When you reach your goal.

Discussion in 'Investment Strategy' started by Matt456, 23rd Jul, 2019.

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  1. Matt456

    Matt456 Member

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    After working 2 and 3 jobs for 20 years you wake up and realise you've hit the target and got 75% of your monthly wage coming in as net rent.
    The question is where to from here?

    All houses are local - with no real capital growth prospect; and similar for rental growth.
    No point selling down and buying elsewhere as all grossing over 5%
    I'm hopeless with tools and posses no design flair, so I pay retail for any renovations or repairs.

    Have been reading books lately like Rich Dad, and I get it - if it's cash flow positive you buy it. I struggle to find application for it here in Australia. You buy a house with borrowings and it will be say $28/week cash flow positive. You'd need to buy like 30 houses to do the same as 3 would that are owned debt free.

    I'm not ready to pull the pin yet on paid employment. I guess the question is where to from here, when you're not just starting out and you've got a bit more capital and cash flow behind you meaning there are more options than buying a house for $300k in your home town.
     
  2. NHG

    NHG Well-Known Member

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    You have 75% of your monthly wage.
    However how much of your cost of living has been replaced?

    Even if 50% of your cost of living has been replaced, it really comes down to doing things that excite you.

    I jump in and out of my 'field' for ***** and giggles, spend the rest of my spare time building a business. I can't not 'work', but i'm flexible.

    I've seen people go the travel route, and get over it within 8 months, then start larger empires, others are happy to grow their hobbies, fishing, fitness, cars.

    A great person to read up on is @Ace in the Hole , follow his post retirement journey.
     
  3. KDP

    KDP Well-Known Member

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    Put it in the share market for diversification and passive cashflow.
     
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  4. Sackie

    Sackie Well-Known Member

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    For me it's all about the journey and adventure along the way, rather than any 1 major goal at the end. I find I can enjoy the material things the money buys in the moment, but more often than not the real juice of the enjoyment is from reminiscing on the experiences along the way. I'd do more of whatever you are really passionate about.
     
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  5. Beano

    Beano Well-Known Member

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    Set another goal
    100% of your salary
    200% of your salary
    500% of your salary
    1,000% of your salary
    you will be very surprised how fast you can reach these %'s
     
  6. spludgey

    spludgey Well-Known Member

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    Imaging that's me (and people are obviously very different), I'll go in tomorrow and tell my boss that I'll be working 3 days a week from now on! That means my total net income is still 135% of my previous salary.I'll then keep living my life and get to all the things that I just haven't gotten to:
    • Build that shed
    • Finish the fire extinguisher Sodastream refilled
    • Install the USB modem in the car so that I get permanent internet.
    • Install the DAB+ module in the car stereo
    • Read
    • Garden
    • Play with my kid
    • Catch up with friends
    • Super nerdy: See if there's any old farts that want to play MTG and drink beer
    • Etc
     
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  7. spludgey

    spludgey Well-Known Member

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    What's the point though? Money is purely a tool, make sure to be its master and that you don't become its slave!
     
  8. Matt456

    Matt456 Member

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    Thanks for all the replies. Can definitely resonate with each.

    I feel like I haven't figured out how to invest successfully yet which is knowledge I'd like to pass onto my kids to help them short cut a path to the choices I now have.

    So its probably more on the path of setting a clear goal of 200% of salary.

    I did try shares once before. Used a reputable stock broking firm and was paying them for a managed portfolio service. Two of the 10 shares they put me into went broke, Babcock and Brown and another GFC wipeout. A dart board would have returned better, without their monthly management fees.

    So property in principal is easier for me to understand. To reach a next passive income target is it better to accumulate multiple properties all cash flowing small amounts, or just buy and pay down the debt as soon as possible?
     
  9. Sackie

    Sackie Well-Known Member

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    In my opinion it depends on your financial situation, goals set, strategy and risk profile. I have always found it to be a waste of time to try to create wealth by increasing cash flow of $10 -$15 a week for my situation and found it much easier to create chunks of equity to pay down debt and expand wealth at the same time, via adding value to all my deals along the way in good established and up and coming areas near established suburbs. I've always avoided 'trashy' areas with no real hope of improving anytime soon. Generally speaking there is no one way is better than the other, it really depends on your own unique situation.

