Can or Will you retire on property alone?

To the average person stock market seem risky, all they see is the headlines, the market gets wiped out 10bn or some monstrous number and true story someone rang up a radio chat show during one of those time when the headline of the paper our market lost 20bn dollar that day.

she asks where does this money go? this 20bn what happens to it? this is scary stuff

with proper knowledge, check and bounds, the stock market is a great place to generate wealth.

unless someone opens their mind and willing to devote sometimes to this art, it always seems foreign and risky to them.

 

I am not a trader but I am in the sharemarket multiple times a day.

I am more of an accumulator, buying in tranches.

If a share is not performing or has performed way above expectations, I will sell down, normally in tranches.

So far this FY, I have sold out of five shares (and bought a couple of new companies).

Put it this way. I have sold a lot more shares than properties

 

You should look at options writing covered call for your shares you want to sell if but dont need the cash, great way to generate extra income ontop of dividend, some years I end up with 20% yield with covered call and dividend, my options usually generate 12-15% premium income a year

 

Reminds me of the GFC. My sister sold out of all of her shares into cash; I didn’t sell a share.

Today, she is still in cash as she is too scared to re-enter the market. I am still heavily invested in the market - I know who is better off 10 years later.

 

I don’t know what I am doing now and you want me to get into Options .

Thanks for the heads-up. I will have to have a look into Options once I get some time. Extra income would be handy in retirement.

 

I am totally out of shares, so please bear with me.
May I ask as of TODAY, will be her or you better in terms of net number? Please see this as a honest question. Thanks.

 

Why I don't disagree many can have a larger % growth from stocks, my point was precisely that, that my psychology would not allow me to be exposed say over $15million in ASX, then add to that say 50% leverage...I would not sleep well at night..
Secondly, I just do not compare % growth, as the ROI is what makes investment attractive to me, as yes equity in property can be generated in different ways too, such as via renovation or redevelopment, of paying off, etc....
Hence while my example was in cash only, in property you can leverage out further after say 10% equity growth being able to borrow say 80% again (obviously high level example dependent upon serviceability and other factors), as with the dividend reinvestment approach in stocks, so we need to compare apples with apples, hence returns would again increase too.
Also, we must give some credit to timing and time in history, we have had the last 30 years in stocks in uptrend, mainly because OZ indexes where heavily exposed to mining and fiancé sectors, and guess which industries prospered in the last 30 years, just those? So it wasn't that Australians were such great investors it was coincidental that the main industries had phenomenal growth.
Looking forward I am a bit sceptical, perhaps that's my lack of knowledge of ASX companies, but I don't know many friends that made 20% returns year on year, say in the last 10 years or so, 30 years long term yes! I suppose if you can generate consistent year on year 20% then you know what you are doing and are better than most investors, now I cannot make that from ASX, I lack that knowledge.
I look at Japan's stocks graph for the last 50 years, and think, say I have 40 years (working between 25 to 65 years) of working life my window of opportunity to build wealth, it really helps to have some luck in time in history when you were born, and when you did well there.
I don't know how to insert the graph here, but it can show that some had phenomenal growth within certain 25 years timeframe depending when they started and then the other 25 years has been down or sideways, so some luck in vestment journey does play a role.
Although I too do not disregard shares, I actually made 30 times the value in one (bought $0.20 and sold around $6 - bought a house for cash in my dream suburb for that), but I attribute this to luck or investing at the right time with the right person and the right exploration industry. Can I repeat that now, well no, not really.
So for me shares are an income exercise whereas properties are wealth building exercise. But each person likes their cup of tea or coffee differently, hence that is why we are different and this is so great about us we can decide what investing suits us.....

 

I feel the same
When I look at other people's CG I feel my performance is well below average
I like your goal of Net Worth
Is net income one of your goals too?

 

TBH, I don’t know her actual numbers. What I do know is that we both had our shares in our SMSFs, we both are retired, we are both self-funded, we are both paying the mandatory minimum 4% pension.

So she would be earning 1% to 2% interest and drawing a 4% pension. Hence, eating into her capital (i.e. cash) by 2% to 3% of her balance each year. That is, going backwards.

