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

yes it isn't my bad.

 

These 2 comments!
Where's the love button.

The big realization I made a couple of years back talking to the likes of Ace-in-the-hole and other non-PC mentors.
You don't make money from real estate 'investing'.

Since I accepted for myself at least there is no such thing as 'passive' income, I've been able to generate a scalable side income of around $150k (pre-tax net) in about 12 months through real estate. I'd call it a business, it has staff and requires about 4 hours of work a week.

The goal stopped being to 'retire' and has become 'creating businesses'.
I'm not worried about making $6M cash or whatever was stipulated at the start of this thread. If I can generate an 6-figure income with minimal effort, why would I need to 'retire'.

Takes away all the pressure of needing to 'get somewhere'.
Well, almost. As I've mentioned in other posts, thoughts and feelings are just a symptom of being alive.

 

allot of people gotten rich from buying commercial properties.. but on resi the article is pretty much spot on.

 

To be totally honest, I've got no idea what my income is this year. There's a good amount of CG to be paid & lots of complications. All I know is that it's more than we spend, and that's with much higher than normal maintenance costs on the IP's this year. We've bought 2 ducted air-conditioners, spent probably $10k on plumbing, then add in hot water heaters & ovens & you get the picture.

This too!

Probably similar, but add in some travel as well as the costs to keep 5 cats & feeding & caring for several fosters as well. Kids left home, cars fully owned & house paid off, so no big nasty expenses.

 

Sounded like you got a new lady What more could a man ask for?

 

Hmmm...it looks like you know.....if you don't you should know...at least know the burn rate of cash...before you run out.

 

No....absolutely no idea. I'm not going to run out, as I'm not spending capital.

With a large CG, that was deposited into offsets, this years (last years, cause tax isn't done yet) taxable income will be a lot different to following years. I withdraw a certain amount each month from my investment account - the account where all rental income & mortgage payments go - and the balance of this account keeps growing, so, as I said, there's more income than I'm spending.

 

Somehow as retirees we average around $6k expenditure a month on credit card alone. That generally includes groceries but excludes a number of mandatory expenses such as rates, insurance, most utilities, vehicle / trailer registration etc. That also excludes any major vacations.

Given up trying to figure out where the hell it all goes. It certainly isn’t on dining out a lot given that more often than not involves taking my wife out to her favourite date location being Bunnings and shouting her a sausage sandwich. Fine dining at its best.

She does get her hair coloured frequently so after @The Falcon ’s post maybe I better check on that one.

 

Them bloody chooks are sooooo expensive. Turn 'em into dinner as save a few $k each month. Only joking.

Still, it's a surprising amount to me but I have very simple tastes and lifestyle.

 

Speaking of chooks, two are crook again. $130 for antibiotics. The white one will always need extra medical attention as the bacterial problem she got when young will never completely go away. They’re pets unfortunately so consumption not an option.



Simple tastes? You can’t get much simplier than a sausage sandwich. Although I have onion on mine to add to the complexity of flavour. Then again the choice of sauce can further compromise the simple taste factor.

 

That is pretty silly.

In real terms inflation will decimate your income.....you might not notice this for a few years. But depending on you asset quality and spending habits it may come as a surprise.

For example in ten years the 100k income today at 3% inflation would be worth 60k. I see this with oeople who retired on defined pensions but their yearly increments limited to 2%.

The goobermint is now doing this to pensions...noblongerctied to 25% of average income.

 

??? You must be reading an enirely different post to that quoted ... drawing from an account that exists off the back of a property portfolio isn't pretty silly nor is there any obvious reason to assume income will be decimated..... I'm confused....

 

I don't think 6k a month is too bad . After all , who wants to be living a miserable existence after half a lifetime of investing ?

What's wrong with getting hair done for $4-500 anyway ?

 

This depends on the quality of the property held.

Money degrades to inflation...if the asset quality is not of a high quality you are actually eating into your capital. This strategy is essentially a LOC....but with offsets.

