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Newbie-hi, just retired on equity

Discussion in 'Introductions' started by Dunsborough, 9th Jan, 2007.

  1. Dunsborough

    Dunsborough Active Member

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    Hi i am new to any forums
    I am a 47yo male
    I am in Bunbury Western Australia
    I have 2 IP and PPOR
    Like many people i am blessed to have had property in the recent boom and also lucky to have a lvr of about 23%
    Partialy due to health but mainly lifestyle i have taken the decision to retire and live by "harvesting" equity.
    Living this way and having increasing levels of debt goes against every thing i was taught as a kid (by very conservative poor parents) but i am happy to pay myself a moderate "Drawing" each year and still know that growth even at low levels will more than cover my drawings and expenses.
    I would love to buy more and harvest more equity in years to come but there comes a point where extreme negative cashflow without tax benefits makes me hold back.
    Anyway thats me, hello everyone
     
  2. Simon Hampel

    Simon Hampel Co-founder Staff Member

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    Welcome Dunsborough ... you do realise of course that you are about to be grilled by every member for details about how you have retired on equity ? :D
     
  3. Dunsborough

    Dunsborough Active Member

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    Thanks Sim, Slow and steady and paid myself first over many years :)
     
  4. Triu

    Triu Well-Known Member

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    Well Done! Good on you well only 15 years left more to retire also!
     
  5. Giddo

    Giddo Active Member

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    Well ?????????
     
  6. Smartypants

    Smartypants Well-Known Member

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    Hi Dunsborough and welcome.

    So, are you living off equity from just 2 I/P's??
     
  7. Simon Hampel

    Simon Hampel Co-founder Staff Member

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    2 IPs and a PPOR it seems.
     
  8. Nigel Ward

    Nigel Ward Team InvestEd

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    I guess the question is not how many IPs (altho that's a guide), the question is how much equity?

    I'm purely speculating here, so I hope DunsB doesn't take offence...But if the 3 properties are in Perth at a median of approx $500k then that'd be $1.5m assets.

    On 23% LVR that'd leave equity of approx $1.2m.

    Is that enough? I suppose it depends on one's income/lifestyle needs.

    DunsB mentions "moderate" drawings...perhaps he's a man of simple pleasures :D

    Anyway, Dunsborough welcome to the forum and well done on your achievements to date!

    Cheers
    N.
     
  9. Jenny

    Jenny Well-Known Member

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    Wow great achievement at your age.

    We plan to do similar thing in 2 years time.

    Is it too personal to gently enquire what you are anticipating your needs financially be for 12 months? Are there one of you or you + 1?

    Not a grilling as such, just a gentle saute!

    cheers
    Jenny
     
  10. Dunsborough

    Dunsborough Active Member

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    Hi Again Thanks for all the welcome messages and you are all pretty much spot on
    My Properties are coastal, 2 with ocean views, (Bunbury WA)1 a stones throw away (the most valuable in Dunsborough)
    I am a single man quite happy to live on 35-40k
    Nett equity excluding PPOR is about 1.1m, with PPOR about 1.6m
    About $130k Super which not much, but helps once i 55

    Idealy i would have worked another 5-8 years and felt more secure re a prosperous retirement but i feel by being careful i will be ok.
    Growth has been fantastic after many pretty flat years.
    I always had the investment knowledge and mindset, but most of my adult life i have had very low wages, so when i had a period of about 8 years on the so called "average" wage i grabbed the opportunity to build some wealth or "super" as i referred to when talking with older relatives.

    I believe my task now is as i am still slightly negatively geared but with no ongoing taxable income to speak of is to possibly seek out income producing equities and managed funds, showing preferably as fully franked as possible and even some small yearly capital gains. That is where knowledge from this site may help me, ie the navra way etc

    Thanks again everyone
     
  11. Simon Hampel

    Simon Hampel Co-founder Staff Member

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    I think you are in a great position with that equity - with some carefully selected shares/funds I think you could increase your income significantly and be quite comfortable.
     
  12. Dunsborough

    Dunsborough Active Member

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    Hi again
    While i am not seeking financial advice, would love to hear from anyone in and around my age group with similar circumstances re the type of income producing scenarios they have pursued?

    if i should now pursue on another area, please say and i will move to another area?

    cheers
     
  13. Simon Hampel

    Simon Hampel Co-founder Staff Member

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    First question would be - approx how much income do you need to A) cover your holding costs, B) improve your lifestyle ?

    I think you could easily work on a minimum 10% return from managed funds (eg Navra) - so if you needed/wanted, say, $80,000 pa to cover costs and enjoy your lifestyle, then you would need to invest around $800,000 into the managed funds to achieve this (not taking tax into account).

    If you wanted more - that's achievable too.

    Let's say you decided to only draw down $800K worth of equity, along with a 50% margin loan, gives you $1.6m to invest.

