Can or Will you retire on property alone?

Or alternatively go shares paying steady dividends (ETFs, LICs).

 

I think it changed several years ago.

Rise in the preservation age

 

Pre/Early Boomers at 55, a soft cutover 55-60 for mid boomers and the rest of us at 60 has been in place since 1999

 

There's a book I am slowly digesting that I felt was good for beginners "Winning the game of Stocks by Adam Khoo" Maybe that will work for you.

 

I feel ETFs and LICs may be a good combo for me. My issue is trying to pick which ones to back. There are so many!

 

I've been happy with IJR, IOO, IRU and IVV but for most ETFs it really just comes down to buying them when they are at value.

Keep some powder dry for good buying opportunities.

 

Do either of you put much stock in the hotcopper site?

 

May I ask - what do you plan to retire on in that case? Shares? Having some sort of online business that requires little work? What other options are available for a passive income?

 

In my mind roughly 50/50/50 being Rent, Dividends, Super.

To generate $100k of income from Rent after expenses and taxes, I would need over $3 million of unencumbered property. Also dealing with vacancies, tenant damage etc. I don't find this realistic for me.

For Dividends I plan to be using ETFs, which are a lot more reliable than direct shares as I am not a stock market wiz. For example, it might be as simple as 50/50 VAS and VHY.

Super will be whatever it is and will make up the shortfall when another asset class underperforms. Eventually though, the government makes you take out your super at a minimum amount per year. So may as well factor it in.

 

You can't have 50% / 50% / 50%.

i assume you mean 33% / 33% / 33%

Why not own VAS and VHY in your SMSF (if you don't have one, set one up). Super is not an investment, it is an investment vehicle.

Then you could be 50:50 between property and shares . Obviously, your SMSF will need cash as you approach retirement to pay pensions.

 

Nope. I don't mean that. I mean capacity to generate $50k from rent (after expenses), $50k from dividends and $50k from super. If my target is $100k p/a, I believe that $150k is 150% of $100k.

I didn't state that Super is an investment. My super is spread between shares, property and bonds.

The reason to own VAS and VHY outside of super is because I will need some income before I can access my super!

That approach would not put me anywhere near 50:50 property and shares. It takes over $2,000,000 of property to generate $50k of rent after expenses but a good ETF can generate the same for less than $1 million (including franking credits).

But as I said above, I am more interested in where the money is coming from rather than how much I invest in each asset class. My assets classes are: property, shares and bonds/cash. I wouldn't have a clue how the final breakdown will look. Maybe 55%/40%/5%

 

You absolutely can. Just as a share portfolio can reap huge rewards if you pursue dividend reinvestment , so can a resi property portfolio if you approach it the same way. Buy properties that generate high post tax yields - consider the after tax surpluses just the same way you would consider fully franked dividends, and then reinvest them back into the portfolio.

This is a strategy I have employed successfully. If we want to compare apples with apples - in only 4 years, rather than the 18 years you have been accumulating your portfolio, and with only 15 properties rather than the 33 properties you have accumulated, I already have a higher net income from resi property than you - if your previous posts on the subject are accurate. That's less than 1/4 of the time, and less than half the number of properties., to achieve the same outcome or better. Now fast forward 18 years, and where do you think my total income will be compared to where yours is now- ie after 18 years? if I get 100% rental appreciation in 18 years I will have doubled your income over the same 18 year timeframe.

Now don't misunderstand me.. this isnt about you. It isnt about me either. Its about how to retire from resi property income . And I also want to clear that its not that I don't want growth. I've actually enjoyed quite a lot on most my purchases already. Its just that its not effective at creating income. Its only good at creating equity, and that's where the problem starts in the post APRA world.

Equity cant be harvested without borrowing capacity - its as simple as that. And we all know that borrowing capacity is now being crippled by sensitised assessment rates and higher HEM's. Its now especially difficult for those starting out, with immature portfolios where the rental yields are only 3.5-5% Gross., to keep borrowing - even when they get some nice growth And it's even worse for those who also carry a significant non deductible, non income producing PPOR debt.

What IS good at creating income though, is the resi cash cows that allow for dividend reinvestment - or debt reduction in simpler terms. It means that even without growth ( and again, dont misunderstand that to mean I dont welcome growth) I will have the capacity to keep borrowing to add additional cash cows, long after others have run out of borrowing capacity. How? Because I keep retiring debt without having to sacrifice income by selling.

