FIRE Starters (Financial Independence, Retire Early)

Assuming that interest rate remains the same and continuing annual growth. I think 80% LVR is risky without any growth in coming years, ie, in 3-5 years. Unless you got a high income and geared. By the time you exit, IMHO you should have debt free PPOR, under 50% LVR (lower better) and mix of income from property and shares - not to eat up capital until you reach certain age (70?)

 

I'd say that is optimistic and not worse case.
Next, define long term? in RE you need about 20yrs. 10 yrs can get you there in the good times which have been the last 10.

Many people were posting this 10-15 yrs ago on somersoft, and yet how many ended up doing it? Not many if any.
"If it was easy nobody would be digging up streets".

Yeah, pretty much.

 

No, thats the old Jan Somers strategy.
But there are many ways to tweak it and make it go further

 

My LVR was rather high when I started investing in shares, and later when I bought property. Over time the LVR has gone down to about 10% of all investments. With interest rates so low I see no need to hurry to pay off the monies owed. An LVR of 80% is a bit risky for me, but if the cashflow is good then it may work. I'd be more comfortable with an LVR in the 40-60% range. Dividends and rental income are good, diversification. Having cash of several months of spending, if not more, allows income and expenditure variations to be managed. Zero or low debt on retirement makes sense. I'm not going to sell property or shares for current expenditure.

 

I think I am in the position to comment.

I ended at the peak...around 34 places. I pulled the plug from a JOB in 2019. I started selling down about 3 per year...initially the net rental income was only low 100s as rental income is incredibly lumpy. If you have fully paid property portfolio of say 2.5m...you would only get about 3% gros income. That would be about 75k. If you have debt it will wind back based on the debt.

A couple of things to consider:

1. Selling is not always an option as it depends on the market.

2. If your houses are older then 10 years...maintenance and renovation costs will eat into your profit. You will be amazed how these things eat into your returns.

3. Rental income is lump...for the above and other reasons. Make sure you also have other forms of income ETF, shares, fixed interest, pensions, super. Be realistic ....in 98% of the cases you will need to dip in capital. In my case it is unlikely as have got to eight figure portfolio in property.

I am planning to get down to 16-18 properties and at this point....I will be making 250k gross...but again this will vary from year to year. I will also have ETFs and in a couple of years maxed super. I do plan occaisionally to draw capital.

Hate to tell you this...but 95% of the people will struggle to hit their goals unless they are modest. A lot of people are dreaming about 200k per annum in retirement...unless they have a well defined exit plan they will not achieve this. Most will not retire till they are will into their sixties....as they "I do not enough syndrome"! To many people are looking at social media...which is full of people who are projecting the perception success. You read a lot of young guys who became Influencers,BAs, Developer, Mortgage Broker, etc..but most still have JOB (Just over Broke) most just traded their day jobs for self employment.

The people I know who retired early on a 100k are generally in the early 50s...and had well defined strategies and realistic goals. They never procrastinated and took action.

Sorry to be a wet blanket...maybe your experience might be different...but I thought I would share my experiences.

 

Thanks Sash.

Yes, 3% gross yield and 4% CG. Understand growth won't be consistent and with some cash buffers/ ETF portfolio, let's assume that we sell the property at the right time.

Understand too many variables and it all DEPENDS but validating my high-level strategy/ logic.

 

Far, far from worst case numbers. Despite what most Aussies believe, property does not perpetually go up and up and up. Even well located property stagnates in both rent and CG for many years at a time.

So yeah, you do seem to be missing something pretty obvious.

 

Thanks for sharing your thoughts. Understand, no one has a crystal ball to predict the future but should have some baseline numbers and assumptions.

Agree that prices won't go up and up and up but I believe will be UP on average in 10-20 years time. As long as we buy in 3 major capital cities and can hold the property without selling when prices are low, I believe we should be ok.

House values avg growth in last 25 years is 6.8%. Is there any obvious reason to think that property prices won't go up in next 20 years time when our government's business plan is to increase immigration?

My assumption was only 4%, not even 6.8% growth.

If we don't invest in property, what other options we have where we can leverage more than 80% of others money.

Actually this led me to think that if we are not expecting atleast 6% avg CG in property for next 10-20 years, why we are all here

 

Yes, definitely, having baseline numbers and assumptions is necessary. It's jut that your numbers and assumptions are far from the worst case.