    Assuming you can get an average of, say, 12% return on your money over the long term (you've enough buffer to keep you going through slower or negative periods - so I think this is quite achievable), and interest costs at 9%, then you have annual returns of $1.6m * 12% = $192Kpa, minus interest $800K * 9% = $72Kpa, which makes a net (before tax) income of $120Kpa.

    That's a pretty conservative outcome I think ... 12% return long term from a good selection of managed funds is very achievable in my opinion.
     
    Last edited: 10th Jan, 2007
  14. Jenny

    Jenny Well-Known Member

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    Thanks for being so frank Dunsborough, we are a couple and feel (at the moment) that we need a minimum of $80k net to live on. More of course is better.

    We used equity from our ppor and holiday shack to invest in Navra Retail Fund (2 1/2 years now) and have been very pleased with the results. The conservative nature of the fund appeals to our SAN factor.

    For the more adventurous however there is more then one way to skin a cat.

    Cheers Jenny
    (we also now have shares in the company.)
     
  15. Leandro

    Leandro Well-Known Member

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    I think you meant ;

    $1.6m * 12% = $192Kpa
     
  16. Simon Hampel

    Simon Hampel Co-founder Staff Member

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    Oops - fixed, thanks.
     
  17. Dunsborough

    Dunsborough Active Member

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    hey guys thanks and anyone else i will appreciate scenarios you may have
    I have to do something soon, Reckon 40k income pa preferably franked and little bit of growth. I have the titles to two of three properties so have some negotiating power. Do most people gear or ramp up further by using margin loans or are there people content to just buy in to funds from their loc or whatever variation of equity finance they have

    cheers
     
  18. TryHard

    TryHard Well-Known Member

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    Hi Dunsborough and welcome

    My wife and I put all spare equity thru the NavraInvest fund the last couple of years and like Jenny have been very pleased with the results and the SANF.

    I constantly congratulate myself I ignored some of the 'naysayers' on other forums and look at the five-figure income we would have missed out on if we had been too concerned about some of the 'Navra bashing' that arises from time to time.

    Having said that, we're now on a mission to try to understand how to best diversify, as I am sure a lot of people are, but still pretty committed to the Navra way and to the "property for growth, shares for income" approach.

    Whether we would put everything in NI or look at some of the many options discussed on here remains to be seen. We now don't have much equity that can be freed up having just built a PPOR which seems to keep eating up spare cash. I think a secret to investing is to draw the line at how good a place you are prepared to live in and stop spending - something we haven't quite perfected :(

    We have found NI remained well suited to the type of 'investors' we are - unsophisticated 'mum and dad' investors with an interest in property and a fear of losing everything through lack of experience and knowledge in sharemarket. For whatever people say, the fund has continued, so far, to reliably deliver exactly what Steve promised it would.

    I have no doubt a single guy could live real well on $40K per annum. On the meagre allowance I'm given by the boss, I can only long for the days of money that I know will still be in the account when I go to look tomorrow !

    Best of luck on your journey
    Carl
     
  19. coopranos

    coopranos Well-Known Member

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    I may be missing something in your sums here but...
    Draw down 800k @ say 7.5% (interest pa = $60,000)
    Margin loan of 800k @ say 8.5% (interest pa = $68,000)
    Total Interest Expense per annum = $60k + $68k = $128,000
    Return on 1.6M @ 12% = $192,000
    Net return = $64,000
    Income tax = ~$15,000
    Net annual income = $49,000
    (ignoring the negatively geared properties, may make tax a little lower, but also will decrease your net result). I think you missed 1 lot of interest!
    Still, not a terrible option, plus all your assets still grow for you rather than ripping out your equity, and you also (hopefully) get growth on both your properties AND your managed funds (hopefully!!).
    Another option than managed funds may be to dump it all in Telstra shares - they are fully franked and have about the safest dividend in Australia (obviously past performance is no guarantee etc etc), but you will could achieve a slightly better after tax result.
    Personally if I were in your situation, I would leverage off the equity in your property to go for income assets (managed funds/shares/etc). You can get a fairly liveable income (depending on your hobbies!), and let your assets compound for you for a few more years. Say you sit on that ~$50k for 10 years, chances are likely in that time you will be sitting on about $3M equity, which could either double your income (using the above leveraging into managed funds) or make your living off equity plan even more attractive.

    Dont know what to do for 10 years? take your $49k to south east asia and live like a god, get yourself a maid/chef/cleaner, rent a beautiful house near a beach, and get freaking awesome at golf! Not sure what your objectives are, but it could also open the way for some charity work or something if that does it for you.

    Obviously just suggestions, full complements to you for achieving what you have, I hope retirement is everything you dreamed it would be!
     
  20. handyandy

    handyandy Well-Known Member

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    The income would be in the vecinity of $48k rather than $120k. The reason is that the LOC interest needs to be serviced.


    Still enough to meet your aims;)

    By the way I use this method to finance my 'retirement' having finished 'work' at 50.

    Cheers

    Sorry, beaten to the punch by Coopranos.