Exit strategy poll

I am wondering the same thing myself. Whats the point of getting capital growth if your are not going to use it. How is the debt going to be paid down, maintainence and living expenses meet ?

 

My properties are all positively geared so they will gradually pay down debt at approximately 100,00 per year. I live off the balance of the rental income. Properties are in NZ. I have owned investment properties since 2002.

 

That's what I am doing, just sold my second property waited until the 1st of July for tax reasons. I will keep my borrowing limit the same, I will keep my LOC limits as high as possible, try to reduce some debt, and put 65k in the share market in a super fund each year, and possibly buy more outside super if good opportunity arise, and haven't given in to temptation when a property that is too good pass up hits me in the face.

 

I'm far from the exit situation at the moment Marisa, best case probably still 5 or so years away so these are just rough ideas at this stage which are constantly being modified.

CIPs was the original plan when I first started out. I actually do have a small CIP at the moment which returns 10% net. With my background I'm quite comfortable with leases so it's still definitely an option. However, I'm starting to feel that CIPs still has a lot of similar issues to RIPs (eg. tenants, vacancies etc) and is too hands on so that it may not fit with the exit I want.

I now think shares will be my main vehicle. Returns on shares we've covered before on here and ss by posters who are much more knowledgeable than me (around 4-5% fully franked at purchase and growing every year).

As for margin loans, I definitely intend to make use of them. I think they're a great tool that's, like with any leveraging, can be risky but if applied in a controlled manner with strict parameters do assist in getting to your financial goals quicker. The two things that make margin loans a no-brainer for me at the moment are:
1. The ease at which you can get margin, no APRA, no full bank application, no serviceability calc etc.
2. The interest rate that I can get them at. I've mentioned Interactive Brokers before on here a couple of times, their interest rates are incredible. For AUD margin loans as an example, it's currently 3.5% and decreasing depending on the size of your borrowing.

Having said that I think margin loans are more for the accumulation phase rather than the exit phase. I don't intend on just gearing up a share portfolio and then quitting my job straight away. We're dipping our toes into the share market at the moment with a view to accumulating a portfolio big enough to generate the required passive income to fund our exit a few years down the track.

 

Wonderful

 

Currently have 9 properties. Plan to sell one every couple of years to pay off another high yielding ip and a bit of cash left over for treats. Hope to carrying on buying, maybe a couple more so that when this 9 are sold there are a couple more in the background gaining equity.

 

Why would you sell them all only to buy some back again?
Do not understand.

 

I've paid off four of them, three cheapies and one more expensive. So the plan would be to sell the ones that are paid off every couple of years and live off the income with a bit of part time income. I'm probably addicted to buying so may buy some more high yield cheapies whilst semi retired on P&I and let them do their thing in the background until needed. Probably a hobby/addiction as much as anything.

 

My end game is to hold a mixture of resi property, shares and etf's, as well as unlisted property trusts. (No debt). Super will be invested in shares/etf's etc in a SMSF (its currently in an industry fund) and will tick away in the background until we are able to access it.

 

I couldn't answer this poll either I'm afraid. Though I have a strategy or end-game in mind, I am conscious that this may/will probably change over time and as I get older.

 

Just thinking out loud

I know a number of investors on SS/PC that have given away their day job but never really retire, they don't really have an exit strategy, because they have continued to trade, start property related business, develop etc.

There is really no need to stop what you are doing if you can continue to make money from this and you can call the shots.

I guess you could also say "when is enough... enough"... what I think is when you stop enjoying what you are doing and it becomes a job.

At the moment I really cant see myself giving away the investing game because its not a job, its more like a hobby with perks

MTR

 

@MTR: HI MTR, My definition of the 'exit strategy' is to exit 'forced, no choice employment' and enter 'your dream job of your own volition'. Not because you have to anymore, but because you have the freedom of choice. Most don't have that freedom of choice, imo.

Like you, I absolutely love and am passionate about property investing/developing and i cant see me just stopping everything one day.

 

When I first started investing the goal was to make enough money out of property to retire. On reaching that milestone I questioned the wisdom of selling as I could miss out on future growth. I too enjoy the investing game and as long as I have enough money to live on that's fine with me.

 

My parents are late 70's and both retired. They are active property investors. They have done really well in Melbourne and thinking of cashing out later this year and reinvesting elsewhere. They didn't stop investing because they retired. They are planning to continue investing for as long as they are able to. This is my strategy too. I will keep investing for as long as I can

 

So say you want to be a full time investor/accumulator after leaving the regular workforce.
Wouldn't you generally hold what you got and keep accumulating more and more assets, increasing cash flow AND continue to leverage by increasing debt at the same time?
Nobody looking to take this approach?
Simply selling down seems like a retreat, but I suppose if you've got a time limit, this may be your only option.

 

HI @Ace in the Hole

What about this mate.

Rough example, say, your base portfolio is 5m portfolio,, 2.5m debt, do a development and net profit 700k (for example sake). Lets say you u sell all and reduce debt to 1.8m So your portfolio size stays the same, but your overall cash flow massively increases due to debt reduction.

Then say you use equity to fund another project, say again you sell all and profit net 600k this time and again reduce debt. Now your base portfolio is still 5mil (if not counting any organic growth) but your debt is 1.2m, so again increasing your cash flow significantly. Say you do this until you have zero debt so 5m net assets. then you do another development and say this time you profit net 900. so now you have a portfolio that is $5,900,000. So the base is increasing plus significant cash flow with zero debt.

Does this make sense at all? not sure if i explained it right..this is only assuming someone wants zero debt, you can always do variations of this. endless variations.

Edit: the only time you have debt is when you refinance to do a project.

 

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Depends on the asset class at the end of the day.

If the asset provides cash flow then why not continue to accumulate, as long as you can continue to service debt.

However, if we are talking Australian resi property which is probably what most here are buying, accumulating will not make sense because the chances of buying cash flow positive from day 1 will be very difficult?

If you buy and hold everything you will be riding the boom/bust cycles.
Boom cycles are shorter, perhaps 2-5 years, bust cycles 7-10 years, which means no growth or your asset goes backwards for this period.

I have jumped into at least 5 cycles and I know from experience that you take some money off the table because its a long time between drinks and make money elsewhere ie another asset class, another risking market.

MTR

 

I want to sell everything and lay on the beach forever like a sloth with a Margarita in my hand!