Working out your end goal

Hi guys,

I’m trying to figure how much unencumbered property (in value terms) I need to reach my end goal of $100,000 passive.

Taking into account expenses and taxes etc does the following look correct to achieve 100,000 net per annum?

• Have $4.2 mill in debt free property
• Assuming a 5% rental yield will give you $210,000 per year gross
• 30% of income goes towards expenses – rates, insurance, maintenance etc leaving you with $147,000 before tax.
• Tax on $147,000 (using an online calculator) is $44,962 (income tax and Medicare) leaving you with the end goal of $102,038 passive per annum

Does this look correct or am I missing something?

Thanks in advance

 

Using Taxcalc.com.au it seems you need around $144,000 in gross income to end up with $100,000 after tax.

Assuming 4% yield you would divide $100,000 by 4% to give you $2.5 mil.

So to get $100,000 income after tax you will need $2.5mil in unencumbered property that yields 4% after expenses.

 

Hopefully you will be structured to split that income with your spouse. So the $44k tax liability is reduced to $32,774 simply by having the same income spread over two people and not one.

 

And this could shave years off your worklife!

 

Thanks for the replies. I didn't factor that in about income being split between two people

 

Our current properties are split 50% each. Looking forward, we will look to purchase in single names

 

If the property example had QS deductions it would have very different outcomes to one without. eg a row of industrial units has very different capital allowances to a free standing home.

Commercial property can also be attractive as outgoings are all tenants expenses incl land tax.

 

Hi Paul, thanks for the reply. For the time being my focus is residential and I was trying to map out for residential. My current properties have QS deductions, but i wanted to exclude and treat as an added bonus

 

If you earn income that is taxed, you cant. It enhances earning?

Property should always be considered in terms of capital growth also. A property yield will vary from year to year with vacancy, repairs and other issues. Given that most gross yields are less than the prevailing rate of interest a net yield of a few percentage is normal and thats without borrowings. NOBODY would invest in property unless growth was a factor.

Also what is your horizon. Five years or twenty. Any property will change over that period of time. Property Investment Analysis software (PIA) from old somersoft site may assist.

 

Sorry Paul I didn't write that correctly. I meant that this is 30+ year plan where this would be my income - retired from workforce. In the meantime, I will continue to claim every deduction I can and will do so once I retire

 

Hi Paul, thanks I'll look into the PIA software. I'm under 30 so I have a 30 year timeframe for retirement. When working out current value of future money, what discount rate would you use?