Living Off Equity (LOE) Strategy/Model

A blast from the past

Thought I would post this here. Shows how this strategy was never going to work regardless of size of portfolio.

Many Gurus, Navra comes to mind.....promoted this strategy? Where are these gurus today??

Living off equity

Living off equity - myth or reality?

Why?

1. You are at the mercy of banks and bank policies can change... today, APRA is the nail in the coffin for this strategy

2. The assumption that property always rises, is a nonsense, look at the current market cycle in Australia

3. Compounding interest in a downturn cycle will erode capital, high risk because we just don't know how long the cycle will last and how much it will drop

In saying this LOE for a short period if you are an active investor may work? But it is dependent on the investor growing capital and growing income.

What works today??

 

LOR

Living Off Rent

 

for me its taken selling down and recycling profits. Reducing debt and US cashcows

 

Yep debt reduction (or elimination) is important unless LVR's are trivial.

Selling down as you have done and re-purposing funds to other markets (and having the courage to do so at the right time) has certainly done you and some others on this forum no harm.

I'm waiting for one more cycle here and I will sell one land rich pre-CGT asset to retire all debt and then some. Dividend income also looks appealing to round out the portfolio. It's also rent off a different kind.

 

Yes, many ways to skin a cat

 

Does anyone know what ever happened to "Rixter" ?..

 

Moved to Melb

Whether he executed the LOE model no idea?

 

I'm selling an ip or two every couple of years going forward. Sold off one last year and two this year but re-invested $1.2m approx in developments to up net worth. Strategy is to either live off the equity released each year plus rents, or live off some of it plus rents, invest some in trades/developments/profitable ops that come along. Eventually selling the lot in my lifetime. Active investing.

 

I still think loe can work, but I'd probably do it near the end of my life or when I want to deplete my equity.

It can work but it's not as easy as people made It out to be

 

You know when the end of your life will be? Impressive

 

Well my odds of living another x years get smaller and smaller

 

Similar to my overall strategy. I live of rents and chunks of profits from various deals. Reinvest some profits and splurge the rest on all the 'wants'. Enjoy the NOW while planning to have a shirtload for later too.

Best feeling in the world when you can wake up any time you like and don't have to join the 9-6 (or whatever it is nowadays) rat race, dressed in a stuffy suit with all the other penguins waddling to the beat of some other suit with a whip. Thank god those days are long gone.

 

You wouldn't want to LOE when you can LOR and get some extra tax deductions.
Here is an old thread of mine on how this can help you get further

5 Living Off Equity Strategies to Speed up Retirement 5 Living Off Equity Strategies to Speed up Retirement

 

This

And this.

 

I much prefer LOD.

 

Working on some of this too.

 

Our strategy is property for growth, tax-free unless we sell, and shares for income, tax-free for up to $128,000 per year for a couple (in Super).

 

Running a great business that generates excess cashflow is the only way I have seen. Some people earn a super star salary and this is similar - but those jobs are very thin on the ground.

A property development business can generate excess cashflow. And a commercial portfolio can do this.

It is very hard with passive residential property in Australia to generate excess cashflow. The yield is very low and the costs of ownership, including land tax, is very high. And we get long periods of stagnation so the lovely 3% assumed rental growth does not always happen.

If you are extraordinarily frugal (miserly) you can do it on a good salary. But that is rare.

 

It most certainly can be done, and not necessarily on a good salary. I know this for a fact, because we have done it. LOR, not LOE, that is.

We have never been proponents of negative gearing & the low yields that most investors gravitate towards. Until the later years of Hubby's employment, we didn't earn a high income either. What we did do was target higher yielding resi property, which was cf+ from day one, and consistently spend less than we earnt. If the properties are cf+, you don't need to be miserly, even if NOT on a huge wage.
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