Can or Will you retire on property alone?

Thanks for the insights guys! I figured such a broad statement might include some commentary! It's the way we learn I guess!

 

It is doable and could even be a good strategy if you are prepared to run the strategy over time. For example, Perth may be bottoming out, Sydney may be coming off a peak and Melbourne may be nearing Peak. You could, for eample buy in Brisbane then 18 months later Perth, then Hobart and Adelaide then in maybe 8 years look at Sydney and Melbourne after that. You could end up with a decent portfolio if you get the timing right. It would be tricky though.

 

Spot on, people forget that each state, or at least few states in Australia grow at different times, not at all together, hence having IPs spread out helps with the spread of the growth at various states at different times (up or slightly down)!
$100K very doable, happened to us many years ago. However it is not just based on the number of IPs, but rather on the $ asset base you grow to at first, where you accumulate to your risk. Then next cycles enable you to have some CG, increase CF via rents, hence also to lower the LVR, then the next cycles and the next. I think around 30 years will make you very wealthy indeed, and I am only into my 17th year (but experienced various cycles growths in states like Sydney, Melbourne, Perth, and Brisbane) as property wealth is not instantaneous wealth but over the long term very rewarding!
What I found out recently is that 5 years ago I did a spreadsheet while doing a mentorship program, estimating where my position would be in terms of equity, LVR, rents, etc... And I had a shock! It was nearly spot on, actually slightly better than I predicted... What amazed me is that I did this really as an exercise and forgot about it, so when I came across this spreadsheet recently I just couldn't believe it!
I would point out that you allow about 3% net yield as 1% may be required for maintenance over time as the IPs do age. Also, land tax is a pain, I call it a 'wealth tax'.
By the way, I do not plan to sell any in Sydney as I think the disparity between well located properties will grow in values, will get even worse over time. However, I never say never, as perhaps one day may retire to a different state (having family and closed friends there would be the reason for moving not so much having a more affordable lifestyle)?

 

Saw this: Yaroomba Beach - Project Development Application Not sure if it's been shared already?

 

Starting to use commercial property to accelerate cashflow.

 

@MTR common stop it. You have enough...

 

To fund our retirement, we employed a two prong approach:

1. Build up a portfolio of IPs in our own name and multiple trusts. Our focus was high growth, lower yield properties. Our plan was to buy and to keep all properties for as long as possible (hence, multiple trusts) so we didn’t pay CGT. We used leverage to maximise our returns and minimise our income tax. First purchase was 1992; latest purchase was this month. In retirement, we planned for the portfolio to continue growing in value and only sell if we needed a capital injection.

2. Build up a portfolio of shares in our SMSF. Our focus was initially high growth and good dividends and transition to higher dividends in retirement as our income payments increased as we aged (4% now, 5% when we reach 65, ...). First serious share purchase was 2002; latest purchase was this month. In retirement, this portfolio was to fund our living expenses, our travel costs, etc.

Over the last 25 years of property investment, we know what our year-on-year growth has been but we never tracked our year-on-year income (gross or net).

Over the 15 years of share investment, as of today, our growth is 14.04% pa and our income is 6.66% pa. Total return of 20.70% pa.

I know our property returns are nowhere near these numbers. Maybe, we should only had a one prong approach, shares.

 

That's actually quite remarkable,

 

Would you not see your gross income and net income by looking at your Income statement you use to file your tax return ?
Or do you not file tax returns

 

Mostly banks???

 

Can go back last 6 years as we keep those (legally must keep last 5 years) but we have NOT kept the previous 20 years (who would?).

 

Portfolio currently has 21 companies, with 3 banks (best performer is MQG).

Best growth performer out of all 21 shares is REA. First purchase in October 2010 for $12; today’s closing price is $76.95.

Best dividend payer out of all 21 shares is WES. First purchase in March 2009.

 

Does your accounts split by property or are they consolidated?

 

Are you sure properties are not ahead, if you utilised leverage, then ROI should be much greater than say 21%, unless you did not buy well located property, that's all that I can think off?
To illustrate, Carina land block cost me $115K in 2000, now assume that was leveraged 80% so only $20% was your injected cash. Now the land is valued by OSR $510K, 17 years down the track so if it was bought for cash then gross unrealised paper return is around 4.4 ($510k/$115K). But if say 20% was your own money, around $23K then, return would be 22.17 ($510K/$23K), that's just looking at land only!
Now I started only investing in year 2000, you mentioned 1992 hence I am really confused you would not make HUGE returns?????
You cannot just compare straight percentages with asset classes like most people do! You need to take leverage into consideration and that is IMHO, what most people fail to see. I always mention that property is rather a finance game with few properties thrown in, hopefully in right locations. It would not be attractive to me without leverage!!!!
Hence I did mention many times before that many years ago I had this 'AHA' moment, where the key for me was leverage not % growth. So I don't doubt or disagree, shares can have much larger % growth, however, property allows me to be exposed with little risk and no margin calls to the tune of millions. I could not sleep at night with that exposure to ASX or other more volatile markets, could you?
So I can dabble in share portfolio to the tunes of thousands, it varies, until I can buy another IP. When I understood that LEVERAGE is the key and not gambling for % growth, shares become an income exercise (like you mention) while IPs become my wealth creation exercise!

