Can or Will you retire on property alone?

Discussion in 'Investment Strategy' started by MTR, 29th Jan, 2017.

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  1. MTR

    MTR Material Girl Premium Member

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    Realistically how many residential properties will you need to retire ??

    The average gross yield for properties in Australia is around 4%, but let’s be generous and say you earn a 4.5% yield across your property portfolio.

    This means if you eventually own $1 million worth of properties with no debt, you’ll get $45,000 rent.

    But you’ll still have to pay rates and taxes and agents commissions and repairs; leaving you with something like $35,000 a year.

    And then you’ll have to pay tax on this income.

    When you do the sums you’ll see that you need an unencumbered portfolio worth at least $4million to earn that $100,000 a year after tax. Not everyone needs $100,000 pa and I get this. But I need more:p

    Remember that’s $4 million worth of property and no mortgage debt, otherwise your cash flow will be lower.

    And of course you’ll also need to own your own home with no debt against it.

    Here is an overview from January 2016, highest gross rental yields in Australia.

    I expect these yields may be slightly lower today?

    Clearly Tassie in the main the winner.

    Highest rental yields Australia-wide (houses)
    Highest gross rentals within 10km of a capital city – suburb, state, median value and gross rental yield:

    1. Goodwood, TAS, $212,138, 7.7%
    2. Risdon Vale, TAS, $176,341, 7.7%
    3. Clarendon Vale, TAS, $155,434, 7.6%
    4. Rokeby, TAS, $194,901, 7.1%
    5. Derwent Park, TAS – $237,644 – 6.7%
    6. Glenorchy, TAS, $248,288, 6.6%
    7. Warrane, TAS – $237,047 – 6.6%
    8. Mornington, TAS – $274,552 – 6.2%
    9. Lutana, TAS – $273,363 – 6.0%
    10. Rosetta, TAS – $320,649 – 6.0%

    Highest rental yields Australia-wide (units)
    Highest gross rentals within 10km of a capital city – suburb, state, median value and gross rental yield:

    1. Carlton, VIC, $364,925, 7.2%
    2. Brahma Lodge, SA, $247,234, 7.1%
    3. Rokeby, TAS, $208,550, 7.1%
    4. Montrose, TAS, $208,561, 7.0%
    5. Glenorchy, TAS, $198,110, 6.5%
    6. Oxley, QLD, $349,992, 6.5%
    7. Salisbury, QLD, $372,808, 6.4%
    8. Rosetta, TAS, $227,717, 6.4%
    9. Malak, NT, $337,130, 6.4%
    10. Brisbane City, QLD, $495,771, 6.3%


    Now the game is changing which is going to make investing in resi property a tad harder, as lending tightens and interest rates increase. We may also see some markets approaching peak, and there are no guarantees that we will see double digit growth in 2017?

    Its not all bad of course, but whether the buy and hold forever is going to work moving forward may need to be re tweaked??

    MTR:)
     
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  2. wylie

    wylie Moderator Staff Member

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    From my early 20s I aimed for five paid off properties by the time we retired to provide us adequate income. Those calculations worked 40 years ago and they still work today. The numbers change of course, and the values, but the basic premise still holds true in my opinion.
     
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  3. MTR

    MTR Material Girl Premium Member

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    So how long has it taken to achieve this? Just curious on time frame?
     
  4. wylie

    wylie Moderator Staff Member

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    We haven't actually gone down this track completely. But hubby retired at 50 (though he worked for several months when he was 51 to help an old boss). I got myself a casual position because I was bored at home. Now we are both fully retired, but who knows what we might do next.

    Right now, I'd call us "asset rich, cashflow poor" but we are moving through our exit strategy to improve our cashflow and cash in on what we've quietly worked towards since we met 34 years ago.

    So our investing was always in the background, with life together and kids being the priority, and allowing time to work its magic. We are quite different to the real "go-getters" on this forum. I admire their drive and determination, but that isn't in our make up. I guess we are "incidental millionaires".

    By the time he was 50 I'd managed to steer us well enough to enable him to retire. I'm the driver. Hubby often says that without me, he might own a house and a car and that's it. He worked, I plotted.

    We still carry large debt but have a clear exit path. Will we further invest? I've no idea. But we have enough, nurtured and not squandered, to last us out.

    Knowing more about my situation won't help. It's complicated. :D
     
    Last edited: 29th Jan, 2017
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  5. Scott No Mates

    Scott No Mates Well-Known Member

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  6. Scott No Mates

    Scott No Mates Well-Known Member

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    You've outsourced the drug courier business?
     
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  7. MTR

    MTR Material Girl Premium Member

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    OK, I wont ask any more questions:)
     
  8. skater

    skater Capitalist -- www.skatepro.com.au

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    Same here!

