Working out How Many Properties are Needed to Reach you Goal

Putting a timeline on this Medium term is key for any investor. I'm not old enough to have lived through number of cycles but I will be very surprised if this tight lending (especially current tight environment) will last longer than 5 yrs....as you say never say never......We probably had tight lending environment in past how long did that last???

Banks, lending institutions make most of their revenue when they lend money...I don't think they'll go against BASEL requirements, APRA or ASIC....but one thing we know is that are very powerful lobby....and they'll fight for it. They may accept it for now. On the other side, look at the Europe and Japan, governments are pleading banks to lend money but ppl are not willing to. Aust Government, APRA, ASIC will not want us to be in that situation that's for sure. Surely, it will be tight before it loosens and it will happen slowly. May be new credit scoring regime will play a part in future lending decisions as well....

I am not suggesting investor should wait for 5 years and hope change in environment. There are many other way to invest...shares, managed funds, renovation, development. Sure NRAS, properties could be part of that...which i don't know much about. but keen to hear from you on the locations, CG prospects etc....As I've said before don't mind paying debt down with extra cashflow being generated but not by buying the asset that is not strong enough to stand few property cycles to fund decent CG in future.... what has bright CG prospects, for me metro properties, within 15-30 km, hold it for long term, 20 yrs, sell some in retirement to pay off the others and commence LOR strategy.....

I don't think one should assume retirement income in future will only be funded by investment properties....may be traditional investors would have done that in past but as you say change in strategy is required.

 

This is a post specifically about how many properties are required to reach a passive income goal... My comments are related specifically to answering that question in this particular credit environment.

 

Hi Terry
Would you please be able to expand on these?

 

Tax Tip 119: How to Reduce CGT on Investment Property (Part I) https://propertychat.com.au/communi...investment-property-part-i.10681/#post-213428

 

If I'm targeting 100k:

Say I buy 2.5 mill worth of residential property in the burbs @4% yield
They increase in value to say 4 million in 10-15 years.
At that point I sell them and buy units/inner city apartments for 1.5 million with 7-8% yield outright.
I should be able to retire in 15 years if all the above goes to plan?

 

$1.5m x 7% = $105,000 but this is before costs. If costs are 25% then you would be left with $78,750 pre-tax.

Did you factor in CGT too? And buying and selling costs.

 

Let's say you bought 5x$500k properties.
At 4% yield, per property, you get income of $20k+$5 tax back (lots of assumptions behind that), and expenditure of $22k interest and $9k other. So you are out of pocket $31k-$25k = $6k x 5 properties = $30k per year, or $300k over 10 years.
They increase to $4m and you sell. $4m - $2.5m = $1.45m (or about $290k per property after selling costs). With some large assumptions (stable IO interest rates, selling 5 over a number of years not all in one year, etc) then the CGT = $1.45m * 0.5 * $0.47 MTR = $340k, leaving you with about $1.11m in the hand. Oh, and you've paid out $300k over the years just to hold the properties, but for I'll ignore that elephant.
So you have about $1.11m to invest.
Except that inflation means that $1.11m in future dollars buys the equivalent now of what you see and could buy for $867K.
Now inner city tends to go up faster than the burbs, so you may only be looking at buying the equivalent of what you could find now in the inner city for $700-750k.
So at 7% yield, you are taking home $1,000pw (ignoring tax), or $826pw after tax if you're paying it and that's your only income (and tax rates remain the same!).

 

Thanks for this!

 

Helpful and straight forward strategy - feel there is plenty that can be bolted into this. Thanks for this

 

My general plan is quite similar to this however I don't want to be limited to stopping at $2.5m. Having $2.5m worth of property in order to generate passive income for retirement, absolutely. I'm curious on your thoughts though, I plan to continue acquiring so long as I am able to do so without losing too much sleep?
By building my leveraged asset base, increasing risk spread and enhancing overall capital growth opportunities this would potentially give me the option to sell down excess assets (above the originally sourced $2.5m) to pay off debt/retire sooner?
This plan makes sense to me but I am keen for comment. Feel the above still allows adaptability as well as bolts more opportunity into what I can only assume will be an investing journey of ups and downs.

I figure, if you can keep acquiring without huge impacts on current household cashflow, why not boost your chances of being able to retire (or not) sooner?

 

I don't have clear written goals, other than to be in a better place than if I did nothing. My plan is to go hard and buy as many as I can then change the plan then

 

Your last statement is what I continually throw around in my mind every day.

Again there has to be some sort of plan when aquiring.

For me to plant the seeds for $100k net passive in 10 years I would need to add another 6 $400k IPs.

Assuming neutral or slightly negative and 5% growth per year, the idea will be to sell 3 in 10 years to lower debt.

This brings me to a total of 9 IPs now and 6 unecumbered in 10 years (including the 3 I have now)

Approx $130k before tax passive.

Seems like a long way to go.

 

is there more info about strategy a?

 

There is a lot out there. I have written many posts about this, some of which might be in my tax tips or strategies threads

Index of Tax Tips Terry's Tax Tips

Index of Strategies Terryw's Structuring Strategies

 

I would like $20,000 a month when I retire. So I need to make $240,000 a year. I need 5-8 properties to generate that amount of rent...

 

That is a very large amount.
Consider how much quicker you could retire if your goal was just $10,000 per month.
It would take much less than half the time to get there.

 

It’s doable. In Sydney I just need 5 properties

 

I'm settling the last piece of my own puzzle on Monday.

Probably not the last, but the cake is baked, everything from here is decoration!

 

Its doable for sure, but 5 properties in Sydney fully paid off takes a long time. 2.5 would be much quicker!

 

True true.