This in turn adds even more income into my portfolio - again, long after growth chasers are unable to. Which in turn, further accelerates the debt reduction possible and allows further purchases that generate even more high yielding/fully franked/after tax income... Which in turn, further accelerates the debt reduction possible and allows further purchases that generate even more high yielding/fully franked/after tax income... Which in turn, further accelerates the debt reduction possible and allows further purchases that generate even more high yielding/fully franked/after tax income...Which in turn, further accelerates the debt reduction possible and allows further purchases that generate even more high yielding/fully franked/after tax income...

It all comes back to accepting that debt reduction is now the #1 strategy if you want to build a large enough footprint and hold it long enough for the rents to mature to a point where the income allows retirement. If that's still not sunk in for anyone, they just don't understand how lending works now.

I concede that perhaps not for you, given the maturity of your rental yields - but you've had almost 2 decades for a number of your properties rental yields to reach their current levels, and you were able to accumulate the lions share pre APRA. It may also not be for extremely high income earners whose borrowing capacity , while dented, is still very strong. But for most readers here - especially those starting out today, with todays Investment borrowing limitations - it's critical.

They are reading posts about people with 15,20,30 properties, or people with 100, 200K passive income.... and thinking "I want what they have " Sure, some of them can get to 9 or 10 or 11 cheap and cheerfuls with dedication , and sure they can do quick and inexpensive reno's for a little equity uplift, but they will hit a wall and go no further if they run out of servicing. And whats especially cruel and disingenuous is that those who are at the very beginning of their portfolio building are still being led to believe that equity will allow them to keep borrowing , when we all know it doesnt any more.

In the end, they will find that equity is useless unless they are prepared to sell, realise the after CGT profit, and start over. But the minute they do that - bye bye to the income from that sold property. And it is replaced with what? something yielding even less as prices mature at X% annually but rents mature more slowly? Its a flawed model in the post APRA world.

This is why I focused previously on NRAS and now on Dual Occ. These properties generate 8,9,10K of fully franked/after tax income. 3 or 4 or 5 of these in a portfolio allow for 30 or 40K or 50K to be dividend reinvested into debt reduction annually. And that's how you beat the servicing calcs over time without having to sell or lose that properties income stream . Thats how you can continue to accumulate without having to sell or lose that properties income stream. Thats how you pay off your PPOR and accumulate enough properties with enough surplus income to retire, without having to sell and lose any of your portfolios income stream.

If the worst case happened and zero growth ocurred ( again- not suggesting I dont want it or welcome it ) the bottom line is this - retirement with a passive income and no PPOR mortgage is still achieved... and that's what everyone says they want to achieve...

Now compare that to the growth alternative. We have had almost 3 decades of cheaper and easier money and massive growth nationwide...yet very few retire from it. The apples versus apples is as clear as clear can be- yet you have to wonder why people cant see the forest for the trees...

 

The post was so long ...I lost interest..any chance you can summarise it?

 

Unfortunately even if cliff notes published it for you I'm not sure it would help.

 

Or hold the lot for another cycle... how much capital would you gain?

 

Yeah...but probably mostly Sydney and Melbourne.

As for paying down debt that does without question...I am paying off about 1 property a year....via excess CF.....

 

Can or Will you retire on property alone?

Well rent is only $14,560

Expenses including depreciation is $24,100 plus depreciation of 8500 in the first year for 16k deduction so you get 8k back ...but the issue with this it is developed on income being consistent?

What happens if you have no income..and you are carry 16k in losses...5 of these that is a 80k hole per year....but you only have 55k to cover this from tax free incentives? That is a 25k short fall per annum. How does one manage the short fall per month? A variation?

Risky isn't it? A house of cards?

 

Actually, we rarely eat out , and we drive 10 year old cars and we live very conservative lives - spending wise. Our only indulgence is business class flights , when we travel

 

I check discussions on 3 or 4 of my holdings. Haven't checked for all the stocks / ETFs i hold.

Most of my holdings are long-term investments and are set and forget unless I am topping up so not much need to be closely following all the individual discussions.

The interface of hotcopper is quite annoying and clunky.

 

Ok back on topic...here are my structure for a creating a 100k income vitually tax free:

1. $1.1m invested in top 20 ASX stocks and Index funds returning on average 5.5% pa. You draw down 4% per annum for infinity indexed to inflation (about 3%) so 44k first year...45.32k second year

2. $1.7 million invested in newer residential property (fully paid off) returning 4% net. You draw down 3.3% of gross value 59.5k indexed to inflation. Excess is parked in offset for time of vacancies of the property or renovations.

So ideally you need about $2.8m in assets and your own home.

As I have stated previously....income from property is more volatile. So this structure will ensure more income certainty.

You can extrapolate that for the income required. If you need 200k you will need $5.6m.

Note that super is icing on the cake.