Retirement Plan - Property

Hi Everyone

After 25 years of working, we now have paid off our ppor and debt free. Yay. Yeah a lot slower than many but good enough. Not sure if we can do mortgage again for the next 20 years. Just wonder if many of you are in the similar position like us.

Our super is only 400k to date so in 10 years time, doubt it will be enough to survive from the golden 60 years old onwards. It seems most of the members here already have ip or plan for it.

My question is if we spend 200k each to buy 2 properties at 300-350k and hopefully pay off in 10 years time, that would be enough to live at a reasonable retirement life? Def do not plan to rely on the age pension benefit.

What do you think?

 

What are those sorts of properties you looking at renting for?

Say $300 pw. If that is the case will $1200 pw (before tax) be enough for you to live off now?

Rents will go up, but so will inflation so roughly they should keep pace with each other and you can work it out based on today's numbers.

Factor in increasing repairs as the properties age.

 

I read it that it would be 2 total, that means maybe 700 gross, minus agent fees, maintenance etc then tax. Provided they are not vacant at all.

 

Will property yield better results than adding the same amount to your super?

 

How long is a piece of string??? totally dependent on where and what and market conditions, skill etc as to which will do better.

 

If risk averse, judging by having paid off the ppor, is jumping into the unknown the best use of capital? Why not gearing into derivatives or olive farms?

 

I wouldn't put all my eggs in 1 basket, buy 1 house and use the rest to buy high paying dividend shares etc.
You may need money in a hurry, you cant sell a house overnight but you can sell shares and have the money in a couple of days.

 

Agree. While you're learning about property, throw in researching shares. You can also buy and sell smaller packets of shares to smooth out movements in property income

 

Thanks guys for the suggestions. Have not thought about farms or derivatives. Will do some research on that.

Always knew that shares go up and down but housing is doubled every 10 years according to the last 30 years

 

mmm, big generalization Where did you hear that? Sydney for example had some big flat spots during the 2000's

 

Dad bought his place in mid 80s for 90K. Mid 90s it's gone up to 200k. Mid 2000 worthed 400k. Now can sell > 800K. That's just average suburb.

 

Still need to be very selective on where at what you buy with regards to property, we have also had significant growth in many Capital cities. If you buy at peak you may be waiting longer than 10 years for property to double.

 

Sydney??

 

yes Condell Park

 

So by 2026 it'll be 1.6mill? 3.2mill @ 2036? According to history. We all hope it goes like that.

 

This is what time in the market does. Ignoring opportunity cost. The rise is greater than inflation and addition transaction costs.
I would suspect somewhat similar in many other areas not just in Sydney.

 

People in 1985 would have never dreamed that their house in Condell Park would fetch $800K in 2016.

 

The case for NRAS, using 400K purchase price as the example.

For each NRAS property purchased outside super at 400K, we know the annual cash flow will be @10K CF+ , and we know it is tax free.

So if an investor has 200K to deploy, that means they could in theory purchase 3 x 400K (ish) NRAS properties using that 200K to fund seed costs ( subject to borrowing capacity)

How ? If they deployed 11.5-12% + stamp duty + 7K cash buffer towards each 400K purchase, that would equate to @65-70K deployed per property . Their loans to complete each purchase would be @ 360K - ie 90% INC LMI.

What would it generate? Across 3 NRAS properties, @ 30K tax free would be the return. That's a pretty good tax free return on 200K. 15% to be precise.


Over 10 years, and allowing for just 2-3% rental CPI ( which the NRAS credit is indexed to) , you'd generate @ 350-360K in tax free NRAS cash flow from the 3 dwellings , allowing you to pay down one of the 3 x 360K loans in full.

So in this scenario the investors starting position would be $1.08 Million in debt ( 3 x 360K) , secured by 1.2 Million worth of property ( 3 x 400K) generating 30K tax free ( 3 x 10K) after all expenses were accounted for - and this figure would increase with rental CPI indexing, meaning @ 360K across 10 years is likely.

After 10 years, if the value of the 3 properties increased by just 50% , the investor would have assets worth $1.8 Million, and debt of only 720K ( after paying down 360K of debt) for a net position of 1.08 Million. Importantly, they'd also have rents reverting to full market levels , so depending on the yields being achieved at the time - and interest rates will play a big role in this.... they may choose to hold the 3 properties or they may choose to sell one or two or all of them off and invest the after CGT money in something else as a source of retirement income. However it played out, the 200K invested in Year 1 would be conservatively worth 1.08 Million after 10 years. 540% return on 200K after 10 years isnt bad going.



Within super, similar concept applies, although lower LVR's, lower Marginal tax Rates and Higher Interest rates are in play.

For a 400K purchase in super, 30% + stamps equates to @ 130-135K contribution from the fund. Assuming a loan of 280K ( 70% LVR) there is fantastic potential to use super to accelerate retirement income. For someone who is mortgage free and has a partner, there should be no reason they cannot make concessional contributions of 30K each into super each year, each. That 60K combined contribution , plus the 10K tax free returned by the NRAS dwelling, means someone in that situation could generate 70K per annum into the offset, allowing them to completely offset the 280K debt within 4 years.

Taking this example one step further, after the 4 years lets imagine the investors could then redraw 170K of those funds from their offset account to fund 30% + stamp duty towards a 500K dual occupancy purchase. They would now carry debt of 170K + the additional 350K ( 70% ) loan.

Using the 60K per annum in combined concessional contributions ( 30K each) +NRAS surplus from the NRAS property ( which would now only be carrying 170K debt so would be closer to 15K surplus at this stage) + the 10K surplus from the dual occ they purchase, this could easily equate to 85K per annum which can then be deployed back into the offsets. This should see the 170K debt offset within just 2 years, and the remaining 350K debt offset within a further 4 years or so.

So in this scenario, @10 years has passed, and as the investors reach pension phase, we would see 2 properties owned outright within the fund, with all debt fully offset, the NRAS property reverting to full market rent, and its income + the income from the dual occupancy property, coming into the fund tax free...


So outside super - potent. Inside super- potent. Doing a bit of both - super potent.

 

wonder what Perth median will be?

 

booms can make people very rich, and bust cycles do the opposite, when leveraging make sure it's in boom cycles and you are on a winner