    This is where meeting with a good mentor ( if you're able to find one)can make all the difference, if they are able to guide you based on your own unique situation.
     
    Last edited: 24th Jul, 2019
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  10. Angel

    Angel Well-Known Member

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    Learn from your past experiences.
    This time with shares you will do much better. This time with value-adding property you will do much better.
     
  11. euro73

    euro73 Well-Known Member Business Member

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    Sounds like you are in a position to buy several more CF+ properties and use the net surpluses from your existing portfolio + the net surpluses from the new CF+ purchases to pay the new ones off quite quickly...

    You haven't mentioned what the total net income from your existing portfolio is but let's say it's 75K ( 75% of 100K) If we use that amount as a hypothetical, and we also looked at a hypothetical where you bought 1 x additional CF+ property for 600K ( inclusive of stamp duty and legals) , which rents for $700 per week , total annual rental income would be $36,400. If you borrowed the entire 600K at a rate in the vicinity of 3.5% P&I , annual repayments would be @$32,328 - so you'd be running P&I and at a 4K surplus pre tax.

    Allowing @5 or 6 K for running costs and @15K for depreciation, the property would also provide @ 20K of deductions to offset against the 4K surplus, so it would provide a deductible loss of @ 10 or 11K, resulting in a NG refund of @ 4K ( based on 37% MTR) ...but some of the debt is Principal so let's just call it CF Neutral for the purpose of the hypothetical .

    This leaves you ina evry simple position - the new purchases are paying for themselves and you'd then be able to contribute 75K ($6250 per month) towards extra repayments , using the surpluses from your existing portfolio. Result=? 600K of debt could be repaid in 6 years and 3 months


    Screen Shot 2019-07-24 at 8.23.08 am.png


    So in just over 6 years you'd have added an additional 36.4K of income ( and that assumes zero rental growth) . After allowing for holding costs and depreciation ( say 20K in total) only 16.4K of that would be taxable.... so you'd be netting @ 30K ( assuming a 37% MTR) . 75K + 30K = 105K. Result = ? 105% of your income



    OR - buy two of them instead of one , and pay 37.5K towards each instead of 75K towards one of them , and you'd pay them both down in @10 years and 3 months ( again, assuming no rental inflation on any of your properties) , leaving you with an additional 60K of net income . Result ? 135K net 135% of your income

    Screen Shot 2019-07-24 at 8.31.21 am.png

    Interestingly...if you make extra repayments on only one of them first, pay it off in 6 years and then turn the entire 105K of surplus ( $8750 per month) towards the second one after those 6 years , you'll pay them off in @ 10 years and 2 months.... again this assumes zero rental inflation whatsoever across that time period.


    However you view it, even with zero growth and zero rental inflation you can basically add over 60K net to your income in @10 years by using your current equity and surpluses to leverage into some additional CF+ properties and pay them down ... and because I have used none of the surpluses from the 2 cash cows , nor any rental inflation in any of these figures, it's likely you'd achieve better results than this hypothetical indicates, and in less than the 10 years and 2 or 3 months indicated.

    You can also look at hypothetically using some of the 75K as contributions towards Super.... and could hypothetically consider adding a property to an SMSF, and achieving this income as a tax free in pension phase...but up course you'd need to consult the appropriate professionals and seek the appropriate advice on things like that .... :)

    Bottom line with 75K of surplus income you have an opportunity to gain compounding benefits - and quite quickly.... by leveraging into additional assets that pay for themselves, and by using existing ( and future) surpluses to accelerate their repayment. With each purchase you are buying additional income, basically.... then reinvesting it towards debt reduction , then repeating - more than replacing 100% of your income.
     

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    Last edited: 24th Jul, 2019
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  12. Matt456

    Matt456 Member

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    Thanks @euro73 that's a good analysis.
     
  13. mikey7

    mikey7 Well-Known Member

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    Fantastic position to be in.

    Thankfully, we shouldn't ever be in the boat of 'What next?'

    When we set a goal, there is always another set for when that goal is reached. And we have a heap of goals running simultaneously, with another planned for after. When a goal is reached, we set another goal after the next. If that makes sense.

    Eg.
    * Current goal: Pay off PPOR mortgage by X date
    * Next goal: Fully offset IP1
    * Goal after 'next': To be planned on completion of 'current' goal.
     

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