How do you work out your end goal?

We’ve been in the property investing game a couple of years and are trying to clarify how to achieve our end goal, so we can analyse how we’re going and work out intermediary steps like how much capital (number of houses x cost) we need. How would/have you done it, or how would you work ours' out?

In 20 years time: Our aim would be 80k pa. (say $1600 per week) income after tax. PPOR paid off.


I have read several of @Terry_w methods on how to have an income stream. Like this one. Eg LOE, live off rents, have cash in offset account, eat into capital (prefer not to do this).

We have a PPOR, and only 2 IPs in Brisbane (3-2-2 townhouse in 10k out of brissy – gross yield 5%) and house in Kallangur (3-2 high set house - gross yield – 6.2%). I have about 120K in superann.

The difficulty we’ve encountered is the big variables.

1. How much will rent increase in 20 years. Eg we thought perhaps it may go up 50% eg $400 à $600 pw
2. What % do you use for capital growth- 6% pa?
3. What % do you use for expenses (eg at present they are around 6.5%)
4. Take into account inflation (ie 80K now will not be 80K in 20 years time). average inflation rate from 1951-2017 is 5%, but for last 10 years it looks more like 3%.​

An example:
(Gross yield) x (Value of properties) – (Costs) = 80,000
8% yield x 5,700,000 – 6.6% x 5,700,000 = 79, 800

or do you do it another way?

 

It is pretty easy.....agree you need a fully paid off PPOR.

If you need 80k pa ..based in today's dollars you will need based on the 4% rules (google it)...you will need about $2m net in addition to your PPOR.

Bear in mind I don't know if your 80k considers tax?

Property I would be a bit more conservative..and would use 3.75% so you should need about $2.15m. The 4% rules works well with shares.

Also add back any super...note that in the future you may need to 65 to access it...so I tend to leave it out.

Will many people reach this goal...it is possible...but unless you have a really good defined benefits plan....98% of people will not get to this income. With planning it is possilbe.

 

Thanks @sash I'll get onto that.

i was thinking of 80k after tax. how would this affect calculations?

 

The 4% work on gross.

But if it s you and your wife....you will probably need 94k (47k each). That would give you about 80k net. Also...if you have deductions like depreciation...franking you will require less..

That figure is pretty hard to get to.........unless you make some great decision in the next few years.

A lot this forum can get to 50k...but I don't think this affords a great lifestyle...despite protestations...well not in Sydney and Melbourne ...possibly ok in Adelaide or Brisbane

 

No need to over complicate it with projections and percentages.
What works is head down and work hard.
You'll probably get to where you wanted before you know it.
This is how we did it, but my philosophy has always been about keeping the principals simple and basic.

 

Nah....be lazy.....that's my motto mate....it worked for me...you are too industrious.....Ace

 

In our own case, we have some properties that have experienced significant capital growth. It makes sense for us to retain these and sell off others to balance the debt. Meaning, we have a lower yielding portfolio with a higher capital value.

It all depends, really on what you've invested in, growth rates, and whether you are planning to move into other higher yielding asset classes (shares, com property) either along the way, or when you want to wind your working hours back.....

 

Great....that is another strategy...will yours give you 80k net on sell off?

 

We have many options available, fortunately, but we've been investing for a while!! Yeah, and above this figure.

 

Great! That puts you in the top 1%

I guess...I will have to slumming it......or get @Ace in the Hole to buy the coffee and cakes at the Sydney meet-ups

 

Don't forget that Australian cost of living is pretty high - you could have the same lifestyle with less dollars somewhere else

 

Does everyone set an 'end goal' eg x amount of dollars by such time? I can't do that. I think it's a fear of failure - if I don't/can't reach that goal, what has gone wrong? Too much stress (especially when so many of the influencing factors are out of my control eg. interest rates, political decisions, boom or bust locations and cycles).

My theory - if I'm worth more today than I was yesterday, and that's not solely down to another day's paid income from a 'job', then I'm doing okay and heading in a good direction.

It may sound incredibly naive and simplistic, and not make me sound like a 'real' investor, but I can sleep at night with this attitude. It may not make me the $ millions I'd like, but I know that I don't have the endless hours that I'd need to devote to number crunching and research that is needed in order to take a more calculated and scientific/methodical, goal-oriented approach.

 

If one works one **** off all of one's life, I feel $80k pa income after tax is not sufficient reward for effort.

I would budget something like:

Living Expenses: $80k (assume PPOR is paid off)
Travel Expenses: $50k
Unexpected Luxuries: $30k

TOTAL: $160k

If it is a struggle for one to spend this sort of money in the early years of retirement, it is amazing how soon one's brain can adapt .

 

@Seal
We started off as buy and hold investors, then sold down, negative gearing was a killer, not great for lifestyle.

Agree you need to create income streams, there are many ways to achieve this ie developing, selling down, buying cash cows etc

Our cashflow/income now comes from USA properties and small development projects in Australia/US.
We dont need a day job to survive

We continue buying properties in USA which are commercial/resi that provide cashflow/capital

Skys the limit, just up to you whether you want to step outside the comfort zone

MTR

 

Why the hell would you work your ass off all of your life in the first place?

If you are able to reach a passive income of 160k and it came from working all your life, I would happily work my ass off for half of my life and retire on 80k pa 20 years earlier.

Actually I plan to have worked for a quarter of my life and retire with 40k passive income living in a country where that buys me the quality of life of someone who has worked, saved, and invested all their life.

**** the rat race. Even if you 'win' the race and end up rich, you've still lost.

 

The key to not being a part of the rat race is to, not act like a rat, or more commonly a sheep.
Lead and run your own race.

 

Always good to have options in life and my personal view is that if you can't succeed in Australia, you can't succeed in any other countries. I know that may irritate some people, but try living in one of the Asian countries and tell me if you can make it as a brand new immigrate. I feel that in Australia, it's a system where the hard workers who are willing to forgo the the wants in life are rewarded and does not discriminate. I could tell you many stories of people who arrived to Australia with just the shirt on their backs and made something of themselves.

When I recently had two weeks off from work due to uni exams, I came to the realisation that I could never retire fully and always needed to have some sort of routine, activities or projects to do to keep the mind active.

 

When I posted "working one's **** off all of one's life", I was talking about one's working life, whether that be 10 years, 20 years, 30 years, 40 years , ... of working life.

So, it sounds like we are in agreement. Work your hardest/smartest for the shortest!!!!

No, I would rather retire on 160k and retire 20 years earlier. Being retired for 7 years, 80k would not support the lifestyle I have become accustomed to.

That is so inspirational.

I was lucky enough to make all of my Net Worth in this great country. I intend to spent it over the next 40 years in this same great country and contribute to this country's economy (in my small way) for the benefit of my children and my grandchildren if they want to make a go of it.

On 160k after tax income in retirement, I could easily donate $40k to any country without having to live there. That is why more is better than less - it buys you flexibility.

I have already won. I am living my dream. By the sounds of it, you are only dreaming yours.

 

I think it is good to set 2 goals.
a) what it would take for you to be able to leave the rat race (**** you income), and
b) the desired end income.

 

See this old thread of mine too:

Working out How Many Properties are Needed to Reach you Goal https://propertychat.com.au/communi...properties-are-needed-to-reach-you-goal.9454/