Living on Equity Spreadsheet

Quite an interesting thread, indeed!

I downloaded the first "Living on Equity" spreadsheet, v1.0 I think and tinkered around with it nicely. Then I noticed further down the thread, an updated version. Then I noticed further down the thread, an updated version. Then I noticed further down the thread, an updated version. Then I noticed further down the thread, an updated version. Then I noticed further down the thread, an updated version. Then I noticed further down the thread, an updated version. Then I noticed further down the thread, an updated version.

Yes, I did mean to put that same sentence there a heap of times, reflecting the heap of updates to the spreadsheet!!! (I now have about 12 copies in my directory)

I would just like to thank those who contributed to the updates to make it into what it is for the final version (is it final?). I was surprised to see how "well" I have done to date..... more to go though!

Andrew.

 

Micheal Whyte,

I don't get involved with the forum ( I only read), but in this case your calculations to your situation are very good.
With all your debt, your structuring is first class.
With loans of one point three million you repay virtually nothing. Top job !

I should use you as my financial adviser, and sack the ******* I'm paying a fortune to.

fred.

 

Mike,

Thanks for the spreadsheet, it saves me having to create one.

Ofcource we could add more features and one we might want to consider adding, is income from Super.

As we get closer to retirement age we are allowed to start taking out money from our super. It's not an option for me atm but it's good for those over 60 as money coming from their super is tax free.

Something to think about...

Cheers

 

Just a point, I think the interest rate assumptions are a little lean in the spread sheet.

8.5% is the standard variable rate today and 9.5% for margin lending.

This is where I see this LOE will fall over, is it only really works in a low interest rate environment.

Some economists predict interest rates over 9% for housing in the next 6 months. Since the average capital growth over the long term for housing is 8% PA, I don't see how LOE will work.

 

crc_error: property value $2M. Loans $1M. each @ 8% a year. Do the math.
Also look at the date this was posted.
Also, you have forgotten (surprisingly) that although the GROWTH of property may be 8%, if you have a YIELD of 4% then it is net of 12%.

 

You have a low LVR, so it will work well.. I'm just saying if your geared to the hilt, minor interest rate rises will alter the outcome significantly making the profit margin slimmer and slimmer.

If your paying 10% interest on borrowed money only making 11%, then thats a pretty tight margin!

But if the share market continues with stella returns, then it works well.

 

OK,

Here's a revised version with some accurate interest rates as at today, and actually tweaked for my personal situation at present. I'm still pretty much cash flow neutral on investments and that assumes only 10% returns from my income managed funds.

Once I develop Mona Vale, the numbers go crazy. I think my annual income from LOE goes to over $200K and the actual total return from the portfolio jumps to over $300K pa. LOE starts to look viable in that situation.

Cheers,
Michael.

 

Michael, where do you get the 800k for the shares? Did you draw that down from your PPOR? you say you have a 850k debt against the shares? What sort of debt is this?

I would assume if you draw this down against your PPOR you should show the debt again the house, and only list margin loan debt in the 'shares debt'..

 

Quite right.

I was getting a bit lazy in aportioning the debt at the correct rate. But this was overstating my interest expense because it was showing all against the margin loan rate, and not some of it against the property (LOC) rate.

Here ya go. Fixed up and now showing me a few thousand better off and actually slightly positive on my cash flow from investments. So, I'm actually marginally positive cash flow and growing at $125K pa. Not too shabby for a start...

Cheers,
Michael.

PS The reason the margin loan is at $550K is because of $50K capitalised interest on the original $500K loan.

 

Hi Michael,

Could you please explain the part about "Total Position" in your spreadsheet. I'm new to this therefore a bit naive about the whole thing...it is a learning curve for me.
eg:

Total Position

Passive Income $23,490
Capital Growth Income $96,915
Total Income $120,405 pa

Capital Growth left in portfolio $52,185 pa
Total Return of balanced Porfolio $172,590 pa
ROE (1) 11.0% pa

Is this a good position to be in?


Thanks!

MM.

 

Michael,
If you are going to capitalise your interest on the margin loan, then your cash flow would actually increase by 47300 as you are not actually paying that money out, but still getting a lovely tax deduction
Only your LVR is suffering as a consequence

 

I'm just trying to get my head around this LOE..

Looking at the final spreadsheet, you state a 16% return on equity.. correct me if I'm wrong, but that return isn't really that spectacular? am I missing something?

 

Quite right! Lazy again...

To be honest, LOE is not part of my strategy. I just plugged my numbers in the spreadsheet to see what it looked like. I haven't tweaked the spreadsheet to allow for capitalising of interest costs, so it assumes they're all paid for in the year they're incurred. No biggie. I looked at this more from an "investigation" perspective than an "implementation" one. Just doing it out of idle interest. My actual retirement plan spreadsheet is a lot more robust and is based on spending net passive income and using no LOE. I do however draw the growth in value on my properties out and margin it at 50% into managed funds annually, thereby maintaining my property LVR at 80%. But that's a whole other discussion and not one for this LOE thread.

Cheers,
Michael.