Who lives off rental income alone

Do You Live Off Rental Income Alone?

  • yes

    Votes: 6 5.7%
  • No

    Votes: 81 77.1%
  • mix of rental income and other investments

    Votes: 13 12.4%
  • Almost There

    Votes: 7 6.7%

  • Total voters
    105
  • Poll closed .
Jaycee,

Bill, in 5 yrs hse paid of a whole ****ing house ! I can't see what the helll is wrong with that..

Perhaps you didn't read all of what I wrote, or maybe didn't understand it.

Paying off 1 house or 2 houses is not her goal, owning 5 properties is. Getting to that goal could be much harder if there is a boom in property prices in the next year or two, because saving up for that 50% deposit gets harder and harder as the prices rise.

Both you and Vincenzo think it is a risk free strategy, but it is not risk free in reaching the final goal. If prices doubled over the next 2 years, then went slightly up for years, reaching the goal of 5 properties by buying 1 at a time and paying it off, will take years longer to achieve and that time is the risk.

We each only have a certain amount of time available, why risk it??

bye
 
Hi Bill,

In the end I would dare say you are no surere of that strategy than she is of hers.

She can CHANGE strategies at any time.... If prices go up mor thn expected for example and she chooses to dip into equity to help...or lower the deposit before buying again

If they don't boom in a couple of years like that, then her strategy of buying ASAP with a large deposit would work - aren;t we positive people here who do not let 1 possible negative stop us ? All she has to do is be aware of what may happen. And if need be, & work around it.

I don't see the issue.

She is not comfortable obviously with a large LVR so chooses to do it this way. Others have suggested that this is called Slee At Night Factor and is quite important.

You seem to imply she doesnt understand how to use equtity & leverage, maybe, maybe not...

I suppose she could buy 5 properties now & chip in to hold them and when able to start paying them down or whatever.. she would get extra growth earlier and it will compound earlier... but can she afford this & keep the important "life" menitoned ?


Only she knows exactly..

In theory and in practice I still maintain there is more than one way to play this game and win.

I think you repeat the good points in the stratgey you are espousing, I guess I just see more of these same good points in Nikolina's then you do.
 
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Back on topic...

I forgot to mention earlier that I voted NO, since unfortunately for me, i'm cashflow negative overall at this stage :(
 
I probably don't understand either, but what I do know is that you can only borrow as much as you can service.

With a system like this where you pay one off at a time (in the earlier stages), if you then get a LOC on the first paid off one and use that plus your own deposit for the next one, you are then in a position to make cash unconditional purchases. Not always, but often this leads to better buying power.

With all rents paying off the LOC it doesn't take long to whittle it down, including your own input, then you can go again with the next purchase.

Once you have the first one paid off, if you then buy a house that can be dual occed, you then have the income from that house for repayments and a block of land for building on and doubling the number of houses that you can rent, without the need to buy land later that may have increased considerably over the time

The cost of building has not inflated at the same rate as land in my experience.

This is what we have done over the years, and we are now going back over them putting the second places on them.

There are 11434 members on this forum and probably 11434 different ways of getting there, this is just what has worked for us.

Good Luck Nikolina.:)
 
Both you and Vincenzo think it is a risk free strategy, but it is not risk free in reaching the final goal. If prices doubled over the next 2 years, then went slightly up for years, reaching the goal of 5 properties by buying 1 at a time and paying it off, will take years longer to achieve and that time is the risk.

We each only have a certain amount of time available, why risk it??

bye

Totally agree Bill.

The trick with this caper is to keep buying whenever you can afford to.

So, for example; say you could afford a property now and comfortably service a $100 per week neg cashflow - you buy it.

Then, in 2 more years, you are in a financial position whereby if you bought a second one, it would only leave you out of pocket around the same amount per week - maybe even $110 per week, which you can handle. So, you buy again.

This would be the better way to judge things, and by doing it this way - which is basically how Jan Somers and Marg Lomas have done it; you still keep increasing your exposure to the market, but not your "financial exposure".

This is basically what we have done - and sometimes we have got it a bit wrong; expected a (neg) cashflow of X and it was more, so for a while things were tighter, but not out of control.

