How much rent are you really left with after costs.

You'll be an old granny by the time you're able to LOR that way.

The idea is to sell down a percentage of your portfolio as it grows, retire some or all the debt against the remaining properties and then you LOR.

 

I agree. And I think this pretty much highlights the type of info the OP is after. The costs question is related to another question:

I haven't run detailed numbers but I don't think you can set up a viable LOR strategy by purchasing $1m in real estate. As @Biz highlights, it's more of a longer term strategy where you buy more properties than the income you will eventually need, wait for the value of the properties to increase, sell down enough to reduce your debt and then live off the rent of the remaining properties. I'm not convinced that LOR with residential is a great strategy. After all of the costs, the return doesn't seem that attractive.

 

This correlates to our expenses.

Forget interest payments as these absolutely depend on personal circumstance. We have consistent level of expenses at 30-35% pa and this is over many years.

We do our own maintenance so our 30-35% does not included maintenance costs.

Over the last 10 years we have reinvested about 20-25% in upgrading our properties, as in major renovations, which stabalise the ongoing expenditure once they are renovated. I expect that in the next 6 months we will reach a logical pause where most properties have now been renovated.

We LOR's.

Cheers

 

That's a good point. If you are prepared to upgrade your investment properties, LOR becomes a lot more feasible. I know with my Perth IP, I was getting $330 pw pre reno and $440 pw post reno. Reno costs were around $10k. The improved cashflow would be a huge help in a LOR strategy situation.

 

While this is generally true with a 6% yield lots of factors alter the outcome especially depreciation allowances which can turn a negatively geared property into a cash flow positive rate one for those on the top marginal tax rate.
I assume you are talking about a unit or townhouse with BC fees as a house with a 8.5% yield and reasonable insurance and council rates will most likely be cash flow positive.
The big unknown in the equation is maintenance...
A recent purchase as an example:
purchase price+stamps/fees $195000
Rent $280 per weeks x50 $14000 Income
Expenses: Interest. -$9106.5
Insurance: -$550
Rates: -$1390
Pm fees: Approx. -$1400
Maintenance Approx. -$1000
Water paid by tenant. $0
Positive before tax. $553
Depreciation to be considered for the first full year of ownership $3902 x.47 plus Medicare levy at the top marginal rate makes it CF+ by several thousand per year.
Only 50 weeks of rent have been considered, I not making any statement about the relative merits of investing in a particular location or type of property only that it's possible.?.in our capital cities

 

Don't forget routine/unforeseen repairs, land tax possibly, and insurances for a house will be approx $1000 or more etc. Also need to assume 50 weeks of vacancy per annum just in case and if tenant vacates - one weeks rent to agent, lease renewal fee etc etc. I think some on this forum who think their flock is positive probably don't add every dollar and cent in potential/real expenses.

 

Unless you go very hard and take a few risks I agree, some serious CG is required with inflation and lots of rent increases then some properties would most likely need to be sold. Paying down debt although unfashionable also helps. 10 years isn't long unless you go really hard and have some luck.

 

I'm pretty sure from her previous posts that there will be almost no debt. Her mortgage is paid off and she is considering building a GF out the back. I'm guessing she has figured out what she can rent her house and GF out for if she built it and wants an idea of the additional costs to help her run the numbers.

Correct me if I'm wrong.

 

Bascially it. The crux of the question is how to take an unencumbered main residence and build a million dollar property portfolio, and will the rent be enough to live off. Hence the costs question. It has been argued in this thread that the amount of interest she is paying is not a consideration. I don't accept that. It is part of the equation.

 

So if it's unencumbered why would she be paying interest?

 

She is trying to work out the costs of owning an investment property. After paying the costs, how much rent is left? The interest is for the loan to buy the rental property.