What's your 'cash' goal?

I'm seeing a combination of shares, commercial, fixed interest, build-and-sells, and outright sells. Use the residential as a core to generate capital and then buy other stuff for CF.

LOE is also a possibility there.
Alex
 
However in real life, as many others have stated above, I suspect that I (and a few others) would be hard pressed to spend $1m (let alone $10m) per year on living expenses alone. So any "change" out of the living expenses would go into either CG or CF investments (and at this stage I would suspect CG elements if only for tax reasons!)


I agree Y-Man. But instead of taking the gains as income and then buying back investments with surplus, in reality you would leave the equity where it is and draw down what you needed.

So we're getting towards LOE!
 
I'm seeing a combination of shares, commercial, fixed interest, build-and-sells, and outright sells. Use the residential as a core to generate capital and then buy other stuff for CF.

LOE is also a possibility there.
Alex

Alex, I haven't done the numbers properly but I would think that you would need to do a fair bit of the above to generate that income, simply because, as it is in the form of income, you would paying out a lot in tax.

Intuitively I think you would be ahead if you used LOE.

I'm not pushing LOE, and I still can't come to terms with the ever-increaseing debt, but I'm having difficulty visualising how to get to 500k - 1M per year in income.

Maybe that's because I haven't achieved the right paradigm shift yet.:(

Cheers
 
I'd just like to thank you , and others, again Michael for the effort that you in particular put in Via a spreadsheet, which gave me a bit nore clarification as to how to achieve my goals in the near future.

(ooh baby, I'm all aquiver just thinking about it) :D

Its nice to see it in a clear format instead of scribblings on an envelope and an idea in my head.

Thanks

Dave
You're welcome mate!

But be careful. That spreadsheet is very specific to my situation and there's even quite a few hard coded numbers in it. So, if you intend to tailor it to yoru own needs it might take a bit of work. But as a model of intent it does paint a pretty clear picture. That's all I use it for anyway, to guide my overall strategy and timeframe. Others have pointed out the lack of consideration of tax or other aspects of income/expense, but its a simple strategic model is all. Oh, and I don't pay tax any more because I earn enough to avoid doing so now! ;)

Cheers,
Michael.
 
I agree Y-Man. But instead of taking the gains as income and then buying back investments with surplus, in reality you would leave the equity where it is and draw down what you needed.

So we're getting towards LOE!

In our own case, we are planning to derive our income from instruments such as income funds and to a lesser degree dividends.

So we are not actually drawing down on any equity (although we may from time to time do this, if we see this as a way to leverage the income). Hence the need to "buy" CG elements with the excess cashflow.

Cheers,

The Y-man
 
Alex, I haven't done the numbers properly but I would think that you would need to do a fair bit of the above to generate that income, simply because, as it is in the form of income, you would paying out a lot in tax.

McB,

You wouldn't have to worry about tax (as much) if the income was franked dividends :)

There are many ways to defer tax - at the very most, 30% is what you are looking at (corporate rate) - so if the income is $1m, $700k after tax won't be too bad...

Cheers,

The Y-man
 
Alex, I haven't done the numbers properly but I would think that you would need to do a fair bit of the above to generate that income, simply because, as it is in the form of income, you would paying out a lot in tax.

Intuitively I think you would be ahead if you used LOE.


I haven't done the numbers properly either, but I figure depreciation, imputation credits and splitting income to the wife and kids will help.

Yes, LOE will make things happen faster. Whether I can get my head (and heart) around the concept is another issue. I think I'll end up doing a combination of both.
Alex
 
McB,

Don't take the word income used here literally. It'd have been clearer to say "$1m cash" instead.

Income is, in rich language, a poor man's term. It attracts tax when it is earned, tax when it is saved, tax when it is spent, leaving very little for real purchase.