 

That, as well as being able to 'Add value'. If I could only invest in real estate with leverage and not be allowed to add value then I'd still invest, probably less aggressively though. But the fact I can use leverage (though I am using a lot more cash less leverage these days) plus add significant value to a deal and not be too reliant on CG to do well is the winning combination for us.

 

By accounts, I assume you mean “set of accounts”.

Over the last 25 years, our structure has become quite complex as Governments changed the rules, as our risk profiles increased (I became the company director of multiple businesses and the wife wasn’t) and then deceased, etc.

A sample of our current structure is as follows:

1. We have a trust that owns 4 properties and the net income is shared 50:50.
2. We have another trust that owns 2.4 properties and net income all goes to me.
3. We have a property that is owned 30% by me, 30% by the wife, and 40% by the trust (this component was initially owned by our SMSF until Keatng stopped beneficiaries buying assets from their SMSF) in item 2 above.
4. We have another property that is owned 99% by the wife and 1% by me (at one time, it was 50:50).
5. We have another property that is owned 50:50.
6. We have a business operations trust that we use to run our property investment business. This trust owns all the tools we use for property investment (computer server, laptops, software, etc) and each property trust and property ‘pays’ a monthly management fee as these tools benefit all. The fee covers all this trust’s expenses plus makes a small profit which is shared 50:50.
7. And so it goes on.

Over the 25 years, we have changed accountants (mainly as we outgrew their level of competency). In the early days, we really didn’t keep any records (basically just gave all the paperwork to the accountant every July to sort out).

As computers got more powerful (and cheaper), as software got more sophisticated, as our level of property investment knowledge grew, as our portfolio got more complex, ... we became more effective and efficient. Today, I look at the Balance Sheets and P&I every month, I record our assets and liabilities every Quarter and then calculate and graph our Net Worth, ... but wasn’t doing all that 25 years ago.

If we were starting out today, it would be a lot easier and we would do things a lot differently. The advantage of time and hindsight ...

 

I can’t offer proof (i.e. the hard numbers) that the properties are ahead or befind because I don’t have records going back to 25 years. So, it is gut feel with a dose of intelligence.

I am pretty sure none of my properties have given me 21% total return year-on-year for the last 25 years, even with leverage.

Let’s take your Carina numbers and my share returns to undertake some comparisons:

Example 1:- take the $115K cash and, instead of investing it in the Carina land block, I invested it in my share portfolio. After 17 years with 14.04% growth, my shares would be worth
$1,073,174. More than twice the $510K Carina land block.

Example 2:- take the $115K cash and, instead of investing it in the Carina land block, I invested it in my share portfolio. As well, I reinvested all dividends into more shares. After 17 years with 20.70% total return, my shares would be worth $2,816,575. More than 5.5 times the $510K Carina land block (no income from land).

Example 3:- even if I just take the $23K deposit, and, instead of investing it in the Carina land block, I invested it in my share portfolio. As well, I reinvested all dividends into more shares. After 17 years with 20.70% total return, my shares would be worth $563,315. Still more than the $510K Carina land block.

Yep, I am pretty sure my gut feel is correct. All three scenarios used zero leverage. Imagine if I used leverage in the above examples.

Trust me. I understand the power of leverage. We have been self-funded retirees for more than 7 years. We have borrowed more money in the last two years than at any other stage of our lives. Currently seeking approval for our latest loan right now.

The key to me is not growth nor leverage. While I do track assets and liabilities (these can go up and down depending what is going on in the world), my main focus is Net Worth. I calculate and graph it every Quarter. I have doing so for the last 14+ years. Even in retirement where we self-funded, our Net Worth continues goes to go up.

Yep, I understand the power of leverage.

I don’t want to turn this into a property vs shares debate as we have a serious investment in both and I am a big believer in both .

I am reflecting on my investment past and querying whether I could have done it better. I definitely feel I could have but can’t prove it with hard numbers.

 

Don't forget the psychology is also very different to real estate. Having larger amounts of money in stocks may or may not have suited your psychological profile.

 

True. Your post reminds me of a conversation I had with my MIL.

She was “bitching” about how much profit the banks were making and how little interest they were paying (her). I told her that she could get a share of those profits and that my three bank sub-portfolio was paying me between 10 and 12% pa in dividends since I bought them (I didn’t even mention the capital growth).

She asked: “How?”

I replied: “Become a shareholder “.

She responded: “Bloody hell!! Buy shares!!! That is too risky!!!!”.

You can’t argue with that logic .

As a comparison, we bought our son his first shares when he was six months old (me as trustee) back in October 1986. We only ever bought him Westfield shares (mainly because, as his mother spend money in the shopping centres, she was increasing his net worth).

When he was 30 years old, I removed myself as trustee and handed control of these shares over to him. He still owes those shares.

He now has a three year old daughter. He is taking some of her savings and buying her some shares (as trustee) next week (pity it took him 6 times as long as it took me). I can only hope that when she finally gets control of those shares, she remembers her grandfather .

Totally different mindset across the four generations .

 

Great legacy.

Do you actively choose and manage your stocks or just buy and hold very long term?