am not that keen to be highly leveraged. I may have to consider some part time work post 5-6 year window.
I don't find the road to 100k passive income easy in any way. It has involved and continues to involve a lot of back busting effort.
Shares & Property
Interesting thread and I must say I haven't read through the whole lot yet.
My 2 cents;
I will be accumulating a portion of my retirement income through property and a portion through shares.
There are many calculations and assumptions in this thread, but if you can accumulate $2 Mil of shares you will have your $100,000 p.a income. (No tenant issues, water rates, property managers to deal with etc)
Diversify and appreciate other tools to get you where you want to go.
Cheers
Cash Flows
Interesting thread and I must say I haven't read through the whole lot yet.
My 2 cents;
I will be accumulating a portion of my retirement income through property and a portion through shares.
There are many calculations and assumptions in this thread, but if you can accumulate $2 Mil of shares you will have your $100,000 p.a income. (No tenant issues, water rates, property managers to deal with etc)
Diversify and appreciate other tools to get you where you want to go.
Cheers
Cash Flows
The OP of this thread says so as well. Me I think 2.5m to 3.5m is safe. Safe to last forever.
So to clear $100K you would need a taxable income of $144,200PA.
Assuming your portfolio was paid off, the other expenses (Rates, Vacancies, Strata Fees, Repairs etc) would probably come to about 20% of the rent. That means your rental income needs to be $180250PA
Lets assume you are getting 5% return on your portfolio. That means your portfolio is worth $3,605,000
Now that $3.6M portfolio needs to be owned outright, so assuming a 50% LVR so you can sell half of your portfolio to clear debt on the other half, you have to build a portfolio worth $7,210,000
If the average property in your portfolio is say $400k, you would need 18 properties.
Now some people can and have done this, but the reality is that this is not easy to do.
Correct no tenant issues, water rates, property managers to deal with. Just at the uncontrolled exposure of market fluctuation instead.
I know where my $2m SANF is..its called safety in bricks and mortar for reason.
Alternatively, if you buy a high dividend yield EFT, like Vanguard VHY, you'll pull around 6% fully franked, which is 8% grossed up. That'll need capital of just over $1.8M to get you there, which is about half what you need in property to pull the same income. No tenants, depreciation schedules, rates, insurance and maintenance required.
If someone is that worried about the volatility of shares, just put the full amount you were going to need to put into property to achieve the same outcome (i.e. $3.6M) into such an index fund, earn $200K per year in normal years and earn "only" $100K during a 50% correction year.
As per Rixter , it's just a problem when your shares go down at the wrong time.
I know several peoples who's plans for a well funded retirement was Stuffed by the GFC and the reality is there is a significant correction most decades /
One couple I know have had to sell their long term house really nice house in Seaforth to a much more mediocre property in oder to be able to afford their retirement. And they're not able to go on all those OS holidays they planned on taking ?.
I'll go for a portfolio of fully paid off properties which will give me a nice indexed retirement.
Cliff
but it will take longer, we're here for a good time , not a long time
huge stock market crashes might only once every 20 years or longer. Alot of today's investors might be pushing up daisies when the next one hits.
Me too!
Look, it's not really that hard. Purchase properties, sit on them for a while, sell some (if you wish) & you're there.
For instance. We started from little not that long ago after a failed business. Bought a PPOR with a second dwelling at the rear. Paid it off (I know, I hear you, keep it all in the offset). Could have retired then, but we decided to uprade the PPOR. So, moved to better property & that's almost paid out now, but old property is bringing in $650pw.
Anyway, got a heap more, sell some, pay others down & Bob's your Uncle, you've got your desired income, all with little to no effort, only time.
About two minutes to write the post.
wow, that's fast. It takes me at least 10 minutes typing with one finger and my nose nearly touching the screen
But, seriously I reckon it would have taken skater the better part of 20 years to achieve what she said. Not criticising but I think shares may have done the job quicker. Again I stress I am not criticising.
We accumulated about $800k net property assets but over 20 yrs so probably not so flash. Some properties did very well, some stayed flat but thankfully no huge drops in value. We've used highish salaries to pay off as much debt as possible over the last fews years. Made some sacrifices to follow higher salaries. We could probably go semi retired next year, just working part of the year and living off rents. We have 7 properties and probably would sell off one every few years to keep us in income until our 70s.
Not worrying about paying for nursing home fees. If we live that long a one way ticket to a swiss clinic and a nice send off would take care of any money left over.
Not worrying about paying for nursing home fees. If we live that long a one way ticket to a swiss clinic and a nice send off would take care of any money left over.
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