Cash is a better term, since it is neutral to the sources where money is taken from: Super, equity, work, dividend, distribution, rent, royalty, donation, subsidy, asset sale, freebies, winnings, allowance, benefits, gift, inheritance, fees, annuity, capital return, shared use, credit... The list goes on.

How much income is needed to provide a $1m-cash life style?

There are millions of answers to this question, depending on where money is taken / generated from, how it is used and how the finance is structured.

And our imagination, of course ;)
 
I had forgotten about franking.

You're right. There are many ways to reduce tax. I was thinking of pure income but should be thinking in other terms.

I guess my whole approach has been geared towards cg to start with so I'm stuck in that way of thinking. I will need to force myself to think in terms of generating 'income' which builds over time with the assets.
 
I think as time goes on I'll use the CG from the IPs to buy more income generating stuff. Since that income also grows (rent, dividends, etc) as I transition I'll have more and more income.
Alex
 
Alex, I haven't done the numbers properly but I would think that you would need to do a fair bit of the above to generate that income, simply because, as it is in the form of income, you would paying out a lot in tax.

Intuitively I think you would be ahead if you used LOE.

I'm not pushing LOE, and I still can't come to terms with the ever-increaseing debt, but I'm having difficulty visualising how to get to 500k - 1M per year in income.

Maybe that's because I haven't achieved the right paradigm shift yet.:(

Cheers

As per your paradigm shift I certainly haven't achieved it.

Deep down I still like to pay down my loans thus reducing my overall debt. This comes from having gone through the 70's and 80's and seeing some very high interest rates. Also the wife tells me that I am very conservative:rolleyes:

We do achieve the figures you mention (and then some) purely in income not including any CG. We do this by having bought RE at the right time and receiving heaps of CG then paying down loans (I do this whenever I don't have an immediate investment in mind).

Then having diversed into the market both direct and also MF's (mainly) generating the bulk of the 'income'.

Thus what we are left with is a portfolio which is about 50% RE 30% shares(direct and MF's) and 10% other.

The LVR overall (including our super) is about 31%, with the bulk of those loans used in market related investments and about 7% outstanding against RE.

Overall we limit our tax to 30%.

This done in 2 ways, the first is that we have corporate beneficiaries so we can retain earnings and limit the tax to 30%, the second is that we simply don't draw down gross income in excess of a 30% flat tax figure. There are 4 beneficiaries so that gives us about $250k that we can draw down and still only pay 30%.

Back to the income. On our MF's we have been achieving 15%+ returns over the last 3+ years rather than 7% you mention. It is with these returns in mind that have regeared the RE and utilize those funds to generate 7+% after loan expenses. If these investments were only generating 7% all up then realistically you could not use debt to extend your income. Similarly if the overall returns were less that 15% I would also be reconsidering my iposition based on risk/ reward.

Even if we did not use MF's we could still achieve our taxable income based on rental income but this would not really give us enough to reinvest and would then be dependent of the CG on the property to keep ahead of inflation.

y-man said:
In our own case, we are planning to derive our income from instruments such as income funds and to a lesser degree dividends.

So we are not actually drawing down on any equity (although we may from time to time do this, if we see this as a way to leverage the income). Hence the need to "buy" CG elements with the excess cashflow.

Cheers,

The Y-man

In affect we do exactly what Y-man says;) plus still rental income on top.

Cheers
 
Thanks Handyandy, quoting those numbers really helps illustrate the process. This gives me some ideas about planning my future direction.

When you say 'corporate beneficiaries' do you mean it's set up like a trust but under a corporate structure so that members of the 'corporation' can benefit from company profits? I need to reasearch this approach as I'm not familiar with it.

Thus what we are left with is a portfolio which is about 50% RE 30% shares(direct and MF's) and 10% other.

If you don't mind, would it be ok if I had the missing 10%?:)
 
By corporate beneficiary I simply mean that our trusts can distribute to a company.

This company doesnt' operate in any way apart from giving my other structures loans.

Nah, I think I'll keep the 'other' :D

Cheers
 
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