When to release the money in IP’s

Hi All,

I am about to start investing in property (should make first IP purchase in next couple of months). I have read a few books and the last 4 months of API magazine. I will be following the stratergy of using equity in PPOR as 20% deposit for IP and fund rest with interest only mortgage. Wait till the equity builds up in PPOR and IP1 and do it again in another couple of years or earlier.

My question is that you could do this to the day you retire and be assett rich not cash rich. As you cant take the money to the grave what is the best way to release the money for enjoyment near or after retirement.

EG

Sell one property every couple of years to live a decent lifestyle before retirement

Live off the rental income as they become cash positive and leave in the will for kids

Just keep building equity and funding more IP's

For the record I would rather retire early using the money in my IP's or use IP's to live a decent lifestyle before retirement (holidays, new 4wd etc)

Thanks
Ian
 
My view of this is to invest in 3 distinct stages:

Stage 1: Gather as many assets as possible. This includes purchase of IPs as well as shares and any other yield and growth assets as you can think of. I have allowed 10-15 years for this stage.

Stage 2: Consolidate the assets into a form that generates a regular dividend, yield or income which is distributed to you. I have allowed 5 years for this stage.

Stage 3: Live off the income and do what you want.

At this stage I am probably a third of the way through stage 1, and am planning to be in this stage for another 8-9 years. I try to buy an IP every year, and have P&I loans for all my properties (mostly because it suits my risk framework well).

When I get to stage 2 the idea is to draw equity out of the IPs, to the stage where they are cashflow neutral after tax, and use the capital drawn out to invest in shares that generate a solid dividend, but are still quality companies. Every few years I can then revalue some properties and draw some more equity into the shares pool, thus increasing my income. The value of the shares will also trend up over time, so dividend income should increase anyway. I also have the options of keeping rental income as income, should I so choose.

What you end up with is thus a large asset base that generates income in a tax effective way. You have options available for selling assets, drawing equity from assets, or reinvesting yield, all as it suits your situation.

I hope that by doing this, I will acquire about 10 properties before I'm 40, and thus be in a position about 5 years later to shift some good amounts of equity into shares, thus generating a tax effective income. I already have some shares, and buy more each month, but this is mainly to do with learning about how to make things work for me. I would also anticipate having a cash reserve to smooth the passage of dividends.

Now, if anyone can see any issues with this approach, or has ideas as to how things may work better, please post so I can use the information!:)
 
VY, I must say that I always enjoy reading your posts, you seem like a very smart and well thought over investor, the best type!

Thanks for that - it's nice to get some affirmation! FWIW, I wouldn't class myself as an expert investor, just a guy who sees opportunity and tries to do something with it.

Also, I am only new to this forum, but really enjoy the discussions here. I like the fact that most comments seem constructive and based on actual thought.
 
VY has put out some great thoughts there. You can also type in a search for Living off Equity (LOE) and you should find about a thousand pages of info, as this has been a hotly discussed topic in the past on this forum.
Cheers
 
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