Yeah, you'll probably be ok if you can hold through any periods of negative or below your expected returns. But that's not really a good measure of a successful outcome, at least to my way of thinking.

Those "average" growth figures are based solely on sale prices over time. They don't account for maintenance and repairs, renovations, extensions, rebuilds, adjustments for depreciation, etc. It's not very many properties that get 6.8% growth year after year without any upkeep and maintenance or renovations/development.

Seems reasonable until you realise property actually does go down in value sometimes and that the worst case is not simply getting a little less growth than the average.

Probably not many so if leveraging 80% of others money is the most important aspect of an investment to you, you are probably best off with property.

 

If we include selling cost, would the net average growth be 6.8%-1% = 5.8% after selling cost, but here is excluding any other costs.
For shares, and for serious investment, the total of buying + selling costs are typically about <= 0.05% and with a lot of low cost brokers, the cost can be significantly lower or essentially transaction costs for shares are almost negligible nowadays.

 

assume purchase price of 500k. 25 years at 6.8% would be 2.59m. Selling cost say 5% and thats very high.

net 2.46m. The growth falls to 6.58%. That’s just the math.

 

Thanks for the calculation. So that should work the same way for shares.

So in summary, buy and sell costs are only one-off events and should not impact the YoY growth in the same proportion.

 

depends how many years you hold for. The shorter the period the bigger the impact of costs.

 

Also, the amount of the asset has some bearing on the matter. Shares are fairly simple - costs as a percentage of the buy or sell generally fall as the size of the transaction rise. It might cost $10 for a $500 or a $5000 transaction. Property is similar, with fixed and proportional costs. One reason I like buy and hold for shares and property is that there are no exit costs. I sell at long intervals.

 

It's all assumptions, and based on the last bull market which is best case scenario.

What do you do if your IP does this?


OMg that's a rare case....




how many pages do you want me to fill?

And for those who are thinking "shares", well there are plenty examples of similar or worse.

I could happen, it may happen and if it does what do you or could you do is the question.

 

I guess the only option is to be a slave to the labour market until the day you die just in case.

ETA: And the success rate of building your own business instead of being a wage slave are dismally worse so I don't see that as a good option if what you want is better odds of success.

 

All correct. Most people get nowhere near where they think they will get, because they don't build buckets of future income.

A different thing to consider; 30 + years of incredible growth ( and there can be NO DOUBT that there has been incredible growth ) has produced exactly how many self funded retirees? Basically , the answer is; hardly any.....
Why? How can that possibly be when prices have doubled, doubled again, doubled again and doubled again...???? How could we not have generations of people by now who do not rely on dividend imputation or neg gearing or part pensions just to keep the lights on and food on the table? Growth is fools gold. On paper it may create a perception of wealth, but it doesn't put money in your pocket every week, fortnight or month. Buy properties that pay down debt and pay themselves off.... and retire with income every week, fortnight or month.

 

Mostly agreeing.....I am stunned!

However, even newer properties get old and maintenance creeps up or market changes and rents drop.

Diversification from property is also required...ignore super...shares..ETF...cash at your peril. Debt levels are going to kill some people....I see Sydney....in dire straits if unemployment goe up and rates also go up.

 

Quite the opposite, and Im happy to do it my way or die trying.

What I posted is factual information in reply to assumptions.
Yes we make assumptions and projections and unless you consider your downside those assumption may never eventuate.
Anyone starting in the last 5-10 yrs is doing great. The next 10-20 are assumptions and probabilites.

I used to wonder about that many years ago.
I met builders who would brag about how many they built and how great their work was blah blah and yet they only owned a single PPOR at 40yo.
Households on 150k+ those days days paying over 50k tax and yet had no IPs or bought one and sold it a year later saying it cost too much to hold.
I knew a guy who would clean and sweep out new factory units for builders that had more IPs (5) than most builders he worked for.
There are many common reasons I see but its not all that PC to talk about them lol

Calling Elvis, is anybody home?
Calling Elvis, I'm here all alone
Did he leave the building, Or can he come to the phone?

 

Elvis? Que?

Did you want me to resurrect him?

What are you sayin'?