I think as long as you crunch your numbers and err on the side of caution, you can still buy regularly - maybe ever other year.
 
Not arguing with you guys (bill / bayview)

But at the same time, when one has an almost unacanny ability to actually beat the clock - 5yrs to pay off a house, I think that is why Nikolina's strategy might actually work. If it took longer, not as well - to attain that end goal of 5 ips.

She has said her awage is average, so there is liited borrowing based on servicablity.

She couldn't buy every 2 years without substantial kciking in herself.

Could she buy quicker ? Let's see.

Now she just bought. So she my have a 30% LVR, her IP and has a paid off IP ... 50% available equity .. enough for 20% deoposit..

So she buys again.. 80% LVR altogether.

YEAR 2 Cant buy, not enough servicability
YEAR 3 Ditto - alhtough, she can save the same aount in an offset as 1/2 an IP paid off by now
YEAR 4 She buys IP 3
YEAR 5 Cant buy again
your strategy = in 5 yrs she will have 3 IPs with about 60% LVR (and a PPR) and not able to buy for another 1-2-3 years

her strategy = 2 IPS, 0 LVR and PPOR - equity enough to buy another wiht asking for a mortgage...end result: 3 IP's with 33% LVR (and PPOR)

? I'm asking here, not arguing for or against
 
year 7 she can have 3 IPS with 0 VR and a POR

year 7 your strategy would equal 3 IPs @ 60% LVR or 4 IPs @ 80% LVR ?

year 10 she would have 5 IP's 0 LVR (and PPOR)

year 10 your strategy would have 5 IP's at probably 60% LVR again - lets say 50%


?
 
G'day everyone.

This is my first post but I have been lurking for a while. I would just like to congratulate Kathryn D. Kum Yin Lau, Sue 78's MIL, and Nikolina, and I think from the way they wrote Uncle Perce and Natmarie 73 for being able to live independently from rent. What a marvelous achievement.

Slim :)
 
Not arguing with you guys (bill / bayview)

But at the same time, when one has an almost unacanny ability to actually beat the clock - 5yrs to pay off a house, I think that is why Nikolina's strategy might actually work. If it took longer, not as well - to attain that end goal of 5 ips.

She has said her awage is average, so there is liited borrowing based on servicablity.

She couldn't buy every 2 years without substantial kciking in herself.

Could she buy quicker ? Let's see.

Now she just bought. So she my have a 30% LVR, her IP and has a paid off IP ... 50% available equity .. enough for 20% deoposit..

So she buys again.. 80% LVR altogether.

YEAR 2 Cant buy, not enough servicability
YEAR 3 Ditto - alhtough, she can save the same aount in an offset as 1/2 an IP paid off by now
YEAR 4 She buys IP 3
YEAR 5 Cant buy again
your strategy = in 5 yrs she will have 3 IPs with about 60% LVR (and a PPR) and not able to buy for another 1-2-3 years

her strategy = 2 IPS, 0 LVR and PPOR - equity enough to buy another wiht asking for a mortgage...end result: 3 IP's with 33% LVR (and PPOR)

? I'm asking here, not arguing for or against

Yep; fair point.

I thought of buying one and paying it off asap at the start, but it comes back to how much expendable income you can throw at the investment.

When we began, we were a married couple with a 3 month old baby, and average wage incomes.

Nicolina is living at home and (presumed) single - very low living expenses. Don't know her income level.

Vastly different life circumstances by the sounds of things, and I would suggest that there are very few younger people living at home with even a slight inclination towards property investing in this current era. Most of them would have their focus on the latest Ipod download.

There was no way we could have paid off an IP in 5 years.

But, in 5 years we could (did) buy 4, and that was without trying too hard. The rent returns were the important factor here for us for cashflow.

I don't know how that extrapolates out to 10 years, but if we only had one, it wouldn't really be worth it.
 
year 7 she can have 3 IPS with 0 VR and a POR

year 7 your strategy would equal 3 IPs @ 60% LVR or 4 IPs @ 80% LVR ?

year 10 she would have 5 IP's 0 LVR (and PPOR)

year 10 your strategy would have 5 IP's at probably 60% LVR again - lets say 50%


?

