150k Passive Income ....what it takes..

Discussion in 'Investment Strategy' started by sash, 14th Jan, 2018.

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  1. sash

    sash Well-Known Member

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    The one question I ask after I ask people why they invest in property..most say it is for passive income so they can get out of the workforce.

    Most people say they will need a passive income of $150k....unfortunately less than 0.5% of people will get there? Why?

    Because most people think simply owning property will generate this. To give context it would require $4m to $6m net in property assets outside of their own home to generate this income.
    Unfortunatlely...very few people will ever get this point. Property has shown that over the longer term you only keep less than 60% of net income after expenses.

    The good news is most people nominate a passive income that is based on their current income which involves paying tax....paying a mortgage...children's school fees. So the income requirement is probably a lot less. So a 150k income is going to be a lot less than thought.

    My view is to look at 80% of you NET income (after tax) ..as a figure to aim for. So if you need 75k income after tax you will need about 60k net.

    So what does it take to get this income....you need 80k gross probably less..as assets like property and shares have some tax advantages...

    1. Assumes that he person would have paid off their own home in the early 50s
    2. Assumes that person would buy 5 very high quality properties and achieve a net value in another say 15 years of $4.2m with a new asset value of $2.6m
    3. Sell 3 properties and pay off the debt and be left with 3 properties and 600k to invest.
    4. Assuming the 3 remaining properties rent for say $500-520pw...that leave a gross income of 80k. Net would be say 48k. 60% left assuming average based on refreshing properties every 7-10 years. That would leave an income of 48k gross from property
    6. The remaining 600k would be invested in things like LICs and ETF or shares. Assuming the 4% rule...that would return about 24k. Lets assume about 80% would be fully franked.

    So in the end you would have about 72k gross. For the shares you would pay less than say 2-3k.
    And for the property with some depreciation and it would probably make only 40k taxable. This it would probably incur about 6k.

    So the total tax would be about 8-9k leaving about 63-64k in net income even more if the income is split...and a bonus in additional funds via super from 60k.

    Even on these figures...less than 5% of the people would achieve this by 55 years of age.
     
  2. Ace in the Hole

    Ace in the Hole Well-Known Member

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    If it were easy then every body would be retired on a high passive income and nobody would work anymore.
    Good thing it's not easy to achieve.
     
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  3. sash

    sash Well-Known Member

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    ..mate it was easy for ya....;)
     
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  4. Ace in the Hole

    Ace in the Hole Well-Known Member

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    This quote made me:
    "Don't wish things were easier, wish you were better".
    All people gotta do is make themselves better and then the hard stuff becomes easy.
    Of course, making yourself better is the hard part...
     
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  5. sash

    sash Well-Known Member

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    I must have done it the other way...I just go lazier .....thats the secret.....
     
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  6. MTR

    MTR Well-Known Member

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    Lol, so true... and a few sleepless nights
     
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  7. sash

    sash Well-Known Member

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    You aren't doing it right....Bitecoin.....is the way....
     
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  8. MTR

    MTR Well-Known Member

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    I dont invest in something I dont understand:D
     
  9. sash

    sash Well-Known Member

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    Should I call you Wozzer or Charlie?
     
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  10. Hodor

    Hodor Well-Known Member

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    Or plonk $500 a week into a couple broad ETFs from 25 to 55. With a real rate of return (above inflation) of 4% you'll have $1.5m and 60k income, with decent franking you could expect a nice tax return too.

    Property has done alright for me so can't complain, the above is an alternative.
     
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  11. MTR

    MTR Well-Known Member

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    I have done it with property, I know boring, stick to what works for me
     
    Last edited: 14th Jan, 2018
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  12. sash

    sash Well-Known Member

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    Yep that would work also...but if you leveraged at 50% you would get there by 40-45....
     
  13. Hodor

    Hodor Well-Known Member

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    50% is too much with shares.

    A leveraged play that works will certainly give favourable returns, hence a reason property is so popular.
     
  14. datto

    datto Well-Known Member

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    682,000 telstra shares will earn you 150K pa in dividends. Plus you get a tax credit. You will need about 2.6 million to buy that many shares. Can be risky tho.

    Alternately, if you got 5 million lying around, at 3 % from a bank, you'll get 150K pa in interest......boring.

    You'll need about 10 houses in the Druitt to net 150K. That's with no mortgage. You'll need well over 5 mill to do that one.....and you won't get bored lol...."Where's my rent. I don't care if your 'ol man is in the big house again"
     
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  15. Westminster

    Westminster Tigress at Tiger Developments Business Member

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    I was aiming for 100% of income replacement until I had the same epiphany and decided that 70% was enough.

    My decision was based upon
    1. I would no longer have all the costs of a full time job - city parking, city lunches, city clothes etc
    2. I would gain 50-60hrs a week which could be used to do something to bring in that 30% if I wanted
    3. the pros of freeing up those 50-60hrs a week outweighed the 30% I gave up - time with my kids and family

    Point 2 was a biggie. If you can swap full time work for part time work/consulting/contracting then you can probably do it earlier and still get a lot of benefits. Contract or casual work in your career field will often pay 20% or more than standard as there is no sick/annual leave and also an uplift due to it's short term nature.
     
  16. ellejay

    ellejay Well-Known Member

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    I'm almost there replacing my salary and have enough cashflow from rent to live on. I did it by moving to where I could earn my max salary. I bought mainly higher yielding ips and put every cent into paying them off. My timing was good and they had a good growth spurt following the boom in the capitals. Sold some to pay down debt.

    I'm now mortgage free and have a few high yield IPs paid off. I do a couple of 6 week work contracts a year which adds another $20-30k net. I'm now doing a bit of selling from home and looking at coaching as an add on. I'm also doing a subdivision and lease options this year. I'm not 50 yet so not doing bad. I couldn't go back to a JOB. Stunning day here, just having brekkie in the garden :D
     
  17. BuyersAgent

    BuyersAgent Well-Known Member Business Member

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    Great posts @Westminster and @ellejay solid sensible inspiring results. Spent 2 hrs talking to my folks last night about how they did what they did and how its all panning out. Similar mix of shares fixed super and property. 10 yrs after retirement they still have the option to sell the big Sydney home and trade down the coast a (still not small) nice home and pocket at extra $600k for income generation purposes, so increasing the income levels even after the whole plan is "finished" is actually possible in some situations too.
     
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  18. spludgey

    spludgey Well-Known Member

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    I recently worked out that I only need about $60k a year once the PPOR is paid off (actually, I've got two loans on it and this assumes that the investing one isn't paid off, but that one is small anyway).
    I'm hoping to get half way there in the next 10 years. That'll allow me to go down to three days a week at work and from then on, it doesn't really matter how long the other half takes.
     
  19. Scott No Mates

    Scott No Mates Well-Known Member

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    Pity is unless you lock in for longer terms, low 2.x% is on offer from most banks - oldies sitting on those $ could be dead tomorrow or the day after so they want access to their cash & don't want to lock in for >12 months

    As for getting $60k-80k nett, a couple of fair yielding CIPs. This will set you back $1.5-2m. A bit more high risk than resi but less hassles generally) though you may have to wait a year or two for a tenant in a downturn.
     
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  20. Xenia

    Xenia Well-Known Member

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    It can be done with a mixture of property, business and shares.

    Or just with cryptocurrencies in a few months
     
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