For example..I know someone who got up to 25 properties worth just over $7m some time ago. Thye sold a lot of their properties and put the money in offsets. The first 5-10 years were brillant..but they were only exposed to one market..and with maintenance they went backwards. 10 years later their 100k (80k toda) lifestyle rapidly dropped to about what is equivalent to 50k today. Inflation is a beast and people need to be vigilant...

So the moral of the story...is you need to diversify into not only property location but also other income generating assets.

Funnily enough the buys who seem to keep this at bay much better is people who put shares in places like balanced funds and indexed funds.

 

If the account balance is increasing interest paid decreases, further increasing the rate of balance increase, essentially this safety net is a form of hedge against inflation and interest rate rises.

There have been long periods where shares have trailed inflation too with falling real returns and capital value.

People can be negative about all this stuff or take reasonable steps to hedge against events to their comfort levels.

I think both yourself and skater understand this well anyway.

 

So is the need to increase passive income to support the haircuts and colours part of the motivation to achieve a 150k plus passive income?

From my understanding these expensive haircuts actually required more frequently than their poorer cousins. Anyway my point is have you worked out the YoY increase in hair management expenses? Sounds like they are far outpacing inflation and you'll require excellent returns or a large safety margin.

From my experience any conversation around such a budget restriction is much too dangerous.

 

Yes...so long the asset is sound...the issue is on my analysis ...and assuming you hold less diversified/growth assets you will eat into capital.

I make this comment based on what happened to the individual. Well diversified shares tend to bounce back within 3 years...property could take upto 10 years.....that is the difference.

 

Yes I understand what inflation is & what impacts it has, both negative & positive. I just don’t see that is directly correlated to the post by @skater unless you somehow know that the account is based purely on funds gained through capital gains or the underlying portfolio is crap. Neither of which seems to be the case from what I have read.....

I agree that many people neglect the affects of inflation but if your account is growing faster than it is being drawn down, that to me indicates it is either in part or in full offsetting inflation affects & depending on the delta, maybe far exceeding it.... maybe my math is poor....

Whilst I am a diversification advocate myself, I do not agree that is the “moral of the story”.... the moral from the discussion thus far is more like, ensure your investment cashflow is sufficient to both hedge inflation & account for any market volatility regardless of asset class. (Noting that volatility cycles differ greatly between asset classes & diversification is one way to smooth out the financial bumps)

As for defined benefit superannuation schemes, yes during pension phase they typically erode over time but not as quickly as inferred. Erosion would be at ~0.5-1% per year (yes, compounding...) based on the stated 2% indexing versus the typical 2.5-3.0% target CPI. So it would take quite some time for the value to drop to around 60% of it’s starting value. But, yes, it is absolutely a factor such individuals should be factoring into their long term financial affairs.

 

In relation to one asset class ...volatility will have a huge impact on future hedging to inflation. I did some rough modelling. In @skater case she probably spends much less...if so less an issue...but the real issue if there is major volatility shock.

As for Defined Benefits fund...after ten years...if you are indexed at 2%...then you money is worth about 84% of of $1. So that will have an impact....but in 20 years it definitely will.

These numbers are hugely important.

For example I know a 70 yr old teacher who will retire this year....he assets are 650k (super and cash) so no pension for her. But the financial planner has worked out she will be okay till 86 years of age if she draws down 50k per annum. That to me tells me the maths are totally incorrect. That draw down equates to a 7.6% drawdown of her original capital. I get that in the pension phase the draw down needs to be minimum of 7% (I think). So by 86 she will have nutin left...he mother is already 95..so longevity is in her family...

 

Hi nice outcome and very informative however I'm a newbie am regarding the subject it would be great to have income generated through property and other sources to have more free time with family and kids this is why I probably would like to achieve something.

I may not get to the 150k mark but certainly could live within my means and have 80-100k this would give me opportunities to accomplish things I would really love doing ....I think people have to have great mentors and guidance it's not that easy to just buy and sell realestate and money making assets I think the world and markets have changed little bit ...

My thoughts anyway tha k you hope to stay in touch and great post once again if you can shed some light and on ideas that may really work looks like the generations to come may have a chance I guess.