Can or Will you retire on property alone?

I will be 100% shares, no property.
With franking credits I reckon shares return roughly double the same value in Australian residential property. 2M in shares can produce 80-100K after tax income, would need 4M in property to do that.

 

What are we doing it all for if it's not for the children?

We've allocated each kid a unencumbered house each worth about half a million. That'll provide a nice graduation or wedding present for them (if they don't go off the rails). In the meantime, the rental income will pay for their education.

 

Hopefully you can enjoy it too?!

 

There's plenty more to enjoy. And after we're gone, they will get it all.

 

To each their own. I will help my kids when they are the right age but no way I will just give them a property. What if they marry an idiot and get divorced? Would be fun watching some swine enjoy your hard earned.

 

It's just a rule of thumb number finance people use. They consider the cost of equity to be 10-12%. Obviously you can magnify that with gearing, but achieving that return on equity with low debt is also important for capital preservation.

 

I look at my return on capital and I see it is very low. So I am looking at sensible ways to improve my return. Of course that is not dumping a million dollars into VHY but I think I could leverage off property to build a decent portfolio of a mix if say 4 different types of funds. That way I get the rent return from the property and the income stream from the funds plus capital growth from both. I just need to educate myself about these wretched funds, pick three or four and start building. My biggest problem is that I have zero interest in them and don't know where to start

 

Start here.

Beginner's Guide to Investing in Listed Investment Companies

Read Peter thornhill motivated money, and super smart money book.

 

Everyone's circumstances is different though. Besides, this is an investor forum, so the proportion of people with 100k+ passive is naturally higher.

 

Yea not sure where you'd start. I spent my whole life in finance. That said, another strat with property would be to sell your $3m properties (which you bought for $1m) and is still renting $50k, and parking it into something that generates 7-10% yield?

 

I anticipate an amount in residential property - but I will never invest 100% of my money into one asset class.

If you runs business you can also extend your retirement age in a way that adds to your life - and that extra income stream makes a big difference.

 

Last I checked there was nothing useful there for beginners.

Alas I have no such level of equity

I may have an unencumbered IP to borrow against but it will be a new build. I would lose a lot of capital to sell from GST, CGT, commission and other fees. It is also in an area with strong potential for capital growth, so by selling I would be sacrificing capital, depreciation and capital growth. I don't find that scenario remotely attractive. That said, I would not rule out selling when the market next nears a peak.

 

Nope, totally wrong.

When we were in accumulation phase, we had a business that was our cashflow cow.

So, if we were accumulating properties today, we would still have the same strategy. That is, a business to generate cash, property to generate CG and a SMSF to generate our retirement income.

It is not easy, it has risks, it is hard work but the strategy will always work, in any situation, in any times.

 

Austing has written a small beginners novel linked on first page, recently updated.
Also read the books, watch his YouTube vids, it will all click into place eventually.
Also go through the lic thread, so many links and info to help out.
It's like learning property all over again, but with higher returns and more stress lol.

 

I'm not sure why so many feel confronted by MK's comment regarding the 100k passive income as it is actually a common figure thrown around in PC & SS before that. BTW this is not a personal criticism to you @wylie but rather a catalyst for a general comment.

To have 100k net requires quite a high gross income, so I understand why MK may have made the comment as its well above the median & represents a fairly impressive "passive" income level. That's not to say that it's not achievable or aspirational.

I tend to agree that target retirement income levels "seem to be" a little too aspirational at times considering working life income levels. Either that or some may be planning on working a little too long & hard to have a few short golden years.

Each to their own

 

Here is a quick and dirty example...assume that PPOR debt 400K @ 4.5% P&I . PPOR value 600K. 150K household income. All properties double in value in 15 years. All rents double in value in 15 years . Salary doubles in 15 years.



1. draw out 140K equity from PPOR. Loan is now at 90% LVR. @ 130K available to use after LMI is paid for out of the 140K

2. purchase 2 x NSW dual occ @ 500K each. Borrow 450K (90% LVR) for each purchase . 12% deposit is 60K . 3K for legals, building inspection and depreciation report. No stamp duty payable as land component is @ 150K, so stamp duty is less than 5K. After applying NSW new home buyers rebate of 500K, stamp duty not payable. Total contribution is therefore @ 63K x 2 , or 126K. This is funded from the 130K equity release above. assume rent of $600 per week, or @ 31K per annum, for each dual occ.