At year 10 5IPs and PPOR?maybe if you were buying them in one horse towns.
 
At year 10 5IPs and PPOR?maybe if you were buying them in one horse towns.
If you're saving $50k a year with your salary increasing at inflation or maybe higher in that time you could have saved easily $700k, give or take. Nikolina is implying she saves that or more each year. Plus rents - say $20k from each house each year and rising with inflation - there's another million and a bit, give or take. You saying you can't buy 6 $300k houses with around $2Mish? Or rather that you only find miserably cheap low end $300k houses in 1 horse towns? I thought 1 horse towns had houses at $20-70k not $300k. If you're buying $50k houses you could get a hell of a lot more than 6 in 10 years.

Also remember that you can buy $50k (or therabouts) houses that return 15- 20% in rent, which does amazing things to the compounding. You don't need to settle for 5% yield. Ask Nathan - he seems to have turned up quite a few of this kind of deal.

Things change if you are getting the *entire* rent to throw back into the house, rather than having it eaten away in its entirety by interest and expenses and then having some of your salary eaten away too.
 
Hi all,

WARNING!!! Dangerously long post :p

Firstly from Nikolina spread throughout the thread..

Will see what happens i can't make up my mind atm.

Hence the discussion on options for those that missed it.

im 23yo living off my rental return. I don't touch my wages they just go striaght into my savings account which i will use soon to purchase more IPs

Yes i do still live at home

I would perfer to be a 30yo whom owns 5 IPs outright or close to it rather then own 15 + properties and millions of dollars to the bank.

Im looking forward to owing 5 IPs outright or close to it in the future and being debt free. Here is just an senario.

5 IPs returning $400 rent p/w.
5 x $400.00 = $2000.00 p/w and debt free. That's choice to me.

Sure i would have to put in all the hard work to have them all paid off but once they are ill have that benefit

My next IP will be with the same strategy but this time round im looking at buying a property that's run down

Im a bit delayed tonight, haven't slept since sunday night.

So lets say i saved 50k a year. That's 250k in 5 years. You could buy a property outright for that price - Not my exact figures, Just an example. 250k every 5 years, that's 1mil in 20 years.

My first IP took me 4-5 years to save up for - i think

My first IP will be paid off within the next 3 years. Earlier if i want too, however im choosing to use what i have saved up at the moment to purchase IP number 2 soon.

Like i have previously said my first IP is just about paid off. With every purchase i make/have made i will make sure i have more then half the purchase price in cash.

OK......to get to 5 IPs that return $400 pw fully paid off by age 30 for a 23 year old living at home. Assumption $50k of wages that can be spent on property/ saved each year. Plus of course the rent from the IPs.... sorry, unavailable as Nikolina is living off that (after paying tax on it).

If in 7 years time a property was to return $400 pw in rent after expenses (she quoted that as the amount to live off), then the total rent would be about $500pw, working backwards by assuming ~4% inflation means about $370 pw at present. One could assume an IP price of ~$350k, at a fairly good yield for a city property (house) ~5.5%.

What Nikolina now has is $50k from wages (after tax) to save for IP2 (50% deposit) 50% of $350k = $175k or 3.5 years. She is now 26.5 years old when she purchases IP2.

But wait, IP2 now costs $500k because of a boom, so to get 50% deposit is $250k or another 1.5 years work. Nikolina is now 28 when she buys IP2 on 50% deposit. Meanwhile she has paid a lot of tax on her interest probably 30 cents in the dollar in her savings account, as well as 30 cents in the dollar on the rent from IP1.

IP2, having $250k to pay will take another 3.5 years to pay off, Nikolina is now 31.5. By this time the same type of IP may be worth $600k, so $300k is necessary for the 50% deposit. With the now inflation adjusted $70k from wages, plus the income ~$20k from IP2 (whoops, probably only $11k after expenses and tax), it will take until she is 35 years old for the deposit on IP3.

This is not even close to her goal, she is basically half way there 5 years later than expected, all the time living at home and living on a meagre income of the rent of one IP after income and tax.

will continue with scenario 2 later...

bye
 
Hi all,

WARNING!!! Dangerously long post :p

Firstly from Nikolina spread throughout the thread..