    I guess some of the high income earners would say that this is us also, but we have enough for our wants.

    Again, same here.
    We also still carry a large debt, but with a large amount sitting in offsets. Hubby has itchy feet & wants to buy more, but I'm content, although want to buy more a few years after the market turns here in Sydney.

    LOL! Same again.

    @MTR, our yield across our portfolio is higher than 4.5%, but we have three NRAS, a block of units & a dual occ in the mix. We have a mix of Regional & City IP's and we are also going to put a GF onto one of the properties.
     
  9. wylie

    wylie Moderator Staff Member

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    By "its complicated" I mean we have several paths we can take to clear debt, which ultimately is our aim. We are taking this one step at a time. As we take each step, the next decision of "which way now?" is laid out for us. Working too far in advance only makes my head spin.

    We have a good accountant helping us.
     
  10. Perthguy

    Perthguy Well-Known Member

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    Depends where you buy. There are properties in Adelaide with over 10% gross yield. However, they are higher risk, low cashflow properties and I am not sure about net yield. That said I think you might be able to get you $100k net from $2 million unencumbered property?

    I am trying the buy, renovate, build sell some, keep some strategy. When I sell I use the funds to pay down debt and surplus funds in offset accounts as a buffer. Even so, I don't plan to retire on rent. The numbers don't stack up for me.
     
  11. Omnidragon

    Omnidragon Well-Known Member

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    If your focus was purely yield, there's many types of properties that get 10%+ net yields (sometimes on long WALEs too, even in Aust), if you spent your time looking. May require some effort such as building/renovating. But basically you should be done at around $1.2m.

    Next question someone will probably ask me (so I'll preempt it) is if that's the case why are all these people buying at 2-3% yields in metro Syd/Melb. I don't know. Because it goes up? Sounds like a classic bubble haha.
     
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  12. Lacrim

    Lacrim Well-Known Member

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    It's quite sad that $100K a year in Sydney barely scrapes the surface in terms of living expenses. First world problems.
     
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  13. Scott No Mates

    Scott No Mates Well-Known Member

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    I don't see massive shanty towns in Sydney filled with pensioners, the unemployed or unwashed masses.

    $100k far exceeds 2 incomes working at Woollies.
     
  14. Biz

    Biz Well-Known Member

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    100k a year is fine in Sydney assuming it is split between two people, you have a paid off PPOR and no kiddie expenses anymore.
     
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  15. Omnidragon

    Omnidragon Well-Known Member

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    Wow that's a lot of ifs. The times we live in.
     
  16. Obsidian

    Obsidian Well-Known Member

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    Not true. You don't need anywhere near that amount. Why only focus on the yield, and not the asset value of the property as well. Do you intend to take all the properties with you to your grave?
    If not, then why not sell down a property every 5yrs or so and live off the rental of other plus the asset sale.
    5 × $400k properties = $2million + ppor. Sell one $400k property. Even over 5yrs thats $80k + rental income of others. So maybe $120k / yr over 5yrs. With 5, you can easily live comfortable for the next 25yrs on $100k/ yr in todays dollars. Who cares after that. If you retire at 50, that comfortably takes you to 75. At 75 downsize ppor and live comfortable to 85.
     
  17. Biz

    Biz Well-Known Member

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    It's a good point and I look at it like that too. If you can build up a solid passive income by 40ish try and get by on the rental income until you hit 50 or so, sell some, by 60 your super kicks in, make do with that for a while then sell a little more...

    If you can achieve a paid off PPOR and around 2 million in assets (net ex super) by around 40 you will never chew through it if you limit yourself to around 100k a year. Assuming your yield and growth is around 5%
     
    Last edited: 29th Jan, 2017
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  18. Lacrim

    Lacrim Well-Known Member

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    Exactly. I have kids, and soon a large mortgage :eek:

    On the flipside, if I could sell the kids (and maybe the wife), I could retire right now lol!
     
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  19. sash

    sash Well-Known Member

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    MTR...for most people having $4m net will mean they will probably need about $7-8m gross. 100k on $4m is about right...I am heading towards 150-180k...with a portfolio well into 8 figures....it is hard gig to just rely on rents as there are unforeseen expenses.

    The preference is to have other asset classes returning at least 4%.

    Despite people saying so...most on here will not get close to the 80-100k needed....just a unfortunate fact.

    As a matter of fact most upper middle class couples retire on 40-60k net..after super, govt pension (if any any). The exceptions to this rule are people who are on defined benefit pensions and those who sold their houses and get extra income from the extra funds.

    A lot of defined benefit payouts are between 40-60k anyway....it is those who were at the top of their game who get the large pensions or politicians. ;)

     
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  20. Lacrim

    Lacrim Well-Known Member

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    I'd rather try every which way accessing the equity than selling to get my hands on it.
     
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