3. Each dual occ will produce @ 8K CF+. 16K combined. Use this to make extra payments towards the 400K non deductible PPOR debt. assuming minimum monthly P& I payments + 16K extra per annum is paid towards the 400K P&I loan, it will be repaid in @ 14 years. The reality is, with modest pay rises and rental increases, the surpluses available to reduce debt will be a little larger than this, so the 14 years will likely shorten to 10 -12 years. lets leave it at 12 years for this exercise, to be conservative.





4. In 12 years time, with the 400K PPOR debt paid in full, this couple are no longer spending $2027 per month ( 24,324 per annum) on their PPOR debt. Now, take that money and the surplus income from the 2 x dual occ's , which will be 11-12K per property after rental inflation, and pay off the 140K I/O debt used to fund the deposits and costs for the 2 x dual occs, within @3 years. 15 years will now have now passed .

along the way- say year 8 or 9 - the couple will have added 2 additonal dual occs. Lets assume they spent 650K each at that point, and drew out @ 160K of equity from their PPOR to pay for closing costs..


5. By year 15, the 400K P&I debt and the 140K I/O debt ( for INV 1 and 2) - both secured by their PPOR, have been paid in full. Only 160K of I/O debt ( for INV 3 and 4) remains secured by the PPOR. Using the 24K per annum that they would otherwise still have been spending on their PPOR, and the 32K of surplus income from dual occs 1 and 2, and the 24K surpluses from INV 3 and 4, they can pay down the final 160K I/O facility within @2 years. @17 years have now passed.


Quick review of whats been achieved so far.
1. By year 17 the PPOR is completely unencumbered. The 400K P&I debt is paid. The 140K I/O debt is repaid. The 170K I/O debt is repaid. Over 2K per month , or 24K per year, has been freed up.
2. Properties 1 and 2 have now more than doubled in value from 500K to 1.1 Million and they have owned properties 3 and 4 for over 10 years.....which have grown @ 60% from 650K to just over 1 Million as well.
3. 450K debt ( 90% of 500K) still exists on INV 1. 450K also exists against INV 2. 585K ( 90% of 650K) exists against INV 3. 585K exists against INV 4.
4. Properties 1 and 2 are sold at this point, and over $1million in profit is realised. @ 775K will be cleared after CGT is applied to 50% of the $1Million at a 45% marginal tax rate.


Back to step 6. INV 1 and 2 have been sold in Year 17, and the 775K after tax profit has been used to pay out INV 3 in full - 585K. So we are at the beginning of year 18 and the PPOR is owned outright and is unencumbered, and INV 3 is owned outright and is unencumbered, but is also producing $1200 + in rent per week, or over 60K per annum. Only 190K remains as debt against INV 4. using salary and the 60K per annum from INV 3, and the surplus from INV 4, the remaining 190K can easily be paid down within 2 years. This leaves the couple with 2 unencumbered dual occ investments, each generating over 60K per annum.

There you have 120K income, using very conservative numbers, inside 20 years. Take costs and taxes and you are probably left with 80K ish. But this is designed to show that lliterally anyone with a bit of equity and a 20 year time frame, can get close to 100K with very little growth, just by dividend reinvesting as they go.

Given the amazing capital growth enjoyed by all over the past 25 years, during the largest credit expansion in history, isn't the fact that so few people have gotten anywhere near 80 or 100K passive income from property during that time, maybe telling you something? Isnt it maybe saying that growth doesnt generate income? isnt it just possible that what I'm outlining here is the smarter way to go than just chasing growth?

 

I think it's because people are pretty much saying I don't know how I can get to $100k passive income then MK comes along saying haha, it's so hilarious everyone saying how easy it is to get to $100k passive. I don't know if his comment was sarcastic or not. In my example, starting from a reasonable base, I slog my guts out for 10 years and still don't get near $100k passive. I wouldn't say it's easy at all and I am one of the contributors to the thread.

Agree with your comments about $100k passive though. That's about 3 times what I need for my ideal retirement. I am not like others though. I work to buy projects because I like projects. I complete projects to fund other projects. What matters to me is having enough funds or borrowing capacity for my next project. The day I don't will be the day I change strategy. Retirement, what's that?

 

Sorry. I'm not. On today's servicing calculators, you'd need to be earning @ 50K more per million of debt that you carry during accumulation , just to match your pre APRA capacity. Thats because of the sensitised assessment rates and HEM's. If I add in P* I repayments, the figure gets even worse.

You could not accumulate the same dollar value of properties post APRA, that you accumulated pre APRA - not unless your income increased dramatically.