Hence the discussion on options for those that missed it.























OK......to get to 5 IPs that return $400 pw fully paid off by age 30 for a 23 year old living at home. Assumption $50k of wages that can be spent on property/ saved each year. Plus of course the rent from the IPs.... sorry, unavailable as Nikolina is living off that (after paying tax on it).

If in 7 years time a property was to return $400 pw in rent after expenses (she quoted that as the amount to live off), then the total rent would be about $500pw, working backwards by assuming ~4% inflation means about $370 pw at present. One could assume an IP price of ~$350k, at a fairly good yield for a city property (house) ~5.5%.

What Nikolina now has is $50k from wages (after tax) to save for IP2 (50% deposit) 50% of $350k = $175k or 3.5 years. She is now 26.5 years old when she purchases IP2.

But wait, IP2 now costs $500k because of a boom, so to get 50% deposit is $250k or another 1.5 years work. Nikolina is now 28 when she buys IP2 on 50% deposit. Meanwhile she has paid a lot of tax on her interest probably 30 cents in the dollar in her savings account, as well as 30 cents in the dollar on the rent from IP1.

IP2, having $250k to pay will take another 3.5 years to pay off, Nikolina is now 31.5. By this time the same type of IP may be worth $600k, so $300k is necessary for the 50% deposit. With the now inflation adjusted $70k from wages, plus the income ~$20k from IP2 (whoops, probably only $11k after expenses and tax), it will take until she is 35 years old for the deposit on IP3.

This is not even close to her goal, she is basically half way there 5 years later than expected, all the time living at home and living on a meagre income of the rent of one IP after income and tax.

will continue with scenario 2 later...

bye

Bill,

you are onto it. Her plan has many holes in it that many have glazed over while reading. sounds great when read quickly but doesn't take into count many things eg capital gains.

No i don't run any kind of business, im on an average wage - He He. I pretty much saved evey single cent possible from an young age and put the money into an savings account which i was earing a few k intrest on per year, to me EVERY cent counts! I purchased my IP (house) just over 1.5 years ago now at that time the market was down, the owner had to sell and i put in a low ball offer which eventually got accepted. Last 1.5 years i have continued to saved every cent possible, working pretty much 6-7 days a week by choice obviously so i can purchase my next IP with the same strategy in mind..... Off to work now.

I disagree,

I too am also "living life" Im 23. I have a nice car, went overseas the Novemeber just past, go out every weekend clubing, cruising etc. I do all the normal things 23 year olds do, not to mention the WICKED all nighters i manage to pull off :D

It is possible to do have/both as you know.

Nika

I did at age 18- but found it very hard- to work 7 days per week plus try to pull all nighters, also found it hard to save every cent possible while I have traveled overseas.

Also if you are able to save 50k after taxes and your living expenses(no mater how low, even if you live with mum and dad) - then you are not on an average income.

just my 2 cents, it is a conservative plan, but not the best.
 
If you're saving $50k a year with your salary increasing at inflation or maybe higher in that time you could have saved easily $700k, give or take. Nikolina is implying she saves that or more each year. Plus rents - say $20k from each house each year and rising with inflation - there's another million and a bit, give or take. You saying you can't buy 6 $300k houses with around $2Mish?


I agree you can buy 6 houses @ 300k with 2mi maybe stamps would catch you though

I don't dispute your savings from salary.
I think you are forgetting that your not buying 6 houses at once @ 300k inflation happens as you know.

And as for your "another million and a bit" I'm not sure where this comes from
the way I see it from rent is......
YR 1-20
YR 2-20
YR 3-40
YR 4-40
YR 5-60
YR 6-60
YR 7-80
YR 8-80
YR-9-100
YR 10-100
Total-600k

It ain't going to happen. And thats assuming a purchase every 2 years which is not going to happen either.
 
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Sheesh guys! When did this suddenly become a Nickolina bashing (verbally) thread?

I agree that the way Nic is investing is not the way that I do it, but not everyone does it the same way. The important thing to remember is that she is doing something. This one act will put her in the minority of people and ensure a more secure future.