Over the last 10 years, my share portfolio has achieved a total return of 18+% pa. Drawing a pension of 4% each year means our balance is going up and up.

 

If Net Worth goes up, for me,it means my Assets are going up in value.

If Assets are going up, it means my Income is going up.

So, income tends to look after itself.

 

Thanks for the honest answer, will help me a lot.

Just wonder if you bought some property 10years ago, it would be double in value?

As I dont play with share (failed before), I believe that investor would put their money into property if they didnt invest in share. So would you balance both share and house?

 

It would all depend where you bought. To double in 10 years, one needs to get 7% growth year-on-year.

You live in Brisbane. Brisbane did not get that sort of growth. I bought a 4/2/2 in late 2003 (14 years ago) and another in late 2004 (13 years ago). Today, they are both worth double what I paid for them. Like some others on PC, I believe Brisbane is on verge of another boom. Properties in Brisbane could easily double in the next 7 to 10 years (7% to 10% growth).

Others on PC state that one shouldn’t buy regionals (I am one of those). I just bought a property in Toowoomba, my Mum and Dad’s house. They bought the property in 1972 and its has achieved 7% year-on-year growth for the last 45 years (double every 10 years).

I am a great believer in listening to everyone and believing in no-one (although there are some I will listen to more than others). One must do one’s own due diligence.

For example, I bought my parents’ house because I know:

• the quality of the property,
• Toowoomba is near the bottom of the property clock (around 5 o’clock),
• we can add value by taking it from a 4/1/1 to 4/2/2 during a reno (which it needs) in a couple of years,
• we will get around 5+% yield,
  
• our holding costs about a cup of coffee a day (80% I/O loan at 4.29% fixed for 3 years),
• there is a lot happening in/around Toowoomba now and the next few years,
• we can sell it near the top of the property clock in say, 3 to 5 years time

What you do is your call.

My situation is that my property portfolio is around 3 times my share portfolio.

My share portfolio has no debt. So, if I subtract my loan portfolio from my property portfolio, then my property portfolio is around double my share portfolio.

As I posted earlier, given the returns I have achieved over the last 25 years, I am now querying whether I could have got the balance better.

 

I've had to rejig my partial LOE retirement strategy due to the changes in the lending environment and my reluctance to sell (no lemons in my portfolio).

Am now targeting a 50/50 LOR and dividend income scenario....so am maxing out super contributions as we speak.

But I intend to use equity/my financial buffer (of which I have quite a lot of) for large discretionary expenses like travel (flights/hotels).

 

The clients I have that are retired on properties are worse off than anyone else.

They are not entitled to a pension and pay for everything in full.

It’s an unfair system that rewards those who do nothing.

One client has to pay full fees for nursing home from property income while the lady sitting next to her has it all paid for by the government beccause she enjoyed her money while working and did not invest in property.

Clients who rely on rent income for retirement are forced to be slumlords. They fix nothing in their properties and can’t afford reasonable maintenance resulting in lower rent. Outlays for maintenance are not considered.

One of our clients has 5 properties. She had one rented and 4 sitting there with instructions to us to just leave them vacant. She can’t afford the upkeep and can’t afford to lose her pension on declaring extra income.

No I will not be retiring on property.

 

Not that I ever contemplated getting a pension (know nothing about it)....would a person still qualify if they had $3 mill worth of shares and just their paid off PPOR?? I'm guessing no bc its means tested?

 

Probably not, people who have contributed the most through paying the highest taxes - the ones that took the most risk to buy shares and invest in property and grow profitable businesses are entitled to nothing.

It’s not much but on principle it sucks

 

No - clear explanation at Optimising the Age Pension - Mansfield Financial Planning on how saving more can make you worse off. Either aim for $420K or more than $1.02m.

 

Great article. I would imagine a lot of couples nearing retirement/are retired would be in the range.

Unless one had millions in financial assets, as one heads towards retirement, one strategy would be to upgrade to the best PPOR that your funds allow so that your financial assets get below $400,000.

 

So you could live in a $20 million dollar PPOR in Point Piper and still qualify for the full pension if your other investable assets, cash etc < $400K?

 

@Lacrim - yes and it's quite legitimate too.

Your ppor is exempt from the assets test.