The great thing about investing is that there is not one size fits all. We all have different sleep at night factors to take into account too. Please remember that she is only young, and has really only just started. Her strategy might change as she becomes more investment savy/marries/changes jobs etc.

Lets get back on topic and leave the poor girl alone, huh?
 
To continue....

Nicolina's equity after she is 35 could be something like 2.5 IPs of $600k value or $1.5m.

If instead she had been slightly more aggressive and used say 40% deposits and kept LVR at 60%, each property would pay for itself (the interest and costs not the loan).

At 23 (currently) she could buy IP2, have $35k in savings (actually better to keep it in an offset account against the IPs), and live off the other $15k. By the time she is 24.5 by using equity and savings, buy IP3, keeping total leverage to 60%. If the same boom in prices occurred as in the previous 'saving for IPs', then she could buy IP4 and maybe even IP5 by the time she is 26-27.

Looking at her situation a ~27 years old, she has 5 IPs returning ~$430 pw gross or ~$350 pw after costs = $91k to pay of interest on about IP2 $350k, IP3 $375k, IP4 $400k, IP5 $450k, less $150k saved between age 23 and 26.5 or a total debt of ~1.4m, enough to pay for interest rates at 6.5% without allowing for tax returned from PAYE due to depreciation.
By doing nothing more, except putting the 'savings' and extra rental returns into offset accounts, by the time Nicolina is 35 she will have 5 IPs worth $3m less $1.4m debt, plus at least $550k in the offset account, giving $2.15m in total equity. If she sold 2 IPs, say the last 2 bought, this would give ~$1.15m (after selling expenses) and a CGT bill of $67K max. Therefore leaving $1.08m to reduce debt with. Total debt now comes down to $320k, very similar to the 'saving' scenario (2.5 IPs owned), yet she has at least a lazy $550k on the side.

This is still not her goal, yet running through the numbers easily tell me that the only real possibility to get to the goal, is by being very aggressive earlier on, buying plenty with say 25% deposits, saving every cent possible in offsets for emergencies, hoping for a big boom after lots of purchases, then cashing out of half the properties at 30.

Of course by being very aggressive increases the risk that sudden interest rate rises could bring you undone. I have never advocated being VERY aggressive, in fact a few years ago there were many threads where I took the opposite side of the argument saying that the maxing out themes were asking for trouble.

Taking the middle road, not too conservative, not too aggressive appears the safest approach to me. For a young person this reduces both the risk of too much time as well as the risk of going broke.

bye

bye
 
Look at all the posts, too many for me too keep up with, my bad.

Skater,

This is not Nikolina bashing, her own words were, and I repeat......

i can't make up my mind

This implies to me someone who has not run all the numbers, does not know or understand the possibilities, nor worked out the overall risk/reward.

The important thing to remember is that she is doing something. This one act will put her in the minority of people and ensure a more secure future.

Absolutely correct, I don't think anyone is disputing this.

So should we just say "that's good dear, off you go" and not tell her how other options could improve what she is doing, possibly things not thought of, as well as highlight the potential risks to her strategy??

Lets get back on topic

Saving to buy IPs is the topic, despite the dumb poll in the title of the thread.
Is it referring to those that live by themselves?? :p

bye
 
As always you make very interesting and good points Bill.
I would just point out that buying with 25% is probably not all that risky and agressive
given that hard bargained and well researched RE should be fairly neutral after expenses.
And if reasonably good earnings/savings can contribute than the risk is greatly diminuished.

Skater, doing "something" is ok for the first or second time, after that I really think it should be something better.
 
Skater, doing "something" is ok for the first or second time, after that I really think it should be something better.

I agree, however it is her first, moving onto the second. She is still young. Give her a break. Just be being here, there is much she will learn.
 
I think you are forgetting that your not buying 6 houses at once @ 300k inflation happens as you know.
I didn't say I thought very hard about my vague figures and that they don't have gaping mathematical holes :)

The whole scenario works much, much better if you build yourself or buy regional so you've got positive or neutral gearing from day 1 (without a deposit) and aren't buying $500k houses on a $50k salary and you're not making a loss.
 
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